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Fitch Puts White Mountains On Negative Watch

The Associated Press

NEW YORK (AP) — Fitch Ratings placed the "BBB+" issuer default ratings of Bermuda-based White Mountains Insurance Group Ltd. on ratings watch negative Monday.

The move also applies to the "BBB+" issuer default ratings of its wholly owned intermediate holding company, White Mountains Re Group Ltd. and its majority owned intermediate holding company, OneBeacon U.S. Holdings Inc.

In addition, Fitch placed on rating watch negative the "BBB" senior debt ratings of White Mountains Re and OB Holdings.

The ratings are all considered investment grade.

Fitch affirmed the insurer financial strength ratings for OneBeacon Insurance Group at "A," for White Mountains Re's reinsurance subsidiaries White Mountains Reinsurance Company of America and Sirius International Insurance Corporation at "A-," and for White Mountains Re Bermuda Ltd. at "A." The rating outlook on all insurer financial strength ratings was revised to negative from stable.

Fitch said the revisions reflects its view the company faces increased risk due to its dramatic loss of shareholder equity, which stood at $2.9 billion on Dec. 31, down 38 percent for the year. The stock closed Dec. 31 at $267.11, and ended Monday's session at $165.40, a drop of more than 38 percent since the start of the year.

The sharp stock decline increased debt-to-total capital ratio to 28 percent at year-end 2008 from 21 percent on Dec. 31, 2007.

If the company is able to avoid further declines in capital and stabilize or reduce its risk related to variable annuity reinsurance, which added to losses last year, Fitch said its ratings would likely be affirmed and assigned a negative outlook. If not, Fitch could downgrade all of the IDRs and debt ratings by one notch, and assign a negative outlook.

The negative outlook stems from significant drops in capital levels due to investment losses that have impacted White Mountains and almost all insurers due to unprecedented market volatility, Fitch said.

It also reflects the potential for further reductions in capital margin, particularly from additional losses in the company's common stock and other investments portfolio. If White Mountains can improve its earnings and avoid continued capital declines in the near-to-intermediate term, the outlook could return to stable, the ratings agency said.

Fitch favorably views White Mountains' recent move to shift its investment strategy to capital preservation. The ratings reflect the insurer's "disciplined underwriting and operating strategy, strong operating company capitalization, overall adequate loss reserves and solid management team," Fitch said.