Segment Information

9 Months Ended

Sep. 30, 2012

Segment Information

Segment Information

NOTE 7. Segment Information

OneBeacon’s reportable segments are: (1) Specialty Insurance Operations, (2) Other Insurance Operations and (3) Investing, Financing and Corporate Operations. OneBeacon has 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 a number of 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 relate to professional liability, marine, collector cars and boats, technology, property and inland marine, excess property, group accident, entertainment, sports and leisure, environmental, public entities, energy, and tuition refund. In addition, in April 2012, OneBeacon announced the formation of OneBeacon Program Group which is included in MGA Business, and in September 2012, OneBeacon announced the formation of OneBeacon Surety Group which is included in Specialty Products. In determining the aggregation of 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.

As described in Note 1, the Other Insurance Operations segment currently includes the results of a reciprocal insurance exchange that is not actively writing any business. Prior to the Runoff Transaction, as described in Note 1, the results related to the Runoff Business 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. In addition, the assets and liabilities associated with the Runoff Business as of September 30, 2012 have been presented in the balance sheet as held for sale.

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.

Financial information for OneBeacon’s segments for the three and nine months ended September 30, 2012 and 2011 follows:

						Investing,
						Financing
	Specialty			Other		and
	Insurance			Insurance		Corporate
	Operations			Operations		Operations			Total
				($ in millions)
Three months ended September 30, 2012
Earned premiums	$	293.9		$	—	$	—		$	293.9
Loss and LAE	(164.7		)	—		—			(164.7		)
Policy acquisition expenses	(66.6		)	—		—			(66.6		)
Other underwriting expenses	(47.4		)	—		—			(47.4		)
Total underwriting income	15.2			—		—			15.2
Net investment income	—			—		12.8			12.8
Net realized and unrealized investment gains	—			—		40.0			40.0
Net other (expenses) revenues	(1.1		)	0.1		(0.6		)	(1.6		)
General and administrative expenses	(0.6		)	—		(3.8		)	(4.4		)
Interest expense on debt	—			—		(4.0		)	(4.0		)
Pre-tax income	$	13.5		$	0.1	$	44.4		$	58.0

						Investing,
						Financing
	Specialty			Other		and
	Insurance			Insurance		Corporate
	Operations			Operations		Operations			Total
				($ in millions)
Three months ended September 30, 2011
Earned premiums	$	259.1		$	—	$	—		$	259.1
Loss and LAE	(149.7		)	—		—			(149.7		)
Policy acquisition expenses	(58.6		)	—		—			(58.6		)
Other underwriting expenses	(36.0		)	—		—			(36.0		)
Total underwriting income	14.8			—		—			14.8
Net investment income	—			—		16.1			16.1
Net realized and unrealized investment losses	—			—		(47.4		)	(47.4		)
Net other revenues (expenses)	0.3			—		(0.3		)	—
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	)

						Investing,
						Financing
	Specialty			Other		and
	Insurance			Insurance		Corporate
	Operations			Operations		Operations			Total
				($ in millions)
Nine months ended September 30, 2012
Earned premiums	$	846.0		$	—	$	—		$	846.0
Loss and LAE	(452.5		)	—		—			(452.5		)
Policy acquisition expenses	(185.6		)	—		—			(185.6		)
Other underwriting expenses	(146.2		)	—		—			(146.2		)
Total underwriting income	61.7			—		—			61.7
Net investment income	—			—		41.5			41.5
Net realized and unrealized investment gains	—			—		57.9			57.9
Net other (expenses) revenues	(0.9		)	0.3		(0.5		)	(1.1		)
General and administrative expenses	(1.4		)	—		(8.3		)	(9.7		)
Interest expense on debt	—			—		(12.1		)	(12.1		)
Pre-tax income	$	59.4		$	0.3	$	78.5		$	138.2

							Investing,
							Financing
	Specialty			Other			and
	Insurance			Insurance			Corporate
	Operations			Operations			Operations			Total
				($ in millions)
Nine months ended September 30, 2011
Earned premiums	$	747.9		$	0.1		$	—		$	748.0
Loss and LAE	(421.3		)	—			—			(421.3		)
Policy acquisition expenses	(161.3		)	(0.2		)	—			(161.5		)
Other underwriting expenses	(124.4		)	(0.1		)	—			(124.5		)
Total underwriting income (loss)	40.9			(0.2		)	—			40.7
Net investment income	—			—			55.8			55.8
Net realized and unrealized investment losses	—			—			(13.3		)	(13.3		)
Net other revenues (expenses)	0.5			—			(12.7		)	(12.2		)
General and administrative expenses	(1.3		)	—			(6.1		)	(7.4		)
Interest expense on debt	—			—			(16.4		)	(16.4		)
Pre-tax income (loss)	$	40.1		$	(0.2	)	$	7.3		$	47.2

Financial information for OneBeacon’s segments as of September 30, 2012 and December 31, 2011 follows:

					Investing,
					Financing
	Specialty		Other		and
	Insurance		Insurance		Corporate
	Operations		Operations (1)		Operations		Total
			($ in millions)
September 30, 2012
Total investments	$	—	$	—	$	2,273.0	$	2,273.0
Reinsurance recoverable on paid and unpaid losses	43.1		0.2		—		43.3
Deferred acquisition costs	132.5		—		—		132.5
Ceded unearned premiums	11.3		—		—		11.3
Loss and LAE reserves	911.4		0.2		—		911.6
Unearned premiums	608.6		2.1		—		610.7
Debt	—		—		269.8		269.8
December 31, 2011
Total investments	$	—	$	—	$	2,707.6	$	2,707.6
Reinsurance recoverable on paid and unpaid losses	62.7		2,121.3		—		2,184.0
Deferred acquisition costs	123.3		0.2		—		123.5
Ceded unearned premiums	10.5		0.2		—		10.7
Loss and LAE reserves	868.6		2,490.0		—		3,358.6
Unearned premiums	525.6		2.4		—		528.0
Debt	—		—		269.7		269.7

(1)Other Insurance Operations exclude assets and liabilities that are included in assets held for sale and liabilities held for sale as of September 30, 2012 related to the Runoff Transaction and as of December 31, 2011 related to the AutoOne Transaction.  See Note 14 for the breakout of these assets and liabilities.

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, 2012 and 2011:

										Specialty			Other
	MGA			Specialty			Specialty			Insurance			Insurance
($ in millions)	Business			Industries			Products			Operations(1)			Operations(2)			Total
Three months ended September 30, 2012
Net written premiums	$	128.7		$	106.6		$	99.9		$	335.2		$	—		$	335.2
Earned premiums	78.4			106.7			108.8			293.9			—			293.9
Ratios:
Loss and LAE	54.2		%	55.4		%	57.9		%	56.0		%	n/m			56.0		%
Expense	46.3			36.6			35.7			38.8			n/m			38.8
GAAP combined	100.5		%	92.0		%	93.6		%	94.8		%	n/m			94.8		%
Three months ended September 30, 2011
Net written premiums	$	110.5		$	89.7		$	97.0		$	297.2		$	—		$	297.2
Earned premiums	69.8			90.2			99.1			259.1			—			259.1
Ratios:
Loss and LAE	53.5		%	54.7		%	63.7		%	57.8		%	n/m			57.8		%
Expense	44.3			35.4			32.1			36.5			n/m			36.5
GAAP combined	97.8		%	90.1		%	95.8		%	94.3		%	n/m			94.3		%
Nine months ended September 30, 2012
Net written premiums	$	263.4		$	337.8		$	329.2		$	930.4		$	—		$	930.4
Earned premiums	227.5			309.0			309.5			846.0			—			846.0
Ratios:
Loss and LAE	49.5		%	51.7		%	58.2		%	53.5		%	n/m			53.5		%
Expense	45.0			37.7			36.5			39.2			n/m			39.2
GAAP combined	94.5		%	89.4		%	94.7		%	92.7		%	n/m			92.7		%
Nine months ended September 30, 2011
Net written premiums	$	230.7		$	278.2		$	312.6		$	821.5		$	(0.1	)	$	821.4
Earned premiums	204.1			254.8			289.0			747.9			0.1			748.0
Ratios:
Loss and LAE	50.8		%	54.2		%	62.2		%	56.3		%	n/m			56.3		%
Expense	42.7			39.2			34.1			38.2			n/m			38.2
GAAP combined	93.5		%	93.4		%	96.3		%	94.5		%	n/m			94.5		%

(1)Within Specialty Insurance Operations, OneBeacon reports its businesses through three major underwriting units, representing an aggregation of its specialty lines businesses. MGA Business includes Collector Cars and Boats, A.W.G. Dewar and OneBeacon Entertainment. In addition, in April 2012, OneBeacon announced the formation of OneBeacon Program Group which is included in MGA Business. Specialty Industries includes International Marine Underwriters, OneBeacon Technology Insurance, OneBeacon Accident Group, OneBeacon Government Risks and OneBeacon Energy Group. Specialty Products includes OneBeacon Professional Insurance, OneBeacon Property and Inland Marine, OneBeacon Specialty Property and OneBeacon Excess and Surplus. In addition, in September 2012, OneBeacon announced the formation of OneBeacon Surety Group which is included in Specialty Products.

(2)Ratios for Other Insurance Operations are not meaningful.