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Player Avatar TrackZacks (< 20) Submitted: 10/9/2012 5:26:10 PM : Underperform Start Price: $511.94 WTM Score: -4.52

Rating Action on White Mountains
By: Zacks Equity Research
October 09, 2012

Rating Agency A.M. Best & Co. has affirmed the issuer credit rating (ICR) of White Mountains Insurance Group, Ltd. (WTM) at “bbb.” The rating agency also affirmed the ICR at “bbb,” along with the debt ratings, of White Mountains' publicly traded subsidiary – OneBeacon Insurance Group, Ltd. (OB) – and OneBeacon’s subsidiary – OneBeacon U.S. Holdings, Inc. (“OB Holdings”).

Additionally, A.M. Best affirmed the financial strength rating (FSR) at “A” and ICR at “a” of OneBeacon Insurance Company and its six pooled and four reinsured affiliates, all of which are subsidiaries of OB Holdings. The rating agency also conferred an FSR of “A” and ICR of “a” to the recently created subsidiaries of OneBeacon Insurance Company – OBI National Insurance Company and Homeland Insurance Company of Delaware.

Further, A.M. Best affirmed the FSR of Potomac Insurance Company – an insurance subsidiary of OneBeacon Insurance Group, which has been placed in runoff – at “B++” and ICR at “bbb+.” All the above mentioned ratings carry a stable outlook.

A.M. Best affirmed the ratings of White Mountains, OneBeacon Insurance Group and OB Holdings on the basis of the impressive financial flexibility and the strong operating results of the operating subsidiaries of these companies. Further, the rating agency affirmed the ratings of OneBeacon Insurance Company and its affiliates due to their strong operating and underwriting results, which led to robust earnings, along with their exemplary risk-adjusted capitalization and the financial flexibility of OB Holdings and OneBeacon Insurance Group.

However, these positives of OneBeacon Insurance Company and its affiliates were partly offset by the unfavorable loss reserve development in their runoff business. The risk associated with reduced diversification due to the divestiture of the personal and standard commercial business lines also adversely affected the ratings. However, this risk was more or less counterbalanced by the profitability of the specialty business.

While the stable outlook on the ratings indicates low possibility of revision in the near future, prolonged sturdiness in the underwriting and operating results could lead to an upward revision in ratings. On the other hand, below expectation underwriting and operating performance and deterioration in risk-adjusted capitalization could lead to a downward revision.

White Mountains currently carries a short-term Zacks #4 rank (Sell) while OneBeacon carries a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on both companies.

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