It's not often that you find something exciting to write about in the insurance sector. The most exciting news usually revolves around the latest gimmick Geico will employ in its commercials.
Friday provided a rare breath of fresh air as White Mountains Insurance Group (NYSE: WTM ) , a holding company for property and casualty insurance businesses, absolutely crushed Wall Street's expectations in every sense of the word. White Mountains reported fourth-quarter earnings of $8.65 per share versus the $4.00 estimate from the lone analyst covering the stock. The good news ran from the company like water from a faucet.
For starters, White Mountains grew its book value by 23% for the year to $542 per share after dividends. Facilitating the huge jump in shareholder equity was the sale of Esurance and Answer Financial to Allstate (NYSE: ALL ) for $1 billion in May. Premiums for policies underwritten by both Esurance and Answer Financial totaled $1.2 billion in 2010. Suffice it to say, White Mountains received a more than fair price for the two companies and added $89 to its book value during fiscal 2011.
Another key to White Mountains' success is that it keeps its underwriting profitable, even when catastrophe losses are running high. Its OneBeacon Insurance (NYSE: OB ) division grew net premiums underwritten by 11%, with specialty premiums up 12% for the fourth quarter. The specialty GAAP combined ratio -- a measure of how profitable it is for an insurer to underwrite a policy, with any number more than 100 signifying losses -- for this division fell by 200 basis points to 92% for the year, meaning it was more profitable to underwrite policies.
Even its Sirius Group division, which struggled because of high catastrophe losses relating to the earthquake in Japan and flooding in Thailand, managed to post breakeven GAAP earnings for the year and a combined ratio of 88% for the fourth quarter.
White Mountains also ended the year with roughly $2 billion in undeployed capital, up from $1.1 billion in the year-ago period. The insurer repurchased 646,502 shares over the course of 2011 at an average price of $391. With shares closing at a new 52-week high Friday, even that move appears to be sheer genius.
Despite gaining 36% over the past 12 months, White Mountains still looks like a bargain relative to many of its peers at just 87% of its book value. Regularly profitable and built to stand the test of time, I expect White Mountains will continue to make a fool out of Wall Street.
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