The following discussion contains “forward-looking statements”. White Mountains intends statements which are not historical in nature, and are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct. White Mountains’ actual results could be materially different from and worse than its expectations. See "FORWARD-LOOKING STATEMENTS" for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.
During the fourth quarter of 2003, OneBeacon sold one of its subsidiaries, National Farmers Union Standard Insurance Company (“NFU Standard”), for $22.4 million and recognized a $8.7 million gain on the sale though other revenues.
Folksamerica experienced approximately $46 million of unfavorable loss reserve development during 2003, primarily due to strengthening of A&E reserves and reserves on Risk Capital casualty lines. Folksamerica’s 2003 loss development for A&E exposures was due to the completion of a detailed A&E market share study. This study compared Folksamerica’s share of industry paid losses to estimated industry carried reserves and resulted in Folksamerica increasing its IBNR by approximately $25 million.
Aside from the lower level of incurred catastrophe losses, the improvement in Folksamerica’s 2002 results was attributable to the continuing positive trends in reinsurance pricing, terms and conditions that began before, and became more dramatic after, the Attacks.
Other Insurance Operations Esurance reported $35.9 million of pretax losses during 2003, compared to $29.7 million and $21.2 million in 2002 and 2001, respectively. Substantially all of the business generated by Esurance was directly written or assumed by subsidiaries of White Mountains. Premium and loss and LAE are included in the underwriting unit that ultimately retains the risk under the policy written through Esurance. Commission and management fee revenues earned by Esurance on business retained by other White Mountains insurance subsidiaries have been eliminated from Esurance’s segment results provided above, as have the offsetting commission expenses been eliminated from the insurance subsidiaries’ results. Such intercompany revenue at Esurance totaled $20.8 million in 2003 and $5.1 million in 2002. In addition, interest on intercompany loans from Folksamerica to Esurance has also been eliminated from the results of both companies.
Folksamerica sets up claim files for each reported claim by each cedent for each individual insured. In many instances, a single claim notification from a cedent could involve several years and layers of coverage resulting in a file being set up for each involvement. Precautionary claim notices are submitted by the ceding companies in order to preserve their right to pursue coverage under the reinsurance contract. Such notices do not contain an incurred loss amount to Folksamerica, accordingly, an open claim file is not established. As of December 31, 2003, Folksamerica had approximately 1,185 open claim files for asbestos and 743 open claim files for environmental exposures.
As of December 31, 2001, White Mountains had unamortized deferred credits and goodwill of $682.5 million and $22.3 million, respectively. Deferred credits represent the excess of the fair value of the net assets over the purchase price paid. Goodwill represents the excess of the purchase price over the fair value of the net assets of companies acquired. These deferred credits and goodwill resulted from White Mountains’ pre-July 1, 2001 acquisition activities which were accounted for in accordance with the treatment of a purchase business combination under Accounting Principles Board (“APB”) No. 16, ABusiness Combinations” (“APB 16”). APB 16 calls for the net assets of the operations acquired to be recorded by White Mountains at their fair values on the date of acquisition.
• changes in domestic or foreign laws or regulations applicable to White Mountains, its competitors or its clients;