Dear Fellow Shareholders,
For OneBeacon, 2009 marked a year of financial recovery, solid operating results and a transformation to a truly focused specialty insurance company.
On the financial front, our b ook value per share grew 31%, including dividends, to $15.03, driven by excellent investment returns of 10% and solid underwriting results measured by a 94% GAAP combined ratio. We reduced our financial leverage to 30%, while strengthening our loss reserves. Finally, we purchased additional reinsurance coverage on our homeowners book, which significantly reduced our largest exposure to catastrophic loss events. On every key financial measure, we concluded the year in a stronger position compared to 2008.
Specialty results were once again outstanding, producing an 84% combined ratio and premium growth of 13%. The results for 2009 included the first full year impact from Hagerty Insurance Agency and Entertainment Brokers International. Both were profitable, and we are excited about further potential for both businesses. OneBeacon Professional Insurance continued to deliver excellent results while adding new products and talent to their organization. International Marine Underwriters, a consistent money maker, once again delivered, despite a highly competitive marine market. They gave up market share to preserve profit, a tradeoff we support and applaud. Our Technology, Property and Inland Marine and OneBeacon Special Property units each had good results while thoughtfully navigating their competitive sectors. Dewar has been a market leader in tuition reimbursement insurance for many years and continues to produce outstanding results. Our Financial Services unit’s strategy and underwriting skills have certainly been challenged by the recent economic crisis, and we are pleased to report they have strongly withstood the pressure. In fact, there will be opportunities for them to carefully expand in certain geographic regions. Our more recently established specialties, including Accident and Health, OneBeacon Government Risks and OneBeacon Energy, are developing nicely and we believe will be key contributors in the future. There is great strength in the diversity of these segments and the constant driver of their success is their focus on a specific segment and the deep knowledge and underwriting expertise within each group. We are constantly looking to add more segments, but more importantly, talented leadership that aligns with our values. Over the past five years, we have started or purchased seven new segments and, today, have a total of 12 units producing approximately $1 billion Specialty net written premiums per year.
Our Commercial Lines results were reported with Run-off, which produced a combined ratio of 101%, while Personal Lines reported a combined ratio of 107%. Given these mediocre underwriting results, our competitive position in these segments, and our expectations for continued soft market conditions, we negotiated separate agreements to sell our non-specialty Commercial and Personal Lines businesses. Importantly, these transactions will free up significant capital, which we will use to invest in existing and new specialty opportunities — or return to shareholders. Additionally, these sales will dramatically reduce our exposure to natural catastrophic events going forward. We will continue to manage a large runoff of old reserves which we have effectively done in the past through a dedicated claims group and supported by highly rated reinsurers. I am confident in our ability to manage these claims.
At AutoOne, our assigned risk private passenger auto business, we had a tough year. The involuntary markets are at their lowest premium volume level since we have been in the business, putting significant pressure on expenses. We have an excellent management team that has responded appropriately, but it is still a tough environment.
Going forward, we have a clear focus on specialized segments. This move away from businesses with large volumes of transactions and claims will allow us to center all aspects of the company on being a premier specialty carrier, with industry-leading expertise deployed in the segments that we believe present the highest available risk-adjusted returns. Aligning the infrastructure to support our smaller specialty company is underway, but it will take a couple of years before we can truly get to an optimal cost structure. Our management team possesses deep skills and solid track records in specialty segments, which we expect will continue to pay off handsomely for our owners. While we anticipate that market conditions will remain competitive, we have been through this before and we are confident we can successfully navigate these markets.
We entered 2010 with profitable specialty businesses, strong capital, considerable financial flexibility and a conservative investment portfolio. Your management team remains committed to growing the value of the company and is optimistic about its ability to deliver. We remain appreciative of your support and are pleased to have you along for the journey.
Respectfully Submitted,
T. Michael Miller
President and Chief Executive Officer