HAMILTON, Bermuda, Nov. 5 /PRNewswire-FirstCall/ -- OneBeacon Insurance Group, Ltd. today reported adjusted book value per share of $18.85, an increase of 13.3% through nine months, 4.6% for the third quarter, and 20.4% for the twelve months ended on September 30, 2007, including dividends.
"We are very pleased with our strong third-quarter and year-to-date growth in book value," said OneBeacon CEO Mike Miller. "OneBeacon experienced an excellent quarter by any measure in today's market, reflecting strong current accident year results, favorable development on prior accident years, minimal catastrophe losses and solid investment returns."
Miller continued, "Our 84% combined ratio for the quarter reflected good results from all of our businesses. In addition, it was positively impacted by the gain on the partial settlement of our pension liabilities and a state premium tax refund. Excluding these items, our combined ratio would have been 91% compared to 94% last year. Net written premiums were down less than 1% for the quarter and 2% through nine months, excluding the 2006 Agri business. Recently, we reduced our workforce by approximately ten percent to bring our expenses more in line with our business needs. We will continue to focus on disciplined underwriting and manage expenses accordingly."
Adjusted for the economic defeasance of the company's mandatorily redeemable preferred stock, comprehensive net income for the quarter was $90 million, net income was $96 million or $0.96 per share and operating income was $76 million or $0.76 per share. These adjusted amounts are non-GAAP financial measures which are explained later in this release.
These third-quarter results reflect the after-tax net favorable impact from certain nonrecurring items, including a gain from the partial settlement of the company's qualified pension plan, prior year premium tax refunds and a gain on the sale of an inactive licensed insurance company, partially offset by higher withholding taxes. The after-tax impact of the nonrecurring items increased adjusted comprehensive income by $21 million and increased both adjusted net income and adjusted operating income by $23 million. Normalizing for these unusual items, adjusted comprehensive net income for the quarter was $69 million, adjusted net income was $73 million or $0.73 per share and adjusted operating income was $53 million or $0.53 per share.
Adjusted for the economic defeasance of the company's mandatorily redeemable preferred stock, comprehensive net income for the nine months ended September 30, 2007 was $242 million, net income was $246 million or $2.46 per share and operating income was $153 million or $1.53 per share.
Primary Insurance Operations
The GAAP combined ratio was 83.8% for the third quarter versus 94.4% for the same period in 2006. This 10.6 point improvement was due primarily to the favorable nonrecurring items that impacted underwriting results, including 5.4 points ($26 million) from the partial settlement of the company's pension plan liabilities and 1.6 points ($8 million) associated with the premium tax refunds, combined with more favorable development on prior accident year loss reserves. Excluding the nonrecurring items, the third-quarter combined ratio was 90.8%. The expense ratio was 29.8% for the third quarter, which includes 5.7 points of favorable nonrecurring items, as compared to 35.2% for the third quarter of 2006. Pretax income for the third quarter of 2007 was $162 million, compared to $140 million in the third quarter of 2006.
The GAAP combined ratio for the nine months ended September 30, 2007 was 92.7%, as compared to 95.6% reported for the first nine months of 2006. The positive variance reflects 1.6 points from the nonrecurring items mentioned above, as well as favorable development on prior accident year non-catastrophe losses. The nine-month 2007 expense ratio was 33.9%, again reflecting 1.2 points relating to the net favorable impact of the nonrecurring items described above partially offset by office consolidation costs incurred primarily in the first quarter. This compares to a 34.5% expense ratio for the same period in 2006, which included 0.3 points of net favorable impact related to the favorable settlement of a state franchise tax audit and a reduction in contingent commission accruals, partially offset by office consolidation costs. Pretax income for the first nine months of 2007 was $398 million and $341 million for the same period in 2006.
Net written premiums were $512 million for the third quarter of 2007 as compared to $536 million in the third quarter of 2006. Through nine months of 2007, net written premiums totaled $1,437 million as compared to $1,526 million through nine months of 2006. Excluding the Agri business that was sold in September 2006, net written premiums declined by 0.6% as compared to the third quarter of 2006 and by 1.6% for the first nine months of 2007. Third- quarter net written premiums grew by 12.5% in Specialty Lines (excluding Agri), and 3.5% in Commercial Lines, and decreased by 11.6% in Personal Lines, resulting from the continued shrink of the assigned-risk pools and the competitive marketplace. Through nine months, Specialty Lines net written premiums increased by 20.8% over the prior year (excluding Agri), Commercial Lines premiums were up 1.5%, and Personal Lines decreased by 14.5%.
Consolidated Investment Results
For the third quarter, the GAAP total return on invested assets was 1.5% as compared to 2.7% for the same period in 2006. Net investment income was $52 million, compared to $49 million in the third quarter of 2006. Net realized investment gains for the third quarter of 2007 were $31 million, compared to $35 million in the third quarter 2006. The pretax change in net unrealized gains on investments and foreign currency translation gains related to our investments was a decrease of $7 million in the third quarter of 2007, compared to a $34 million increase in the third quarter of 2006.
For the first nine months, GAAP total return on invested assets was 5.9% as compared to 5.7% through September 30, 2006. Through nine months, net investment income was $157 million as compared to $148 million through the same period in 2006. Net realized investment gains through the nine months were $143 million, compared to $105 million in the first nine months of 2006. The pretax change in net unrealized gains on investments and foreign currency translation gains related to our investments was a $4 million decrease in the first nine months of 2007, compared to a $5 million decrease in the first nine months of 2006.
Company to Host Webcast
OneBeacon will host its third quarter 2007 Webcast for analysts and investors at 10:00 a.m. ET on Monday, November 5. A copy of the earnings release, the slide presentation to be referenced during the call and a financial supplement are available on the company's Web site http://www.onebeacon.com/. An audio playback of the teleconference will be available on the site shortly following the Webcast.
About OneBeacon
OneBeacon Insurance Group, Ltd.'s operating subsidiaries offer a range of specialty and segmented commercial and personal insurance products, which are sold primarily through select independent agents. As one of the oldest property and casualty insurers in the United States, OneBeacon traces its roots to 1831 and the Potomac Fire Insurance Company. Today, OneBeacon's specialty insurance products are available countrywide, and commercial and personal lines are offered in select geographic territories.
OneBeacon's U.S. headquarters is in Canton, Massachusetts. The Company is publicly traded on the New York Stock Exchange under the symbol "OB".
ONEBEACON INSURANCE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited)
September 30, December 31,
2007 2006
Assets
Available-for-sale investments:
Fixed maturity investments $3,433.3 $3,539.7
Common equity securities 796.2 737.1
Short-term investments 424.5 319.0
Held-to-maturity investments:
Fixed maturity investments 308.6 305.0
Short-term investments 0.1 33.8
Other investments 322.7 278.1
Total investments 5,285.4 5,212.7
Cash 59.1 41.5
Reinsurance recoverable on unpaid
losses 2,699.6 2,842.6
Reinsurance recoverable on paid
losses 20.6 32.4
Premiums receivable 574.3 517.1
Securities lending collateral 534.7 528.8
Deferred acquisition costs 207.8 183.8
Accrued investment income 33.4 34.8
Ceded unearned premiums 69.1 38.2
Accounts receivable on unsettled
investment sales 15.7 6.7
Other assets 304.1 430.8
Total assets $9,803.8 $9,869.4
Liabilities
Loss and loss adjustment expense
reserves $4,594.8 $4,837.7
Unearned premiums 1,046.0 985.2
Debt 757.7 759.5
Securities lending payable 534.7 528.8
Preferred stock subject to
mandatory redemption (redemption
value $300.0 and $320.0) 268.5 262.3
Ceded reinsurance payable 97.3 71.9
Accounts payable on unsettled
investment purchases 29.0 11.5
Other liabilities 564.9 635.3
Total liabilities 7,892.9 8,092.2
Common Shareholders' Equity
Common shares and paid-in surplus 1,111.4 1,115.9
Retained earnings 616.2 474.4
Accumulated other comprehensive
income (loss), after tax:
Net unrealized gains on
investments 168.3 173.1
Net unrealized foreign currency
translation gains 14.3 11.8
Other comprehensive income items 0.7 2.0
Total common shareholders' equity 1,910.9 1,777.2
Total liabilities and common
shareholders' equity $9,803.8 $9,869.4
ONEBEACON INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in millions, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
2007 2006 2007 2006
Revenues:
Earned premiums $473.6 $551.3 $1,407.5 $1,590.0
Net investment income 51.5 49.2 156.7 148.4
Net realized investment gains 30.7 35.4 142.7 105.0
Net other revenues 10.8 36.6 16.3 48.4
Total revenues 566.6 672.5 1,723.2 1,891.8
Expenses:
Loss and loss adjustment expenses 255.8 318.5 827.1 994.6
Policy acquisition expenses 74.9 124.5 231.5 297.4
Other underwriting expenses 66.4 84.0 246.9 253.9
General and administrative expenses 2.4 5.1 7.5 11.6
Accretion of fair value adjustment
to loss and loss adjustment
expense reserves 4.0 5.8 12.0 17.3
Interest expense on debt 11.4 12.0 34.1 34.8
Interest expense - dividends on
preferred stock subject to
mandatory redemption 7.1 7.6 22.2 22.7
Interest expense - accretion on
preferred stock subject to
mandatory redemption 9.2 7.2 26.2 20.5
Total expenses 431.2 564.7 1,407.5 1,652.8
Pre-tax income 135.4 107.8 315.7 239.0
Income tax provision (53.1) (34.1) (110.6) (54.5)
Net income from continuing operations
before minority interest and equity
in earnings of unconsolidated
affiliate 82.3 73.7 205.1 184.5
Equity in earnings of
unconsolidated affiliate - (1.6) - 8.6
Net income from continuing operations 82.3 72.1 205.1 193.1
Income from discontinued operations - 0.8 - 1.2
Net income 82.3 72.9 205.1 194.3
Change in net unrealized gains on
investments 0.4 18.9 (4.8) (13.2)
Change in foreign currency
translation gains (4.1) 3.8 2.5 6.4
Change in other comprehensive
income items (2.6) (1.3) (1.3) 0.6
Comprehensive net income $76.0 $94.3 $201.5 $188.1
Earnings per share - basic and diluted
Income from continuing operations $0.82 $0.72 $2.05 $1.93
Income from discontinued operations - 0.01 - 0.01
Net income $0.82 $0.73 $2.05 $1.94
Weighted average number of common
shares outstanding (1) (2) 100.0 100.0 100.0 100.0
(1) On October 18, 2006, the Company executed a stock split and
recapitalization that increased the common shares outstanding from 12
thousand to 100 million and reduced the par value from $1.00 to
$0.01. The stock split and recapitalization have been reflected
retroactively in these financial statements for the 2006 periods
presented.
(2) Includes the impact of repurchases of Class A common shares made
through the Company's share repurchase program which commenced in the
third quarter of 2007.
ONEBEACON INSURANCE GROUP, LTD.
SEGMENT INCOME STATEMENTS
($ in millions)
(Unaudited)
For the Three Months Ended September 30, 2007
Affiliate
Primary Quota
Insurance Shares
Operations (1) Other Total
Revenues:
Earned premiums $473.6 $- $- $473.6
Net investment income 45.2 - 6.3 51.5
Net realized investment
gains (losses) 31.2 - (0.5) 30.7
Net other revenues
(expenses) 11.2 - (0.4) 10.8
Total revenues 561.2 - 5.4 566.6
Expenses:
Loss and loss adjustment
expenses 255.8 - - 255.8
Policy acquisition expenses 74.9 - - 74.9
Other underwriting expenses 66.4 - - 66.4
General and administrative
expenses 1.1 - 1.3 2.4
Accretion of fair value
adjustment to loss and lae
reserves - - 4.0 4.0
Interest expense on debt 0.8 - 10.6 11.4
Interest expense -
dividends and accretion on
preferred stock subject to
mandatory redemption - - 16.3 16.3
Total expenses 399.0 - 32.2 431.2
Pre-tax income (loss) $162.2 $- $(26.8) $135.4
For the Three Months Ended September 30, 2006
Affiliate
Primary Quota
Insurance Shares
Operations (1) Other Total
Revenues:
Earned premiums $492.7 $58.6 $- $551.3
Net investment income 48.3 - 0.9 49.2
Net realized investment gains
(losses) 35.6 - (0.2) 35.4
Net other revenues (expenses) 30.6 - 6.0 36.6
Total revenues 607.2 58.6 6.7 672.5
Expenses:
Loss and loss adjustment
expenses 291.9 26.6 - 318.5
Policy acquisition expenses 89.0 35.5 - 124.5
Other underwriting expenses 84.0 - - 84.0
General and administrative
expenses 0.6 - 4.5 5.1
Accretion of fair value
adjustment to loss and lae
reserves - - 5.8 5.8
Interest expense on debt 1.4 - 10.6 12.0
Interest expense - dividends
and accretion on preferred
stock subject to mandatory
redemption - - 14.8 14.8
Total expenses 466.9 62.1 35.7 564.7
Pre-tax income (loss) $140.3 $(3.5) $(29.0) $107.8
(1) The affiliate quota share agreements were commuted during the
fourth quarter of 2006.
ONEBEACON INSURANCE GROUP, LTD.
SEGMENT INCOME STATEMENTS
($ in millions)
(Unaudited)
For the Nine Months Ended September 30, 2007
Affiliate
Primary Quota
Insurance Shares
Operations (1) Other Total
Revenues:
Earned premiums $1,407.5 $- $- $1,407.5
Net investment income 139.6 - 17.1 156.7
Net realized investment gains
(losses) 143.0 - (0.3) 142.7
Net other revenues (expenses) 17.8 - (1.5) 16.3
Total revenues 1,707.9 - 15.3 1,723.2
Expenses:
Loss and loss adjustment
expenses 827.1 - - 827.1
Policy acquisition expenses 231.5 - - 231.5
Other underwriting expenses 246.9 - - 246.9
General and administrative
expenses 2.3 - 5.2 7.5
Accretion of fair value
adjustment to loss and lae
reserves - - 12.0 12.0
Interest expense on debt 2.5 - 31.6 34.1
Interest expense - dividends
and accretion on preferred
stock subject to mandatory
redemption - - 48.4 48.4
Total expenses 1,310.3 - 97.2 1,407.5
Pre-tax income (loss) $397.6 $- $(81.9) $315.7
For the Nine Months Ended September 30, 2006
Affiliate
Primary Quota
Insurance Shares
Operations (1) Other Total
Revenues:
Earned premiums $1,458.1 $131.9 $- $1,590.0
Net investment income 142.2 - 6.2 148.4
Net realized investment gains
(losses) 105.5 - (0.5) 105.0
Net other revenues (expenses) 35.2 - 13.2 48.4
Total revenues 1,741.0 131.9 18.9 1,891.8
Expenses:
Loss and loss adjustment
expenses 891.3 103.3 - 994.6
Policy acquisition expenses 249.8 47.6 - 297.4
Other underwriting expenses 253.9 - - 253.9
General and administrative
expenses 2.2 - 9.4 11.6
Accretion of fair value
adjustment to loss and lae
reserves - - 17.3 17.3
Interest expense on debt 2.8 - 32.0 34.8
Interest expense - dividends
and accretion on preferred
stock -
subject to mandatory
redemption - - 43.2 43.2
Total expenses 1,400.0 150.9 101.9 1,652.8
Pre-tax income (loss) $341.0 $(19.0) $(83.0) $239.0
(1) The affiliate quota share agreements were commuted during the
fourth quarter of 2006.
ONEBEACON INSURANCE GROUP, LTD.
SUMMARY OF GAAP RATIOS AND PREMIUMS (1)
($ in millions)
(Unaudited)
Three Months Ended September 30, 2007
Primary Insurance Operations
Commer-
Specialty cial Personal Total (2)
GAAP Ratios
Loss and loss adjustment
expenses 56.2% 49.1% 53.1% 54.0%
Expense 28.4% 34.1% 27.3% 29.8%
Total Combined 84.6% 83.2% 80.4% 83.8%
Dollars in millions
Net written premiums $136.6 $192.8 $182.5 $511.9
Earned premiums $109.1 $182.6 $181.8 $473.6
Three Months Ended September 30, 2006
Primary Insurance Operations
Commer-
Specialty cial Personal Total (2)
GAAP Ratios
Loss and loss adjustment
expenses 54.2% 56.4% 59.8% 59.2%
Expense 34.6% 36.2% 33.1% 35.2%
Total Combined 88.8% 92.6% 92.9% 94.4%
Dollars in millions
Net written premiums $142.5 $186.3 $206.5 $536.2
Earned premiums $111.0 $175.3 $205.5 $492.7
Nine Months Ended September 30, 2007
Primary Insurance Operations
Commer-
Specialty cial Personal Total (2)
GAAP Ratios
Loss and loss adjustment
expenses 56.9% 53.6% 60.6% 58.8%
Expense 30.5% 36.2% 33.4% 33.9%
Total Combined 87.4% 89.8% 94.0% 92.7%
Dollars in millions
Net written premiums $344.2 $557.0 $535.7 $1,437.0
Earned premiums $324.3 $531.0 $552.1 $1,407.5
Nine Months Ended September 30, 2006
Primary Insurance Operations
Commer
Specialty -cial Personal Total (2)
GAAP Ratios
Loss and loss adjustment
expenses 55.4% 57.9% 62.9% 61.1%
Expense 32.5% 37.7% 31.6% 34.5%
Total Combined 87.9% 95.6% 94.5% 95.6%
Dollars in millions
Net written premiums $350.1 $548.8 $626.3 $1,526.0
Earned premiums $321.0 $511.6 $624.7 $1,458.1
(1) During the fourth quarter of 2006 to better align with
OneBeacon's business and product management structure, OneBeacon
repositioned the reporting of AutoOne to personal lines and
OneBeacon Specialty Property to commercial lines. Both AutoOne and
OneBeacon Specialty Property were formerly reported in specialty
lines.
(2) Includes results from run-off.
ONEBEACON INSURANCE GROUP, LTD.
BOOK VALUE AND ADJUSTED BOOK VALUE PER COMMON SHARE
(in millions, except per share amounts)
(Unaudited)
Pro Forma
September September
30, 30, December 31,
2006 2006 (1) 2006
Numerator
Common shareholders' equity $1,695.3 $1,683.3 $1,777.2
Remaining adjustment of subsidiary
preferred stock to face value (65.5) (65.5) (57.7)
Adjusted common shareholders'
equity (3) $1,629.8 $1,617.8 $1,719.5
Dividends (4) 0.0 0.0 0.0
Adjusted common shareholders'
equity, including dividends (3)(4) $1,629.8 $1,617.8 $1,719.5
Denominator
Common shares outstanding (2)(5) 100.0 100.0 100.0
Book value per common share $16.95 $16.83 $17.77
Adjusted book value per common
share (3) $16.30 $16.18 $17.20
Adjusted book value per common
share, including dividends (3)(4) $16.30 $16.18 $17.20
June 30, September 30,
2007 2007
Numerator
Common shareholders' equity $1,861.3 $1,910.9
Remaining adjustment of subsidiary
preferred stock to face value (40.8) (31.5)
Adjusted common shareholders' equity (3) $1,820.5 $1,879.4
Dividends (4) 42.0 63.0
Adjusted common shareholders'
equity, including dividends (3)(4) $1,862.5 $1,942.4
Denominator
Common shares outstanding (2)(5) 100.0 99.7
Book value per common share $18.61 $19.17
Adjusted book value per common
share (3) $18.21 $18.85
Adjusted book value per common
share, including dividends (3) (4) $18.63 $19.48
Growth in adjusted book value per
common share, including dividends,
in the quarter (4) 4.6%
Growth in adjusted book value per
common share, including dividends,
in the nine month period (4) 13.3%
Growth in adjusted book value per
common share, including dividends,
from pro forma September 30, 2006 (4) 20.4%
(1) The pro forma data as of September 30, 2006 has been derived by
application of pro forma adjustments related to the internal
reorganization and other transactions that were completed
in anticipation of and in conjunction with the initial public
offering of the Company. See the Company's Prospectus dated November
8, 2006 for a further description of pro forma adjustments.
(2) On October 18, 2006, the Company executed a stock split and
recapitalization that increased the common shares outstanding from 12
thousand to 100 million and reduced the par value from $1.00 to
$0.01. The stock split and recapitalization have been reflected
retroactively in these financial statements for the September 2006
periods presented.
(3) Represents a non-GAAP financial measure.
(4) Includes dividends of $0.21 per common share paid quarterly beginning
in March 2007.
(5) Includes the impact of repurchases of Class A common shares made
through the Company's share repurchase program which commenced in the
third quarter of 2007.
ONEBEACON INSURANCE GROUP, LTD.
ADJUSTED COMPREHENSIVE NET INCOME, ADJUSTED NET INCOME AND ADJUSTED
OPERATING INCOME
(in millions, except per share amounts)
(Unaudited)
Twelve
Months
Three Months Nine Months Ended
Ended Ended September
September 30, September 30, 30,
2007 2006 2007 2006 2007
Comprehensive net income $76.0 $94.3 $201.5 $188.1 $289.1
Adjusting items (1) 13.8 14.8 40.5 43.2 54.4
Adjusted comprehensive net
income (2) $89.8 $109.1 $242.0 $231.3 $343.5
Net income $82.3 $72.9 $205.1 $194.3 $257.5
Adjusting items (1) 13.8 14.8 40.5 43.2 54.4
Adjusted net income (2) $96.1 $87.7 $245.6 $237.5 $311.9
Weighted average common
shares outstanding (3)(4) 100.0 100.0 100.0 100.0 100.0
Adjusted operating income
per share (2) $0.96 $0.88 $2.46 $2.38 $3.12
Net income $82.3 $72.9 $205.1 $194.3 $257.5
Less:
Net realized investment
gains (30.7) (35.4) (142.7) (105.0) (201.3)
Tax effect on net realized
investment gains 10.7 12.4 49.9 36.8 70.5
Operating income (2) $62.3 $49.9 $112.3 $126.1 $126.7
Adjusting items (1) 13.8 14.8 40.5 43.2 54.4
Adjusted operating
income (2) $76.1 $64.7 $152.8 $169.3 $181.1
Weighted average common
shares outstanding (3)(4) 100.0 100.0 100.0 100.0 100.0
Adjusted operating income
per share (2) $0.76 $0.65 $1.53 $1.69 $1.81
(1) Adjusted to exclude the impact of economically defeasing the
Company's mandatorily redeemable preferred stock, as illustrated
below.
Adjusting items:
Dividends on preferred stock $7.1 $7.6 $22.2 $22.7 $30.0
Accretion on preferred stock 9.2 7.2 26.2 20.5 33.8
Earnings on defeasance, net of
tax (2.5) - (7.9) - (9.4)
Total adjusting items $13.8 $14.8 $40.5 $43.2 $54.4
(2) Represents a non-GAAP financial measure.
(3) On October 18, 2006, the Company executed a stock split and
recapitalization that increased the common shares outstanding from
12 thousand to 100 million and reduced the par value from $1.00 to
$0.01. The stock split and recapitalization have been reflected
retroactively in these financial statements for the 2006 periods
presented.
(4) Includes the impact of repurchases of common shares made through
the Company's share repurchase program which commenced in the
third quarter of 2007.
ONEBEACON INSURANCE GROUP, LTD.
ADJUSTED COMPREHENSIVE AND OPERATING RETURNS ON AVERAGE EQUITY
($ in millions)
(Unaudited)
Twelve
Months
Ended
September 30,
2007
Numerator:
[A] Adjusted comprehensive net income (1) (see page 12) $343.5
[B] Adjusted operating income (1) (see page 12) $181.1
As of As of
September September
30, 2007 30, 2006 Average
Denominator:
Common shareholders' equity $1,910.9 $1,695.3 $1,803.1
Less: Remaining adjustment of
subsidiary preferred stock to face
value (31.5) (65.5)
[C] Adjusted common shareholders'
equity (1) $1,879.4 $1,629.8 $1,754.6
Less: AOCI (183.3) (144.3)
[D] Adjusted common shareholders'
equity excluding AOCI (1) $1,696.1 $1,485.5 $1,590.8
Returns (1):
Adjusted comprehensive return on
average adjusted common
shareholders' equity [ A / C ] 19.6%
Adjusted operating return on average
adjusted common shareholders'
equity excluding AOCI [ B / D ] 11.4%
(1) Represents a non-GAAP financial measure.
Discussion of Non-GAAP Financial Measures
This earnings release includes non-GAAP financial measures that have been reconciled to their most comparable GAAP financial measures. OneBeacon believes these measures to be useful supplements to the comparable GAAP measures in evaluating OneBeacon's financial performance. In addition, certain of these non-GAAP financial measures have been adjusted to exclude the impacts of economically defeasing the Company's mandatorily redeemable preferred stock. As described in more detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, in connection with its initial public offering, the Company created two irrevocable grantor trusts and funded them with assets sufficient to make the remaining dividend and redemption payments for $20 million of preferred stock that was redeemed in June 2007 and $300 million of preferred stock that will be redeemed in May of 2008. The Company created and funded these trusts to appropriately capitalize and leverage the Company in preparation for and in connection with its initial public offering. Having completed these actions, OneBeacon believes that presentation of certain of the non-GAAP financial measures as described below, adjusted to exclude the impact of the economic defeasance of the preferred stock as of and for the respective periods, is a useful supplement to understanding the Company's earnings and profitability.
Adjusted book value per common share is a non-GAAP financial measure which is derived by excluding the impact of economically defeasing the Company's mandatorily redeemable preferred stock from book value per common share, the most closely comparable GAAP measure. For the reason stated above, OneBeacon believes that adjusted book value per common share is a useful supplement to understanding the Company's earnings and profitability.
Adjusted book value per common share, including dividends is a non-GAAP financial measure which is derived by adding back the impact of dividends paid to adjusted book value per common share (a non-GAAP financial measure described above). OneBeacon believes that adjusted book value per common share, including dividends is a useful supplement to understanding the Company's earnings and profitability.
Adjusted comprehensive net income is derived by excluding the impact of economically defeasing the Company's mandatorily redeemable preferred stock from comprehensive net income, the most closely comparable GAAP measure. As described above, OneBeacon believes that adjusted comprehensive net income is a useful supplement to understanding the Company's earnings and profitability.
Adjusted net income is derived by excluding the impact of economically defeasing the Company's mandatorily redeemable preferred stock from net income, the most closely comparable GAAP measure. As described above, OneBeacon believes that adjusted net income is a useful supplement to understanding the Company's earnings and profitability.
Adjusted net income per common share is calculated by dividing adjusted net income (a non-GAAP financial measure described above) by the weighted average number of common shares outstanding. OneBeacon believes that adjusted net income per share is a useful supplement to understanding the Company's earnings and profitability.
Operating income is a non-GAAP financial measure that excludes net realized investment gains or losses and the related tax effect from net income. OneBeacon believes that this non-GAAP financial measure provides a useful alternative picture of the underlying operating activities of the Company to the GAAP measure of net income, as it removes variability in the timing of investment gains and losses which may be heavily influenced by investment market conditions. Although key to the Company's overall financial performance, OneBeacon believes that net realized investment gains or losses are largely independent of the underwriting decision-making process as well as the activities of its other operations segment.
Adjusted operating income is a non-GAAP financial measure that excludes the impact of economically defeasing the Company's mandatorily redeemable preferred stock from operating income (a non-GAAP financial measure described above). OneBeacon believes that adjusted operating income is a useful supplement to understanding the Company's earnings and profitability.
Adjusted operating income per common share is calculated by dividing adjusted operating income (a non-GAAP financial measure described above) by the weighted average number of common shares outstanding. OneBeacon believes that adjusted operating income per share is a useful supplement to understanding the Company's earnings and profitability. Net income per share is the most directly comparable GAAP measure.
Adjusted common shareholders' equity, which is used in calculating adjusted book value per common share (a non-GAAP financial measure described above) and the average of which is used in calculating adjusted comprehensive returns (a non-GAAP financial measure described below), is derived by excluding the impact of economically defeasing the Company's mandatorily redeemable preferred stock from common shareholders' equity, the most closely comparable GAAP measure.
Adjusted common shareholders' equity, including dividends, which is used in calculating adjusted book value per common share, including dividends (a non-GAAP financial measure described above), is derived by adding back the impact of dividends paid to adjusted common shareholders' equity (a non-GAAP measure described above.)
Adjusted comprehensive return on average adjusted common shareholders' equity is calculated by dividing adjusted comprehensive net income (a non-GAAP financial measure described above) for the latest 12 month period by average adjusted common shareholders' equity (a non-GAAP financial measure described above). OneBeacon believes that adjusted comprehensive return on average adjusted common shareholders' equity is a useful supplement to understanding the Company's earnings and profitability. The reconciliation of the numerator and denominator to the most closely comparable GAAP measures are described above.
Adjusted common shareholders' equity excluding accumulated other comprehensive income (AOCI), the average of which is used in calculating adjusted operating returns (a non-GAAP financial measure described below), is derived by excluding AOCI and the impacts of economically defeasing the Company's mandatorily redeemable preferred stock from common shareholders' equity. For the reasons described above, OneBeacon believes that it is appropriate to remove the variability in the timing of unrealized investment gains and losses and the impact of economically defeasing the Company's mandatorily redeemable preferred stock when analyzing certain performance measures.
Adjusted operating return on average common shareholders' equity excluding AOCI is calculated by dividing adjusted operating income (a non-GAAP financial measure described above) the latest 12 month period by average adjusted common shareholders' equity excluding AOCI (a non-GAAP financial measure described above). For the reason stated above, OneBeacon believes that adjusted operating return on average common shareholders' equity excluding AOCI is a useful supplement to understanding the Company's operating performance. The reconciliation of the numerator and denominator to the most closely comparable GAAP measures are described above.
OneBeacon Insurance Group, Ltd.
