Loss and Loss Adjustment Expense Reserves

9 Months Ended

Sep. 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 and reinsurance subsidiaries for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
Millions	2011			2010			2011			2010
Gross beginning balance	$	5,642.4		$	6,198.1		$	5,736.8		$	6,379.2
Less beginning reinsurance recoverable on unpaid losses	(2,193.0		)	(2,748.3		)	(2,344.0		)	(2,771.5		)
Net loss and LAE reserves	3,449.4			3,449.8			3,392.8			3,607.7
Less: Beginning net loss and LAE reserves for AutoOne (1)	(58.6		)	(81.7		)	(68.2		)	(95.8		)
Loss and LAE reserves acquired — Central National	—			—			—			17.6
Loss and LAE reserves sold — OneBeacon Personal Lines (2)	—			—			—			(231.0		)
Loss and LAE incurred relating to:
Current year losses	307.8			284.7			972.2			1,244.9
Prior year losses	(30.7		)	(31.3		)	(58.2		)	(69.0		)
Total incurred losses and LAE	277.1			253.4			914.0			1,175.9
Accretion of fair value adjustment to loss and LAE reserves	2.1			2.1			6.2			6.3
Foreign currency translation adjustment to loss and LAE reserves	(25.5		)	39.9			5.7			6.7
Loss and LAE paid relating to:
Current year losses	(112.8		)	(156.3		)	(237.9		)	(403.9		)
Prior year losses	(230.9		)	(211.8		)	(711.8		)	(788.1		)
Total loss and LAE payments	(343.7		)	(368.1		)	(949.7		)	(1,192.0		)
Plus: Ending net loss and LAE reserves for AutoOne (1)	—			82.9			—			82.9
Net ending balance	3,300.8			3,378.3			3,300.8			3,378.3
Plus ending reinsurance recoverable on unpaid losses	2,581.2			2,592.1			2,581.2			2,592.1
Gross ending balance	$	5,882.0		$	5,970.4		$	5,882.0		$	5,970.4

(1)	Adjustment is to present loss and LAE reserve activities from continuing operations. At September 30, 2011, loss and LAE reserves for AutoOne have been reclassified as liabilities held for sale.  Loss and LAE reserve balances for AutoOne prior to September 30, 2011 were not reclassified. See Note 14.
(2)	In the second quarter of 2010, $231.0 of net loss and LAE reserves related to the Personal Lines Transaction were reclassified to 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 nine months ended September 30, 2011

During the three and nine months ended September 30, 2011, White Mountains experienced $30.7 million and $58.2 million of net favorable loss reserve development.

For the three and nine months ended September 30, 2011, OneBeacon had net favorable loss reserve development of $9.8 million and $25.0 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 and nine months ended September 30, 2011, Sirius Group had net favorable loss reserve development of $20.9 million and $33.2 million, primarily attributable to property lines.

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

During the three and nine months ended September 30, 2010, White Mountains experienced $31.3 million and $69.0 million of net favorable loss reserve development.

For the three and nine months ended September 30, 2010, OneBeacon had net favorable loss reserve development of $17.8 million and $42.1 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.

For the three and nine months ended September 30, 2010, Sirius Group had net favorable loss reserve development of $13.5 million and $26.9 million.  The favorable loss reserve development at Sirius Group was primarily due to short-tailed lines of business, primarily property, accident and health, and aviation.

Fair value adjustment to loss and LAE reserves

In connection with purchase accounting for the acquisitions of 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.

Sirius Group recognized $2.1 million and $6.2 million for the three and nine months ended September 30, 2011, and $2.1 million and $6.3 million for the three and nine months ended September 30, 2010.  As of September 30, 2011, the pre-tax un-accreted adjustment was $14.9 million.