Reserves for Unpaid Loss and LAE

9 Months Ended

Sep. 30, 2011

Reserves for Unpaid Loss and LAE

Reserves for Unpaid Loss and LAE

NOTE 3. Reserves for Unpaid Loss and LAE

The following table summarizes the loss and LAE reserve activities of OneBeacon’s insurance subsidiaries for the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
	($ in millions)
Gross beginning balance	$	3,131.5		$	3,609.2		$	3,295.5		$	3,934.8
Less beginning reinsurance recoverable on unpaid losses	(1,825.9		)	(2,100.7		)	(1,893.2		)	(2,192.9		)
Net loss and LAE reserves	1,305.6			1,508.5			1,402.3			1,741.9
Loss and LAE incurred relating to:
Current year losses	156.4			173.0			439.9			761.4
Prior year losses	(9.8		)	(17.8		)	(25.0		)	(42.1		)
Total incurred loss and LAE from continuing operations	146.6			155.2			414.9			719.3
Loss and LAE paid relating to:
Current year losses	(65.3		)	(92.7		)	(144.5		)	(287.8		)
Prior year losses	(108.5		)	(121.4		)	(384.7		)	(478.6		)
Total loss and LAE payments from continuing operations	(173.8		)	(214.1		)	(529.2		)	(766.4		)
Total incurred loss and LAE from discontinued operations	16.0			24.7			44.1			56.2
Total loss and LAE payments from discontinued operations	(16.6		)	(23.4		)	(54.3		)	(69.1		)
Net loss and LAE reserves	1,277.8			1,450.9			1,277.8			1,681.9
Net loss and LAE reserves reclassified (to) from held for sale (1)(2)	(58.0		)	231.0			(58.0		)	—
Net loss and LAE reserves sold as part of the Personal Lines Transaction (2)	—			(231.0		)	—			(231.0		)
Net ending balance	1,219.8			1,450.9			1,219.8			1,450.9
Plus ending reinsurance recoverable on unpaid losses	2,239.1			1,939.3			2,239.1			1,939.3
Gross ending balance	$	3,458.9		$	3,390.2		$	3,458.9		$	3,390.2

(1)	In the third quarter of 2011, $58.0 million of net loss and LAE reserves related to the AutoOne Transaction were reclassified to held for sale.
(2)	In the second quarter of 2010, $231.0 million of net loss and LAE reserves related to the Personal Lines Transaction were reclassified to held for sale. The Personal Lines Transaction closed in July 2010.

During the three months ended September 30, 2011, OneBeacon experienced $9.8 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $6.0 million in Specialty Insurance Operations and $3.8 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the three months ended September 30, 2010, OneBeacon experienced $17.8 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $7.4 million in Specialty Insurance Operations and $10.4 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the three months ended September 30, 2010, AutoOne experienced $6.0 million in adverse loss reserve development which is included in discontinued operations.

During the nine months ended September 30, 2011, OneBeacon experienced $25.0 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $14.3 million in Specialty Insurance Operations and $10.7 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the nine months ended September 30, 2010, OneBeacon experienced $42.1 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $18.3 million in Specialty Insurance Operations, $23.8 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. The favorable development also included a one-time $6.5 million release of commercial and personal auto reserves associated with participation in an involuntary auto pool. During the nine months ended September 30, 2010, AutoOne experienced $6.0 million in adverse loss reserve development which is included in discontinued operations.

In connection with purchase accounting for the OneBeacon Acquisition, OneBeacon was required to adjust to fair value the loss and LAE reserves and the related reinsurance recoverables on the balance sheets. The net reduction to loss and LAE reserves was accreted through an income statement charge ratably with and over the period the claims were settled. As of both September 30, 2011 and December 31, 2010, the outstanding pre-tax unaccreted adjustment was $0.