Predictably, White Mountains (NYSE:WTM) had a great fourth quarter, with few disasters and other loss events to drain its coffers. However, its yearly results suffered from some loss-development issues.

For the fourth quarter, results were stellar. White Mountains posted net income of $300 million, up from $33 million last year. The latest quarter's results have been helped by favorable weather conditions, while last year's results were marred by hurricane-induced losses. Adjusted comprehensive income for the year increased to $734 million -- compared to $68 million last year. The results included a $171 million gain on sale when White Mountains sold 27.6% of its subsidiary, OneBeacon (NYSE:OB), in an initial public offering.

For the year, net income doubled to $673 million from $293 million last year, and tangible book value per share increased 21% for the year to $406 million. However, much of the improvement in net income was driven by the gain on sale.

The gift that keeps on taking
White Mountains' reinsurance segment's fourth-quarter combined ratio of 85% (indicating a 15% underwriting profit) was in line with competitors such as Markel (NYSE:MKL) and WR Berkley (NYSE:BER). Property and casualty (P&C) insurers have had a record year, thanks to favorable weather and pricing power. For the year, however, White Mountains posted an ugly-looking 102% combined ratio (a 2% underwriting loss) compared to last year's 118%. The company drastically underestimated its potential 2005 hurricane losses, and since it hadn't set aside enough cash to cover the costs, the company had to incur more losses in 2006 to compensate.

Going direct
Esurance, White Mountains' direct-to-consumer auto insurance business, which competes with Berkshire Hathaway's (NYSE:BRK-B) GEICO unit and Progressive's (NYSE:PGR) Direct segment, has been growing extremely fast from a small base. Although Esurance continues to post an operating loss, the segment increased net written premiums 71% in 2006, and nearly doubled the number of policies it wrote for the year to 323,000. As the division grows, it should be able to spread its customer acquisition costs over a wider base, better leveraging its expense ratio.

Although last year's hefty losses hurt White Mountains' yearly results, the company has a great long-term track record. The troubles incurred by 2005's hurricane season should prove a mere hiccup in the long run.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He owns shares in Montpelier Re. The Motley Fool has a disclosure policy. Emil appreciates comments, concerns, and complaints.