Fitch Puts White Mountains On Negative Watch

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.