MOODYS RATES WHITE MOUNTAINS INSURANCE GROUP, LTD. SUBSIDIARY SENIOR DEBT at Baa2; OUTLOOK STABLE
New York, May 21, 2003 -- Moody's Investors Service has assigned a Baa2 debt rating to $700 million of senior unsecured notes, due in May 2013, issued by Fund American Companies, Inc. (Fund American), an intermediate holding company subsidiary of White Mountains Insurance Group, Ltd. The outlook for the rating is stable.
Proceeds from the $700 million senior notes offering will be used by Fund American to repay all remaining credit facility term loans, totaling approximately $615 million, originally drawn in June 2001 to help finance the acquisition of CGU Insurance Group, later renamed OneBeacon Insurance Group (OneBeacon). The remainder of the proceeds will be used to repay a portion of Fund American’s $175 million revolving credit facility, of which $125 million is drawn. The $175 million revolving credit facility will remain in place and provides a source of on-going liquidity to Fund American. Moody’s noted that it rates the revolving credit facility Baa2.
As subsidiaries of Fund American, OneBeacon and its wholly-owned subsidiary Folksamerica Reinsurance Company (Folksamerica) provide the principle support for Fund American’s debt service. In addition, however, principal and interest on the senior notes and the revolving credit facility are guaranteed by White Mountains Insurance Group, Ltd.
In its rationale, the rating agency noted OneBeacon's solid franchise and market position, strong agency relationships, balanced mix of personal, commercial and specialty lines business as well as improved market and business prospects going forward. Factors countering these strengths include the poor historic underwriting performance and large reserve charges stemming from the quality of the old CGU book, along with the general uncertainty that accompanies the significant reduction and restructuring of the company's book of business.
Continuing to explain its rating rationale, Moody’s noted that Folksamerica’s strengths are its sound underwriting discipline, high quality investment portfolio and recently expanded capital base. Facing a hardening reinsurance market, the company is well positioned, both in terms of added capital, resources and underwriting partnerships, to take advantage of expected favorable market conditions. However, Moody’s added, Folksamerica’s success in profitably deploying its capital may be challenged by a number of factors, such as competition from much larger global reinsurers and by the impact of new flows of capital into the market on capacity and price.
In a related action, the rating agency stated that it will withdraw its Baa2 rating on Fund American’s credit facility term loans once the term loans are repaid.
White Mountains Insurance Group, Ltd., a Bermuda-based insurance holding company, reported first quarter 2003 net income available to common shareholders of $90.6 million. Net income available to common shareholders’ for the full year 2002 was $728.7 million and included $660.2 million of net deferred credits, which were recognized during first quarter 2002 as a result of the adoption of SFAS 141, which requires the recognition of goodwill (in this case, negative goodwill) through the income statement.
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