Loss and Loss Adjustment Expense Reserves

6 Months Ended

Jun. 30, 2011

Loss and Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Reserves

Note 3.  Loss and Loss Adjustment Expense Reserves

The following table summarizes the loss and loss adjustment expense (“LAE”) reserve activities of White Mountains’ insurance subsidiaries for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended June 30,						Six Months Ended June 30,
Millions	2011			2010			2011			2010
Gross beginning balance	$	5,759.8		$	6,660.7		$	5,736.8		$	6,379.2
Less beginning reinsurance recoverable on unpaid losses	(2,304.2		)	(2,899.4		)	(2,344.0		)	(2,771.5		)
Net loss and LAE reserves	3,455.6			3,761.3			3,392.8			3,607.7
Loss and LAE reserves acquired — Central National	—			—			—			17.6
Loss and LAE reserves sold — OneBeacon Personal Lines(1)	—			(231.0		)	—			(231.0		)
Loss and LAE incurred relating to:
Current year losses	302.7			428.3			692.5			991.7
Prior year losses	(10.3		)	(26.2		)	(27.5		)	(37.7		)
Total incurred losses and LAE	292.4			402.1			665.0			954.0
Accretion of fair value adjustment to loss and LAE reserves	2.1			2.1			4.2			4.2
Foreign currency translation adjustment to loss and LAE reserves	10.1			(22.4		)	31.2			(33.2		)
Loss and LAE paid relating to:
Current year losses	(87.7		)	(169.6		)	(135.2		)	(258.4		)
Prior year losses	(223.2		)	(292.7		)	(508.7		)	(611.1		)
Total loss and LAE payments	(310.9		)	(462.3		)	(643.9		)	(869.5		)
Net ending balance	3,449.3			3,449.8			3,449.3			3,449.8
Plus ending reinsurance recoverable on unpaid losses	2,193.1			2,748.1			2,193.1			2,748.1
Gross ending balance	$	5,642.4		$	6,197.9		$	5,642.4		$	6,197.9

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

Loss and LAE incurred relating to prior year losses for the three and six months ended June 30, 2011

During the three and six months ended June 30, 2011, White Mountains experienced $10.3 million and $27.5 million of net favorable loss reserve development.

For the three and six months ended June 30, 2011, OneBeacon had net favorable loss reserve development of $10.1 million and $15.2 million.  The favorable loss reserve development was primarily due to lower than expected severity on losses related to professional liability lines, multiple peril liability lines and other general liability lines.

For the three months ended June 30, 2011, there was no meaningful prior year loss reserve development at White Mountains Re.  For the six months ended June 30, 2011, White Mountains Re had net favorable loss reserve development of $12.3 million, primarily due to a $9.0 million reduction from the 2010 Chilean earthquake and $9.0 million of favorable loss reserve development on a 1999 aviation loss.  This favorable loss reserve development was partially offset by $2.0 million of additions to Asbestos and Environmental reserves and $3.7 million of net unfavorable loss reserve development from other business lines, mainly marine.

Loss and LAE incurred relating to prior year losses for the three and six months ended June 30, 2010

During the three and six months ended June 30, 2010, White Mountains experienced $26.2 million and $37.7 million of net favorable loss reserve development.

For the three and six months ended June 30, 2010, OneBeacon had net favorable loss reserve development of $18.3 million and $24.3 million.  The favorable loss reserve development was primarily due to lower than expected severity on losses related to professional liability lines, commercial package business and other general liability lines. The favorable loss reserve development also included a $6.5 million release of commercial and personal auto reserves associated with participation in involuntary auto pools.

For the three and six months ended June 30, 2010, White Mountains Re had net favorable loss reserve development of $7.9 million and $13.4 million.  The favorable loss reserve development at White Mountains Re was primarily at WMRe Sirius.

Fair value adjustment to loss and LAE reserves

In connection with purchase accounting for the acquisitions of OneBeacon, Scandinavian Re and Stockbridge Insurance Company (“Stockbridge”), White Mountains was required to adjust loss and LAE reserves and the related reinsurance recoverables to fair value on their respective acquired balance sheets.  The net reduction to loss and LAE reserves is being recognized through an income statement charge ratably with and over the period the claims are settled.

White Mountains recognized $2.1 million and $4.2 million for the three and six months ended June 30, 2011, and $2.1 million and $4.2 million for the three and six months ended June 30, 2010.  As of June 30, 2011, the pre-tax un-accreted adjustment was $16.8 million.