Publication Date: 07/22/2003

Best's Companies Report for

ONEBEACON INSURANCE COMPANY

Group Affiliation: White Mountain Insurance Group

Philadelphia, Pennsylvania, United States

One Beacon Street, Boston, Massacusetts, United States, 02108

Web: www.onebeacon.com

Tel: 617-725-6000            Fax: 617-725-6702

AMB#: 02196                        NAIC#: 21970

FEIN#:  23-1502700                                       

BEST'S RATING

Based on our opinion of the consolidated Financial Strength of the members of OneBeacon Insurance Group, which operates under a business pooling agreement, each pool member is assigned a Best's Rating of A (Excellent). The company is assigned the Financial Size Category of Class XV, which is the Financial Size Category of the pool

RATING RATIONALE

The following text is derived from the report of OneBeacon Insurance Group.

Rating Rationale: The Rating applies to OneBeacon Insurance Group's thirteen member intercompany pool, its eleven reinsured affiliates, and to Esurance Property and Casualty Insurance Company, which is group rated and reinsures a substantial portion of its business with OneBeacon Insurance Company, the lead member of the group.. The rating reflects the consolidated group's excellent current and prospective capitalization, strong agency franchise and significantly improved earnings capacity.....................................

A major step toward transforming the group into a Northeast-regional property-casualty insurer was taken in November 2001 when OneBeacon entered into a transaction with Liberty Mutual Group to transfer its regional non core agency business, agents and operations in 42 states and the District of Columbia to Liberty Mutual. As a part of this Transaction, OneBeacon successfully transferred the associated infrastructure including underwriting, marketing, and claims handling (!!!) to Liberty, thereby significantly reducing OneBeacons cost structure and further positioning the group to focus on its northeast property-casualty business as well as its nationwide specialty lines. The balance sheet was significantly strengthened when as a result of an independent actuarial reserve analysis conducted as a part of the sale to White Mountains Insurance Group Ltd., One Beacon strengthened its loss reserves by approximately $800 million at year-end 2000. Concurrent with the close of the saleOneBeacon also transferred (through the affiliated Potomac Insurance company) substantial liabilities relating to its non-strategic operations via a loss portfolio transaction with National Indemnity Company (NICO) and purchased additional reinsurance from General Reinsurance Corporation (GRC) to protect against further adverse loss development on remaining net reserves as of year-end 2000. Potomac Insurance company is separately rated by A.M.Best and is not included in the OneBeacon Insurance Group rating. The NICO loss portfolio transaction , which represented approximately $1.3 billion of reserves at year-end 2002, provides limits of up to $2.5 billion and largely covers the group's A&E and mass tort liabilities. Approximately $730 million of coverage remains under this cover. In addition to these reserve actions, the group's investment portfolio, which had historically been substantially exposed to the equity markets, was essentially liquidated during the first quarter of 2001 and reinvested in investment grade fixed income securities. As a result, the group escaped the worst of the 2001 equity market downturn and actually benefited from a significant increase in the market value of its bond holdings. As a result of these actions, the quality of OneBeacons balance sheet has been significantly enhanced.