Fitch: OneBeacon's Ratings Unaffected by Sale of Personal Lines Business

CHICAGO--(BUSINESS WIRE)--OneBeacon Insurance Group, Ltd.'s (OneBeacon) announced transaction for the sale of its traditional personal lines business to Tower Group, Inc. does not affect the ratings on OneBeacon, its subsidiaries or its parent company White Mountains Insurance Group, Ltd. (White Mountains; 75.4% ownership of OneBeacon) and its subsidiaries, according to Fitch Ratings. The Rating Outlook remains Negative.

OneBeacon announced yesterday that it reached an agreement to sell its traditional personal lines business to Tower Group, Inc. This business consists of automobile, homeowners and package personal lines products, as well as two insurance reciprocals, New Jersey Skylands Insurance Association and Adirondack Insurance Exchange, but excludes AutoOne, a limited assigned distribution/commercial servicing carrier for assigned risk plans and take-out business. The sale also includes several legal entities, including two insurance operating companies, York Insurance Company of Maine and Massachusetts Homeland Insurance Company. Fitch expects to withdraw the ratings of these companies upon completion of the transaction.

This transaction follows the renewal rights sale on the majority of OneBeacon's commercial lines business to The Hanover Insurance Group, Inc. (Hanover), effective Jan. 1, 2010. The combination of these transactions accelerates OneBeacon's strategic shift to focus on more specialized businesses, with the company's remaining business predominately consisting of its diversified specialty lines book. As a result, OneBeacon's annual ongoing net premium base will decline considerably, from about $1.9 billion to $1 billion. While this will reduce the company's overall premium size and product diversification, it will also significantly reduce its catastrophe risk and decrease its geographic concentration in the Northeastern U.S. Furthermore, the specialty lines business generally has a more profitable underwriting profile for OneBeacon than the commercial or personal lines businesses, which typically require greater scale to achieve adequate returns over time.

Fitch views this transaction as consistent with White Mountains' and OneBeacon's strategy of continually evaluating the best use of its financial resources and actively managing and deploying its capital with an opportunistic approach. As such, the company will sell those businesses that either do not fit within the core operations of the company or still have value to other companies/buyers as entities or renewal rights in excess of White Mountains' assessment of their value. The transaction will free up capital that previously supported the personal lines business writings, providing financial flexibility that OneBeacon could use to support additional specialty lines businesses, debt reduction, dividends or share repurchases. However, Fitch expects that OneBeacon will continue to maintain a level of insurance company capitalization that is consistent with the current ratings.

The Negative Outlook reflects Fitch's view that near-term conditions in the financial markets continue to have the potential to cause volatility within operating results. If the company suffers significant losses, the ratings could be lowered. However, if White Mountains is able to continue to improve its operating earnings and generate consistent internal capital growth in the near to intermediate term, the Outlook could be revised to Stable.

Fitch currently rates White Mountains and its subsidiaries as follows:

White Mountains Insurance Group, Ltd.

--Issuer Default Rating (IDR) 'BBB+'.

OneBeacon U.S. Holdings, Inc.

--IDR 'BBB+';

--$607 million 5.875% due May 15, 2013 'BBB'.

White Mountains Re Group, Ltd.

--IDR 'BBB+';

--$400 million 6.375% due March 20, 2017 'BBB';

--$250 million perpetual non-cumulative preference shares 'BBB-'.

OneBeacon Insurance Group and their members IFS 'A':

Atlantic Specialty Insurance Company

AutoOne Insurance Company

AutoOne Select Insurance Company

Camden Fire Insurance Association (The)

Employers' Fire Insurance Company (The)

Essentia Insurance Company

Homeland Insurance Company of New York

Massachusetts Homeland Insurance Company

Northern Assurance Company of America (The)

OneBeacon America Insurance Company

OneBeacon Insurance Company

OneBeacon Lloyd's of Texas

OneBeacon Midwest Insurance Company

Pennsylvania General Insurance Company

Traders & General Insurance Company

York Insurance Company of Maine

--Insurer Financial Strength (IFS) 'A'.

White Mountains Reinsurance Company of America

--IFS 'A-'.

Sirius International Insurance Corporation

--IFS 'A-'.

The Rating Outlook is Negative.

Applicable Criteria available on Fitch's web site at 'www.fitchratings.com' include:

--'Insurance Rating Methodology' (Dec. 29, 2009);

--'Non-Life Insurance Rating Criteria (Global)' (March 2, 2007).

Additional information is available at 'www.fitchratings.com'.

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