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Loss and Loss Adjustment Expense Reserves
 3 Months Ended
Mar. 31, 2012
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 months ended March 31, 2012 and 2011:

 

 

 

Three Months Ended
March 31,

 

Millions

 

2012

 

2011

 

Gross beginning balance

 

$

  5,702.3

 

$

 5,736.8

 

Less beginning reinsurance recoverable on unpaid losses

 

(2,507.3

)

(2,344.0

)

Net loss and LAE reserves

 

3,195.0

 

3,392.8

 

 

 

 

 

 

 

Less:  Beginning net loss and LAE reserves for AutoOne (1)

 

—

 

(77.3

)

 

 

 

 

 

 

Loss and LAE incurred relating to:

 

 

 

 

 

Current year losses

 

257.9

 

375.7

 

Prior year losses

 

4.8

 

(17.3

)

Total incurred losses and LAE

 

262.7

 

358.4

 

 

 

 

 

 

 

Accretion of fair value adjustment to loss and LAE reserves

 

7.1

 

2.1

 

Foreign currency translation adjustment to loss and LAE reserves

 

11.8

 

21.1

 

 

 

 

 

 

 

Loss and LAE paid relating to:

 

 

 

 

 

Current year losses

 

(46.7

)

(44.5

)

Prior year losses

 

(384.5

)

(269.7

)

Total loss and LAE payments

 

(431.2

)

(314.2

)

 

 

 

 

 

 

Plus:  Ending net loss and LAE reserves for AutoOne (1)

 

—

 

72.7

 

 

 

 

 

 

 

Net ending balance

 

3,045.4

 

3,455.6

 

Plus ending reinsurance recoverable on unpaid losses

 

2,465.4

 

2,304.1

 

Gross ending balance

 

$

 5,510.8

 

$

 5,759.7

 

 

(1)          Loss and LAE reserve balances for AutoOne prior to December 31, 2011 were not classified as held for sale for the three months ended March 31, 2011.  Adjustment is to present loss and LAE reserve activities from continuing operations.

 

Loss and LAE incurred relating to prior year losses for the three months ended March 31, 2012

 

During the three months ended March 31, 2012, White Mountains experienced $4.8 million of net unfavorable loss reserve development.  OneBeacon had net unfavorable loss reserve development of $10.5 million and Sirius Group had net favorable loss reserve development of $5.7 million.

 

The unfavorable loss reserve development at OneBeacon was primarily driven by unfavorable development in the run-off business, including development related to multiple peril lines and general liability lines and the impact of an adverse court ruling in Mississippi regarding a disputed assessment from an involuntary pool for hurricane Katrina claims in 2005.  The net favorable loss reserve development at Sirius Group included reductions for the 2011 Japan earthquake and tsunami of $8.1 million, partially offset by increases to asbestos and environmental reserves and reserves for other prior period catastrophe losses.

 

Loss and LAE incurred relating to prior year losses for the three months ended March 31, 2011

 

During the three months ended March 31, 2011, White Mountains experienced $17.3 million of net favorable loss reserve development.  OneBeacon and Sirius Group had net favorable loss reserve development of $5.1 million and $12.2 million, respectively.

 

The favorable loss reserve development at OneBeacon was primarily due to lower than expected severity on losses related to professional liability lines, multiple peril liability lines and other general liability lines.  The favorable loss reserve development at Sirius Group was primarily due to a $5.0 million reduction from the 2010 Chilean earthquake and $9.0 million of favorable loss reserve development on a 1999 aviation loss.

 

Fair value adjustment to loss and LAE reserves

 

In connection with purchase accounting for acquisitions, 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.  White Mountains recognized $7.1 million and $2.1 million of such charges, recorded as loss and LAE for the three months ended March 31, 2012 and 2011.  Accretion of fair value adjustment to losses and LAE reserves increased by $5.0 million in the first quarter of 2012 due to the acceleration of the amortization of the purchase accounting established for the acquisition of Scandinavian Re.  This acceleration was a result of a final settlement and commutation of Scandinavian Re’s multi-year retrocessional Casualty Aggregate Stop Loss Agreement with St. Paul Fire & Marine Insurance Company (“St Paul”). As of March 31, 2012, the remaining unamortized fair value adjustment for Scandinavian Re was $4.0 million.