Discontinued Operations

9 Months Ended

Sep. 30, 2011

Discontinued Operations

Discontinued Operations

Note 14. Discontinued Operations

Esurance

On October 7, 2011, White Mountains completed the sale of Esurance Insurance and AFI to The Allstate Corporation (see Note 15).  As a result of the transaction, Esurance Insurance, AFI and the business Esurance Insurance cedes to Sirius Group (collectively, “the Esurance Disposal Group”) are reported as discontinued operations.  Effective for the nine months ended September 30, 2011, the results of operations for the Esurance Disposal Group have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income. The assets and liabilities of the Esurance Disposal Group have been presented in the balance sheet as held for sale.  Prior year amounts have been reclassified to conform to the current period’s presentation.

The amounts reflected within discontinued operations differ from amounts previously presented within the Esurance segment. The segment results of operations for Esurance reported in previous periods included investment income and realized and unrealized investment gains and losses allocated to Esurance related to capital that was used by Esurance but contained within Sirius Group’s legal entities.  These allocations do not have separately identifiable cash flows and have therefore been excluded from amounts classified in discontinued operations and are now included in the Sirius Group segment. For the three and nine month periods ended September 30, 2011, $0.9 million and $(2.4) million of net investment income and realized and unrealized investment gains and losses that had been previously included in the Esurance segment were excluded from net income (loss) from discontinued operations.  For the three and nine month periods ended September 30, 2010, $0.9 million and $3.7 million of net investment income and realized and unrealized investment gains and losses that had been previously included in the Esurance segment were excluded from net income (loss) from discontinued operations.

AutoOne

On August 30, 2011, OneBeacon entered into an agreement to sell the AutoOne business to Interboro. AutoOne operates as a division within OneBeacon, offering products and services to automobile assigned risk markets. The transaction includes the sale of two insurance entities, AOIC and AOSIC, through which substantially all of the AutoOne business is written on a direct basis. For the nine months ended September 30, 2011, the results of operations for the AutoOne business have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income. Prior year results of operations have been reclassified to conform to the current period’s presentation.

The AutoOne disposal group excludes investing and financing activities from amounts classified as discontinued operations. OneBeacon’s investing and financing operations are conducted on an overall consolidated level and accordingly, there were no separately identifiable cash investing or financing cash flows associated with AutoOne. Prior to the sale of AutoOne, OneBeacon will ensure that the AutoOne legal entities hold an agreed upon level of invested assets and capital.  The assets and liabilities associated with the AutoOne business as of September 30, 2011 have been presented in the balance sheet as held for sale sheet assuming the investing and financing steps required to effect the sale were completed as of the current balance sheet date. The prior year balance sheet has not been reclassified to conform to the current period’s presentation because the assets and liabilities associated with AutoOne in the prior year would not provide a meaningful comparison to the assets and liabilities presented as held for sale at September 30, 2011.

The following summarizes the assets and liabilities associated with the businesses classified as held for sale:

Millions	September 30,2011		December 31, 2010
Assets held for sale
Fixed maturity investments, at fair value	$	585.0	$	593.8
Short-term investments, at amortized cost (which approximates fair value)	224.9		131.0
Common equity securities, at fair value	—		43.0
Convertible fixed maturity investments, at fair value	—		17.2
Other long-term investments	—		4.0
Total investments	809.9		789.0
Cash	235.7		39.8
Reinsurance recoverable on paid and unpaid losses	34.6		34.4
Insurance premiums receivable	128.2		102.9
Deferred acquisition costs	42.8		34.7
Deferred tax asset	88.2		67.8
Other assets	60.1		54.2
Total assets held for sale	$	1,399.5	$	1,122.8
Liabilities held for sale
Loss and loss adjustment expense reserves	$	514.9	$	450.4
Unearned insurance premiums	258.3		201.6
Accrued incentive compensation	31.5		19.1
Other liabilities	104.7		80.4
Total liabilities held for sale	909.4		751.5
Net assets held for sale	$	490.1	$	371.3

The following summarizes the results of operations, including related income taxes associated with the businesses classified as discontinued operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
Millions, except per share amounts	2011			2010			2011			2010
Revenues
Earned insurance premiums	$	233.8		$	234.6		$	698.7		$	683.6
Net investment income	3.8			5.8			11.8			15.4
Net realized and unrealized investment gains (losses)	(6.4		)	10.4			1.4			17.0
Other revenue	17.5			15.3			52.4			44.7
Total revenues	248.7			266.1			764.3			760.7
Expenses
Loss and loss adjustment expenses	180.5			172.7			518.7			508.0
Insurance and reinsurance acquisition expenses	51.4			50.8			154.5			142.2
Other underwriting expenses	32.3			21.4			76.3			66.9
General and administrative expenses	1.7			12.1			37.5			36.5
Total expenses	265.9			257.0			787.0			753.6
Pre-tax income (loss)	(17.2		)	9.1			(22.7		)	7.1
Income tax (expense) benefit	5.3			(5.5		)	12.0			(5.9		)
Income (loss) from discontinued operations	(11.9		)	3.6			(10.7		)	1.2
Loss from sale of AutoOne, net of tax	(18.2		)	—			(18.2		)	—
Net income (loss) from discontinued operations	$	(30.1	)	$	3.6		$	(28.9	)	$	1.2

Basic earnings (loss) per share amounts are based on the weighted average number of common shares outstanding including unvested restricted shares that are considered participating securities.  Diluted earnings (loss) per share amounts are based on the weighted average number of common shares including unvested restricted shares and the net effect of potentially dilutive common shares outstanding.  The following table outlines the computation of earnings (loss) per share for discontinued operations 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
Basic and diluted earnings (loss) per share numerators (in millions):
Net income (loss)	$	(30.1	)	$	3.6	$	(28.9	)	$	1.2
Basic earnings (loss) per share denominators (in thousands):
Average common shares outstanding during the period	7,845			8,332		7,902			8,547
Average unvested restricted shares	74			99		68			97
Basic earnings (loss) per share denominator	7,919			8,431		7,970			8,644
Diluted earnings (loss) per share denominator (in thousands):
Average common shares outstanding during the period	7,845			8,332		7,902			8,547
Average unvested restricted shares	74			99		68			97
Average outstanding dilutive options to acquire common shares	—			—		—			1
Diluted earnings (loss) per share denominator	7,919			8,431		7,970			8,645
Basic and diluted earnings (loss) per share (in dollars):	$	(3.81	)	$	0.43	$	(3.63	)	$	0.13