Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information

Segment Information

NOTE 7. Segment Information

To better align its operating and reporting structure with OneBeacon’s go-forward business profile that resulted from the sale of the non-specialty commercial lines business to The Hanover Insurance Group (“The Hanover”) (the “Commercial Lines Transaction”) and the Personal Lines Transaction, which have transformed OneBeacon into a specialty lines company, management re-evaluated its segments during the fourth quarter of 2010 to determine the most effective management reporting structure. As a result, OneBeacon’s reportable segments are: (1) Specialty Insurance Operations, (2) Other Insurance Operations and (3) Investing, Financing and Corporate Operations. OneBeacon made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company’s subsidiaries and affiliates; (ii) the manner in which the Company’s subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the chief operating decision makers and the Board of Directors (the “Board”).

The Specialty Insurance Operations segment is comprised of twelve underwriting units that are aggregated into three major underwriting units for financial reporting: MGA Business, Specialty Industries and Specialty Products, representing an aggregation of OneBeacon’s specialty businesses based on those that are distributed through MGAs, those that are targeted to specific industries and those that offer targeted products. Currently, OneBeacon’s specialty lines products cover or include: professional liability, marine, collector cars and boats, property and inland marine, excess property, accident and health, technology, public entities, energy, entertainment, sports and leisure, tuition reimbursement and excess and surplus lines. In determining how to aggregate OneBeacon’s specialty businesses, management considered many factors, including the nature of its insurance products and services and the production processes, the types or classes of customers, methods of distribution and the regulatory environment.

The Other Insurance Operations segment includes the results of the non-specialty commercial lines business which was transferred to The Hanover and the traditional personal lines business which was sold in the Personal Lines Transaction, other run-off business which consists of national accounts, certain specialty programs and regional agency business transferred to Liberty Mutual Insurance Group effective November 1, 2001, and certain purchase accounting adjustments relating to the OneBeacon Acquisition. As described in Note 1, prior to entering into the AutoOne Purchase Agreement on August 30, 2011, results for AutoOne were included in Other Insurance Operations and are now included in discontinued operations. The prior periods have been reclassified to conform to the current presentation.

Investing, Financing and Corporate Operations includes the investing and financing activities for OneBeacon on a consolidated basis, and certain other activities conducted through the Company and its intermediate holding company subsidiaries. Invested assets are not allocated to Specialty Insurance Operations or Other Insurance Operations since OneBeacon does not manage its assets by segment. Invested assets, net investment income and net realized and unrealized investment gains (losses) related to OneBeacon’s Specialty Insurance Operations and Other Insurance Operations segments are included in the Investing, Financing and Corporate Operations segment since these assets are available for payment of losses and expenses for all segments. Debt and the related interest expense on debt also are not allocated to or managed by segment and are included in the Investing, Financing and Corporate Operations segment.

Previously, OneBeacon reported and managed its business through an Insurance Operations segment and an Other Operations segment. Within the Insurance Operations segment, OneBeacon reported and managed its specialty lines businesses within a specialty lines underwriting unit and its traditional personal lines businesses and AutoOne within a personal lines underwriting unit, nearly all of which was subject to the Personal Lines Transaction. The Insurance Operations segment also included run-off business, which consisted primarily of non-specialty commercial lines business and other run-off business. Certain other activities conducted through the Company and its intermediate subsidiaries were included in the Other Operations segment. Investing and Financing activities were included within the Insurance Operations segment if they were owned or owed by insurance company legal entities or within the Other Operations segment if they were owned or owed by holding company legal entities.

Financial information for OneBeacon’s segments follows:

	Specialty Insurance Operations			Other Insurance Operations			Investing, Financing and Corporate Operations			Total
	($ in millions)
Three months ended September 30, 2011
Earned premiums	$	259.1		$	(0.5	)	$	—		$	258.6
Loss and LAE	(149.7		)	3.1			—			(146.6		)
Policy acquisition expenses	(58.6		)	—			—			(58.6		)
Other underwriting expenses	(36.0		)	(2.7		)	—			(38.7		)
Total underwriting income (loss)	14.8			(0.1		)	—			14.7
Net investment income	—			—			16.1			16.1
Net realized and unrealized investment losses	—			—			(47.4		)	(47.4		)
Net other revenues (expenses)	0.3			0.1			(0.3		)	0.1
General and administrative expenses	(0.4		)	—			(2.1		)	(2.5		)
Interest expense on debt	—			—			(4.1		)	(4.1		)
Pre-tax income (loss)	$	14.7		$	—		$	(37.8	)	$	(23.1	)
Three months ended September 30, 2010
Earned premiums	$	249.6		$	44.0		$	—		$	293.6
Loss and LAE	(128.9		)	(26.3		)	—			(155.2		)
Policy acquisition expenses	(54.1		)	(10.2		)	—			(64.3		)
Other underwriting expenses	(42.6		)	(7.9		)	—			(50.5		)
Total underwriting income (loss)	24.0			(0.4		)	—			23.6
Net investment income	—			—			21.6			21.6
Net realized and unrealized investment gains	—			—			51.6			51.6
Net other revenues (expenses)	0.6			12.2			(0.1		)	12.7
General and administrative expenses	(0.7		)	0.6			(2.0		)	(2.1		)
Interest expense on debt	—			—			(6.4		)	(6.4		)
Pre-tax income	$	23.9		$	12.4		$	64.7		$	101.0

	Specialty Insurance Operations			Other Insurance Operations			Investing, Financing and Corporate Operations			Total
	($ in millions)
Nine months ended September 30, 2011
Earned premiums	$	747.9		$	3.3		$	—		$	751.2
Loss and LAE	(421.3		)	6.4			—			(414.9		)
Policy acquisition expenses	(161.3		)	0.2			—			(161.1		)
Other underwriting expenses	(124.4		)	(7.7		)	—			(132.1		)
Total underwriting income	40.9			2.2			—			43.1
Net investment income	—			—			55.8			55.8
Net realized and unrealized investment losses	—			—			(13.3		)	(13.3		)
Net other revenues (expenses)	0.5			1.6			(12.7		)	(10.6		)
General and administrative expenses	(1.3		)	—			(6.1		)	(7.4		)
Interest expense on debt	—			—			(16.4		)	(16.4		)
Pre-tax income	$	40.1		$	3.8		$	7.3		$	51.2
Nine months ended September 30, 2010
Earned premiums	$	726.7		$	408.0		$	—		$	1,134.7
Loss and LAE	(408.5		)	(310.8		)	—			(719.3		)
Policy acquisition expenses	(153.3		)	(95.0		)	—			(248.3		)
Other underwriting expenses	(118.5		)	(58.1		)	—			(176.6		)
Total underwriting income (loss)	46.4			(55.9		)	—			(9.5		)
Net investment income	—			—			74.9			74.9
Net realized and unrealized investment gains	—			—			79.6			79.6
Net other revenues (expenses)	1.4			12.2			(11.7		)	1.9
General and administrative expenses	(1.5		)	(0.1		)	(7.8		)	(9.4		)
Interest expense on debt	—			—			(23.4		)	(23.4		)
Pre-tax income (loss)	$	46.3		$	(43.8	)	$	111.6		$	114.1

	Specialty Insurance Operations		Other Insurance Operations		Investing, Financing and Corporate Operations		Total
	($ in millions)
September 30, 2011
Total investments	$	—	$	—	$	2,687.6	$	2,687.6
Reinsurance recoverable on paid and unpaid losses	63.5		2,189.3		—		2,252.8
Deferred acquisition costs	129.1		0.5		—		129.6
Ceded unearned premiums	10.5		1.0		—		11.5
Loss and LAE reserves	883.8		2,575.1		—		3,458.9
Unearned premiums	548.6		10.8		—		559.4
Debt	—		—		269.7		269.7
December 31, 2010
Total investments	$	—	$	—	$	3,266.0	$	3,266.0
Reinsurance recoverable on paid and unpaid losses	60.1		1,877.6		—		1,937.7
Deferred acquisition costs	111.3		3.2		—		114.5
Ceded unearned premiums	10.8		103.1		—		113.9
Loss and LAE reserves	841.5		2,454.0		—		3,295.5
Unearned premiums	475.3		152.2		—		627.5
Debt	—		—		419.6		419.6

The following tables provide net written premiums, earned premiums and ratios for OneBeacon’s insurance operations by segment and in total, as well as for the three major underwriting units within Specialty Insurance Operations, for the three and nine months ended September 30, 2011 and 2010:

($ in millions)	MGA Business			Specialty Industries			Specialty Products			Specialty Insurance Operations			Other Insurance Operations(1)			Total
Three months ended September 30, 2011
Net written premiums	$	110.5		$	89.7		$	97.0		$	297.2		$	(0.4	)	$	296.8
Earned premiums	69.8			90.2			99.1			259.1			(0.5		)	258.6
Ratios:
Loss and LAE	53.5		%	54.7		%	63.7		%	57.8		%	n/m			56.7		%
Expense	44.3			35.4			32.1			36.5			n/m			37.6
Total GAAP combined	97.8		%	90.1		%	95.8		%	94.3		%	n/m			94.3		%
Three months ended September 30, 2010
Net written premiums	$	102.7		$	75.7		$	95.1		$	273.5		$	(4.7	)	$	268.8
Earned premiums	65.7			76.7			107.2			249.6			44.0			293.6
Ratios:
Loss and LAE	48.3		%	54.1		%	51.9		%	51.7		%	59.8		%	52.9		%
Expense	43.9			42.1			33.3			38.7			41.1			39.1
Total GAAP combined	92.2		%	96.2		%	85.2		%	90.4		%	100.9		%	92.0		%
Nine months ended September 30, 2011
Net written premiums	$	230.7		$	278.2		$	312.6		$	821.5		$	0.8		$	822.3
Earned premiums	204.1			254.8			289.0			747.9			3.3			751.2
Ratios:
Loss and LAE	50.8		%	54.2		%	62.2		%	56.3		%	n/m			55.2		%
Expense	42.7			39.2			34.1			38.2			n/m			39.0
Total GAAP combined	93.5		%	93.4		%	96.3		%	94.5		%	n/m			94.2		%
Nine months ended September 30, 2010
Net written premiums	$	217.9		$	239.8		$	313.9		$	771.6		$	171.4		$	943.0
Earned premiums	196.1			223.0			307.6			726.7			408.0			1,134.7
Ratios:
Loss and LAE	50.3		%	55.2		%	60.7		%	56.2		%	76.2		%	63.4		%
Expense	39.7			41.2			33.2			37.4			37.5			37.4
Total GAAP combined	90.0		%	96.4		%	93.9		%	93.6		%	113.7		%	100.8		%

(1) As Other Insurance Operations consists of business in run-off, GAAP ratios are not meaningful for the 2011 periods.