tlantic Specialty Ins Co Homeland Ins Co of NY Homeland Insurance Company DE OBI National Insurance Co ssociated With: White Mountains Insurance Group Ltd ONEBECON INSURNCE GROUP Exec/dmin: 601 Carlson Parkway, Suite 600 Minnetonka, MN 55305 Web: www.onebeacon.com Tel: 781-332-7000 Fax: 781-332-7904 MB#: 018458 ssociated Ultimate Parent#: 058167 RECENT DEVELOPMENTS In October, 2012, OneBeacon Insurance Group Ltd. (OneBeacon Group; NSDQ: OB) announced that a definitive agreement had been signed under which Trebuchet US Holdings, Inc., a subsidiary of rmour Group Holdings Ltd., will acquire all outstanding shares of OneBeacon Insurance Company, OneBeacon merica Insurance Company, Northern ssurance Company of merica, Employers Fire Insurance Company, Camden Fire Insurance ssociation, OneBeacon Midwest Insurance Company and Traders & General Insurance Company from OneBeacon Insurance Group LLC, a subsidiary of OneBeacon Group. Effective ugust 1, 2013, Northern ssurance Company of merica and OneBeacon Midwest Insurance Company merged with OneBeacon merica Insurance Company. lso on ugust 1, 2013, Camden Fire Insurance ssociation and Traders & General Insurance Company merged with OneBeacon Insurance Company. The ratings of the companies subject to sale under the definitive agreement were placed under review and will remain under review until the close of the transaction and the completion of.m. Best s analysis of its impact on the companies ratings. The transaction is expected to close in the second quarter of 2014. Until the close of the transaction, the companies continue to derive their ratings from other affiliated reinsurance agreements. RTING RTIONLE Rating Rationale: The ratings apply to tlantic Specialty Insurance Company and its three reinsurance affiliates; Homeland Insurance Company of New York, Homeland Insurance Company of Delaware and OBI National Insurance Company, as well as three the companies listed below, as well as seven affiliates whose sale is currently pending: OneBeacon Insurance Company, OneBeacon merica Insurance Company, and Employers Fire Insurance Company (collectively, OneBeacon Insurance Group). The ratings reflect the group s sound level of risk-adjusted capitalization, solid earnings through generally favorable underwriting and operating performance, and the financial flexibility of OneBeacon Group, in which White Mountains Insurance Group, Ltd. (NYSE: WTM), owns a majority interest. These positive rating factors are partially offset by historical adverse development of its run-off operations (which are being sold to Trebuchet US Holdings, Inc.), the payment of significant shareholder dividends which have constrained growth in surplus and the elevated level of equity investment which, well-managed, adds volatility to the group s earnings and balance sheet. In addition,.m. Best remains somewhat concerned by the risk inherent in pursuing a more 2013.M. Best Company, Oldwick, NJ 08858 Printed October 28, 2013 www.ambest.com Page 1 of 5
concentrated business strategy following the sale of OneBeacon s personal lines and standard commercial lines business. Despite these concerns, the outlooks reflect.m. Best s expectation that the group will continue to generate solid operating results through favorable underwriting performance and steady investment income and capitalization will be maintained at levels fully supportive of the ratings. OneBeacon s capitalization is enhanced by the protection afforded through a loss portfolio transfer (LPT) of &E and other mass tort reserves to National Indemnity Company (NICO), with approximately $200 million of unused protection available through this cover. OneBeacon s gross exposure to &E and other mass tort liabilities together with the NICO LPT will be sold as part of the sale of its runoff operations. Operating results have benefited from disciplined underwriting, strong claims management processes and management s proven ability to move profitably into unique specialty niches. Moreover, the group is afforded additional financial flexibility by OneBeacon Group, which maintains cash and short-term funds that exceed fixed cash obligations, including shareholder dividends. Financial leverage remains at a moderate level with adjusted debt-totangible capital of approximately 21% as of June 30, 2013. Future positive rating actions may result from the group s continued profitable underwriting and operating performance. However, negative rating actions could result if operating performance falls markedly short of.m. Best s expectations along with weakening of the group s risk-adjusted capitalization. Outlook: Stable RTING UNIT MEMBERS OneBeacon Insurance Group (MB# 018458): Best s MB# Company FSR 012666 tlantic Specialty Ins Co 010604 Homeland Ins Co of NY 014398 Homeland Insurance Company DE 014397 OBI National Insurance Co KEY FINNCIL INDICTORS ($000) Net Pre-tax Total Policy- Premiums Operating dmitted holders Comb. Year Written Income ssets Surplus Ratio 2008 1,516,773 147,354 3,964,854 1,246,109 95.6 2009 1,482,588 226,151 4,013,341 1,437,074 94.2 2010 895,276 160,578 3,077,446 956,788 107.5 2011 991,428 67,831 2,762,466 942,740 96.6 2012 1,217,563 41,222 2,840,092 883,588 99.7 (*) Data reflected within all tables of this report has been compiled through the.m. Best Consolidation of statutory filings. BUSINESS PROFILE OneBeacon Insurance Group was acquired by White Mountains Insurance Group, Ltd. (White Mountains), from viva plc (viva) in 2001, and as of December 31, 2012, White Mountains currently maintains approximately 75% ownership interest in OneBeacon Group s outstanding common shares, comprised primarily of all of OneBeacon s Class B shares, which are not publicly traded. OneBeacon s operating companies are U.S.-based property and casualty insurance writers. The group historically offered a range of specialty, commercial and personal products and services; however, in 2010, OneBeacon completed two transactions that represented significant steps toward focusing solely on specialty lines. Effective January 1, 2010, OneBeacon sold the renewal rights to its non-specialty commercial lines business to Hanover Insurance Group. This transaction included small commercial accounts and the non-specialty portion of the middle-market business. Effective July 1, 2010, OneBeacon sold its traditional personal lines business to Tower Group, Inc. The personal lines transaction included two insurance companies, Massachusetts Homeland Insurance Company and York Insurance Company of Maine, which operated the majority of the personal lines business. In February 2012, OneBeacon completed the sale of its non-standard personal lines business operating as utoone. The sale included two insurance companies utoone Insurance Company and utoone Select Insurance Company. In October 2012, OneBeacon announced that it had entered into a definitive agreement to sell its run-off business to an affiliate of rmour Group Holdings Limited. OneBeacon will transfer to rmour certain legal entities containing the assets, liabilities and capital supporting the run-off business. The transaction is subject to regulatory approval and is expected to close in the second quarter of 2014. In anticipation of the transaction with rmour, and as means to separate the run-off business from the ongoing specialty business, OneBeacon sought and received various regulatory approvals to terminate, incept or amend various intercompany reinsurance agreements which took effect on October 1, 2012. Principal among these agreements was the termination of the intercompany pooling agreement. In lieu of the intercompany pooling agreement, various 100% quota share reinsurance agreements were entered into in order to segregate between run-off business and specialty business. Effective October 1, 2012, the various legal entities included in the sale to rmour cede 100% of their direct underwriting activity to OneBeacon Insurance Company (OBIC), which retains the run-off business and then cedes 100% of the specialty business to tlantic Specialty Insurance Company (SIC). Legal entities not included in the sale cede 100% of their direct underwriting activity to SIC, which retains the specialty business and then cedes 100% of the run-off business to OBIC. The group s specialty lines business is focused on highly customized and unique segments. International Marine Underwriters offers products that provide coverage for physical damage or loss, general liability for cargo and commercial hull, both at primary and excess levels, marinas, including a package product offering comprehensive property and liability coverage and yachts. OneBeacon Professional Insurance (OBPI) specializes in professional liability insurance products for a broad range of industry groups. OBPI s original focus on healthcare-related liability insurance continues, while expansion into non-healthcare-related liability insurance segments has increased over the last five years, including law firms, in-house counsel, design professionals and media organizations. Tuition reimbursement products are sold through.w.g. Dewar (Dewar). Dewar s products protect both schools and parents from the financial consequences of a student s withdrawal or dismissal from school. Effective January 1, 2013, One Beacon sold Essentia Insurance Company, which writes collector car and boat business, to Markel Corporation and terminat- 2013.M. Best Company, Oldwick, NJ 08858 Printed October 28, 2013 www.ambest.com Page 2 of 5
ed its underwriting agreement with Hagerty Insurance gency. s a result of these transactions, OneBeacon began the run-off of its collector car and boat business. 2012 BY-LINE BUSINESS ($000) Reinsurance Product DPW Prem ssumed Line ($000) (%) ($000) (%) Oth Liab CM.................... 171,012 14.2 34,171 83.8 Ocean Marine................... 127,547 10.6 4,729 11.6 uto Physical................... 116,677 9.7-1,291-3.2 Oth Liab Occur.................. 115,649 9.6 219 0.5 Med Prof Liab CM............... 107,197 8.9 9,422 23.1 Group & H................... 103,510 8.6 2,604 6.4 Inland Marine................... 103,113 8.6 0 0.0 Com l MultiPeril................. 79,792 6.6 765 1.9 Workers Comp.................. 73,193 6.1 684 1.7 Credit.......................... 51,932 4.3 1,408 3.5 Comm l uto Liab............... 41,309 3.4-1,600-3.9 Fire........................... 44,108 3.7 422 1.0 ll Other....................... 70,689 5.9-10,744-26.3 Total.......................... 1,205,725 100.0 40,788 100.0 Reinsurance Business Product Prem Ceded NPW Retention Line ($000) (%) ($000) (%) (%) Oth Liab CM................ -789-2.7 205,972 16.9 100.4 Ocean Marine............... 8,743 30.2 123,533 10.1 93.4 uto Physical............... -1,508-5.2 116,894 9.6 101.3 Oth Liab Occur.............. 2,310 8.0 113,558 9.3 98.0 Med Prof Liab CM........... 5,435 18.8 111,184 9.1 95.3 Group & H............... -3,839-13.3 109,953 9.0 103.6 Inland Marine............... 3,128 10.8 99,984 8.2 97.0 Com l MultiPeril............. 5,345 18.5 75,212 6.2 93.4 Workers Comp.............. -528-1.8 74,405 6.1 100.7 Credit...................... -3,118-10.8 56,458 4.6 105.8 Comm l uto Liab........... -1,188-4.1 40,897 3.4 103.0 Fire....................... 11,172 38.6 33,358 2.7 74.9 ll Other................... 3,788 13.1 56,157 4.6 93.7 Balance Sheet dmitted ssets ($000) 12/31/2012 % Bonds............................... $1,591,220 56.0 Preferred stock........................ 84,573 3.0 Common stock........................ 232,314 8.2 Cash & short-term invest................ 185,078 6.5 Other non-affil inv asset................. 140,130 4.9 Investments in affiliates.................. 37,689 1.3 Real estate, offices..................... 47,577 1.7 Total invested assets.................. $2,318,580 81.6 Premium balances...................... 238,433 8.4 ccrued interest....................... 10,985 0.4 ll other assets........................ 272,095 9.6 Total assets......................... $2,840,092 100.0 Liabilities & Surplus ($000) Loss & LE reserves.................... $1,104,508 38.9 Unearned premiums.................... 562,854 19.8 Conditional reserve funds................ 3,417 0.1 ll other liabilities....................... 285,725 10.1 Total liabilities........................ $1,956,504 68.9 Capital & assigned surplus............... 216,751 7.6 Unassigned surplus..................... 666,837 23.5 Total policyholders surplus............. $ 883,588 31.1 Total liabilities & surplus................ $2,840,092 100.0 Total....................... 28,950 100.0 1,217,563 100.0 97.7 HISTORY OneBeacon Insurance Group s history in the United States dates back to the 1800s. Following the June 2, 1998, worldwide merger between Commercial Union plc and General ccident plc, the former Commercial Union and General ccident companies became owned by one U.S. holding company, CGU plc. On June 1, 2001, White Mountains Insurance Group, Ltd., purchased CGU plc for $2.1 billion and created the OneBeacon Insurance Group. OneBeacon Insurance Group, Ltd., executed an initial public offering in November 2006. Prior to the offering, a new Bermuda holding company (OneBeacon Group) was formed, a portion of whose common shares were offered and sold in the IPO. White Mountains retained control of OneBeacon Group subsequent to the IPO through ownership of the Class B common shares, which comprised approximately 72% of the common interest, with the remaining 28% owned by outside (public) shareholders. White Mountains currently maintains an ownership interest of approximately 75% in OneBeacon Group. 2013.M. Best Company, Oldwick, NJ 08858 Printed October 28, 2013 www.ambest.com Page 3 of 5
FINNCIL SUMMRY ($000) as of 12/31/2012 Policyholders Surplus..................... $ 883,588 Direct Premiums Written................... $ 1,205,725 Combined Ratio.......................... 99.7 Net Underwriting Income.................. $ -27,842 Net Investment Income.................... $ 65,724 2013.M. Best Company, Oldwick, NJ 08858 Printed October 28, 2013 www.ambest.com Page 4 of 5
Why is this Best s Rating Report important to you? Rating Report from the.m. Best Company represents an independent opinion from the leading provider of insurer ratings of a company's financial strength and ability to meet its obligations to policyholders. The.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of insurance companies since 1899. The Best's Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of an insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. Best's Financial Strength Rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. The company information appearing in this pamphlet is an extract from the complete company report prepared by the.m. Best Company. Best's Financial Strength Rating is assigned after a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile. Best's Financial Strength Ratings are assigned according to the following scale: Secure Best's Financial Strength Ratings ++ and +...........................Superior and -.............................Excellent B++ and B+.............................Good Vulnerable Best's Financial Strength Ratings B and B-.................................Fair C++ and C+..........................Marginal C and C-................................Weak D.......................................Poor E..................Under Regulatory Supervision F...............................In Liquidation S............................Rating Suspended For the latest Best's Financial Strength Ratings and MB Credit Reports visit the.m. Best web site at www.ambest.com. You may also obtain MB Credit Reports by calling our Customer Service department at +1-908-439-2200, ext. 5742. To expedite your request, please provide the company's identification number (MB #). 2013.M. Best Company, Oldwick, NJ 08858 Printed October 28, 2013 www.ambest.com Page 5 of 5