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Fitch Affirms OneBeacon's Ratings; Outlook Stable
December 7, 2016 / 4:31 PM / in a year

Fitch Affirms OneBeacon's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, December 07 (Fitch) Fitch Ratings has affirmed the 'BBB+' Issuer Default Rating (IDR) of OneBeacon Insurance Group, Ltd.'s (NYSE: OB) (OneBeacon) holding company and the 'A' Insurer Financial Strength (IFS) rating of its operating subsidiaries. Fitch has also affirmed the 'BBB+' IDR of White Mountains Insurance Group, Ltd. (White Mountains). OneBeacon is 76.1% owned by White Mountains. All Rating Outlooks are Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Fitch's rating action was driven by OneBeacon's solid capital position and strong investment portfolio. Offsetting these positives are modest concerns about the company's ability to produce sustainable calendar year combined ratios in line with specialty peer averages. OneBeacon transformed itself into a diversified speciality insurance company with a Bermuda platform after shedding its run-off operations, standard commercial and personal lines of business. Fitch believes this transformation provides the company an optimal platform to compete with specialty peers and generate consistently strong operating profits. For the nine months ended Sept. 30, 2016, the company produced a GAAP calendar year combined ratio of 98.0% compared to a 96.3% for the prior year period. Year-to-date 2016 results were impacted by almost 2 pp of adverse reserve development which was only partially offset by slightly lower catastrophes. Furthermore, the lower premium base has elevated the expense ratio putting additional strain on profitability. Fitch's current ratings of OneBeacon reflect an expectation that future reserve development will be neutral over the next 12 to 18 months. OneBeacon's reserve composition has shifted over time as the underwriting portfolio migrated towards specialty lines that tend to have short to medium tail loss payment patterns. Greater loss reserve stability was fostered by the company's sale of run-off business segments and higher reinsurance utilization on current business. OneBeacon's financial leverage was 21% as of Sept. 30, 2016 and Fitch does not anticipate financial leverage to increase materially over the rating horizon. GAAP fixed charge coverage was 4.8 times (x) year-to-date 2016 following 5.6x in 2015 and a five year average of 5.3x. Fitch expects OneBeacon to maintain a fixed charge coverage of at least 5.0x. In 2016, White Mountains sold several significant assets including Sirius International Group, Ltd. and its holdings in Symetra Financial Corp. leaving the holding company with approximately $1.8 billion in undeployed capital as of Sept. 30, 2016. Fitch expects White Mountains will gradually return capital to shareholders while exploring new investment opportunities. Fitch's ratings of OneBeacon are standalone and do not factor in any explicit or implicit support from White Mountains. Fitch does recognize though that White Mountains ownership of OneBeacon can be favourable in terms of financial flexibility but notes that OneBeacon does not receive any ratings uplift from this ownership. RATING SENSITIVITIES Key rating triggers that could lead to a downgrade are: --Sustained adverse loss reserve development of 5% or greater of prior year equity; --Sustained GAAP calendar year combined ratios over 100% or sustained fixed charge coverage below 5.0x; --Financial leverage above 30%. Key rating triggers that could lead to an upgrade include: --Improvement in competitive market position while continuing to produce favorable operating results while not sustaining deterioration in other credit factors. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Stable Outlook: White Mountains Insurance Group, Ltd. --IDR at 'BBB+'. OneBeacon U.S. Holdings, Inc. --IDR at 'BBB+'; --$275 million 4.6% due Nov. 9, 2022 at 'BBB'. OneBeacon U.S. insurance subsidiaries: Atlantic Specialty Insurance Company; Homeland Insurance Company of New York; Homeland Insurance Company of Delaware; OBI America Insurance Company; OBI National Insurance Company. --IFS at 'A'. Contact: Primary Analyst Gerald B. Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Committee Chairperson Donald F. Thorpe, CFA, CPA Senior Director +1-312-606-2353 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016027 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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