UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended ~~September~~March 3031, ~~2011~~2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-73012-04

ONEBEACON U.S. HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		52-2272489
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

601 Carlson Parkway
Minnetonka, Minnesota		55305
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (952) 852-2431

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ~~(§232.405 of this chapter)~~ during the preceding 12 months ~~(or for such shorter period that the Registrant was required to submit and post such files)~~. Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~October~~April 2827, ~~2011~~2012, there were 505 outstanding shares of Common Stock, $1.00 par value per share, of the Registrant.

The Registrant meets the conditions set forth in General Instruction (H) (1) (a) and (b) of Form 10-Q and is therefore filing this Form with reduced disclosure format.

Table of Contents

ONEBEACON U.S. HOLDINGS, INC.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets: As of September 30, 2011 and December 31, 2010		2
	Consolidated Balance Sheets: March 31, 2012 and December 31, 2011	2
	Consolidated Statements of Operations and Comprehensive (Loss) Income: Three and nine months ended September 30, 2011 and 2010		3
	Consolidated Statements of Operations and Comprehensive Income: Three months ended March 31, 2012 and 2011	3
	Consolidated Statements of Common Shareholder’s Equity: Nine months ended September 30, 2011 and 2010		4
	Consolidated Statements of Common Shareholder’s Equity: Three months ended March 31, 2012 and 2011	4
	Consolidated Statements of Cash Flows: Nine months ended September 30, 2011 and 2010		5
	Consolidated Statements of Cash Flows: Three months ended March 31, 2012 and 2011	5
	Notes to Consolidated Financial Statements	6	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30	33
	Results of Operations — For the three and nine months ended September 30, 2011 and 2010		34
	Results of Operations — For the three months ended March 31, 2012 and 2011	30
	Liquidity and Capital Resources	40	49
	Critical Accounting Estimates	44	53
	Forward-Looking Statements	45	54
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	46	55
ITEM 4.	Controls and Procedures	46	55
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	46	55
ITEM 1A.	Risk Factors	46	56
ITEM 6.	Exhibits		56
ITEM 4.	Mine Safety Disclosure	46
SIGNATURES			57
ITEM 6.	Exhibits	47
SIGNATURES		48

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ONEBEACON U.S. HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	March 31,			December 31,
	2011			2010
	2012			2011
	(Unaudited)
	(in millions, except share and per share amounts)
Assets
Investment securities:
Fixed maturity investments, at fair value	$	1,~~881~~684.38		$	21,~~240~~745.48
Short-term investments, at amortized cost	169.5			166.8
Short-term investments, at amortized cost (which approximates fair value)	274.9			291.8
Common equity securities, at fair value	~~224~~257.42			~~285~~243.35
Convertible bonds, at fair value	73.9			93.8
Convertible fixed maturity investments, at fair value	72.5			72.5
Other investments	~~157~~155.19			~~171~~155.41
Total investments	2,~~506~~445.23			2,~~957~~508.7
Cash	3552.17			3349.20
Reinsurance recoverable on unpaid losses	2,~~239~~109.10			12,~~893~~167.25
Reinsurance recoverable on paid losses	1325.79			4416.5
Premiums receivable	~~243~~254.75			~~275~~230.09
Deferred acquisition costs	~~129~~117.69			~~114~~123.5
Ceded unearned premiums	119.57			~~113~~10.97
Net deferred tax asset	~~177~~133.64			~~151~~145.50
Investment income accrued	1210.41			1812.08
Accounts receivable on unsettled investment sales	~~18.~~1.7			50.4
Other assets	~~258~~265.02			~~289~~255.32
Assets held for sale	~~123.2~~—			—132.6
Total assets	$	5,~~768~~425.24		$	5,~~896~~652.28
Liabilities
Loss and LAE reserves	$	3,~~458~~249.96		$	3,~~295~~358.56
Unearned premiums	~~559~~557.49			~~627~~528.50
Debt	269.78			~~419~~269.67
Ceded reinsurance payable	2422.34			~~149~~23.34
Accounts payable on unsettled investment purchases	1760.09			1422.17
Other liabilities	~~384~~312.08			~~409~~396.82
Liabilities held for sale	~~98.2~~—			—107.6
Total liabilities	4,~~811~~473.54			4,~~915~~706.82
OB Holdings’ common shareholder’s equity and noncontrolling interests
OB Holdings’ common shareholder’s equity:
Common shares and paid-in surplus (par value $1, issued and outstanding, 505 shares)	~~950~~936.94			~~961~~950.59
Retained deficit	(9.0		)	(1.3		)
Retained earnings (deficit)	12.0			(7.5		)
Accumulated other comprehensive income, after tax:
Accumulated other comprehensive loss, after tax:
Other comprehensive income and loss items	0(10.67		)	0(10.39		)
Total OB Holdings’ common shareholder’s equity	~~942~~937.57			~~960~~932.5
Total noncontrolling interests	14.23			1914.91
Total OB Holdings’ common shareholder’s equity and noncontrolling interests	~~956~~952.70			~~980~~946.46
Total liabilities, OB Holdings’ common shareholder’s equity and noncontrolling interests	$	5,~~768~~425.24		$	5,~~896~~652.28

See Notes to Consolidated Financial Statements.

Table of Contents

ONEBEACON U.S. HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS)~~ INCOME

(Unaudited)

	Three months ended						Nine months ended
	Three months ended March 31,
	September 30,						September 30,
	2012			2011
	2011			2010			2011			2010
	($ in millions)
	($ in millions)
Revenues
Revenues
Earned premiums	$	272.8		$	245.1
Earned premiums	$	258.6		$	293.6		$	751.2		$	1,134.7
Net investment income	13.6			19.7
Net investment income	15.2			21.6			52.7			74.9
Net realized and unrealized investment gains	28.1			21.9
Net realized and unrealized investment (losses) gains	(44.4		)	51.6			(12.6		)	79.6
Net other revenues	0.1			0.8
Net other revenues (expenses)	—			12.9			(10.6		)	2.1
Total revenues	314.6			287.5
Total revenues	229.4			379.7			780.7			1,291.3
Expenses
Expenses
Loss and LAE	149.3			130.4
Loss and LAE	146.6			155.2			414.9			719.3
Policy acquisition expenses	57.4			49.0
Policy acquisition expenses	58.6			64.3			161.1			248.3
Other underwriting expenses	48.8			49.3
Other underwriting expenses	38.7			50.5			132.1			176.6
General and administrative expenses	1.0			1.2
General and administrative expenses	1.1			1.1			3.1			4.9
Interest expense on debt	4.1			6.3
Interest expense on debt	4.1			6.4			16.6			23.4
Total expenses	260.6			236.2
Total expenses	249.1			277.5			727.8			1,172.5
Pre-tax income from continuing operations	54.0			51.3
Pre-tax (loss) income from continuing operations	(19.7		)	102.2			52.9			118.8
Income tax expense	(18.3		)	(17.7		)
Income tax benefit (expense)	8.0			(23.4		)	(17.5		)	(33.4		)
Net income from continuing operations	35.7			33.6
Net (loss) income from continuing operations	(11.7		)	78.8			35.4			85.4
Loss from discontinued operations, net of tax	(0.1		)	(0.7		)
Loss from discontinued operations, net of tax	(2.5		)	(3.8		)	(4.4		)	(5.4		)
Net income including noncontrolling interests	35.6			32.9
Loss from sale of discontinued operations, net of tax	(18.2		)	—			(18.2		)	—
Less: Net income attributable to noncontrolling interests	(0.6		)	(0.4		)
Net (loss) income including noncontrolling interests	(32.4		)	75.0			12.8			80.0
Net income attributable to OB Holdings’ common shareholder	35.0			32.5
Less: Net income attributable to noncontrolling interests	(0.2		)	(0.8		)	(1.1		)	(1.6		)
Change in other comprehensive income and loss items	0.2			0.1
Net (loss) income attributable to OB Holdings’ common shareholder	(32.6		)	74.2			11.7			78.4
Comprehensive income attributable to OB Holdings’ common shareholder	$	35.2		$	32.6
Change in other comprehensive income and loss items	0.2			(0.3		)	0.3			(0.1		)
Comprehensive (loss) income attributable to OB Holdings’ common shareholder	$	(32.4	)	$	73.9		$	12.0		$	78.3

See Notes to Consolidated Financial Statements.

Table of Contents

ONEBEACON U.S. HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY

(Unaudited)

	OB Holdings’ Common Shareholder’s Equity
	Common shareholder’s equity			Common shares and paid-in surplus			Retained (deficit) earnings			Accum. other comprehensive (loss) income, after tax			Noncontrolling interests, after tax
	($ in millions)
Balances at January 1, 2011	$	960.5		$	961.5		$	(1.3	)	$	0.3		$	19.9
Balances at January 1, 2012	$	932.5		$	950.9		$	(7.5	)	$	(10.9	)	$	14.1
Net income	1135.70			—			1135.70			—			10.16
Issuance of common shares	—			—			—			—			0.32
Repurchases and retirements of common shares	—			—			—			—			(1.3		)
Dividends to OneBeacon U.S. Enterprises Holdings, Inc.	(15.5		)	—			(15.5		)	—			—
Dividends to OneBeacon U.S. Enterprises Holdings, Inc.	(19.4		)	—			(19.4		)	—			—
Return of capital to OneBeacon U.S. Enterprises Holdings, Inc.	(14.5		)	(14.5		)	—			—			—
Return of capital to OneBeacon U.S. Enterprises Holdings, Inc.	(10.6		)	(10.6		)	—			—			—
Dividends	—			—			—			—			(0.6		)
Dividends	—			—			—			—			(0.9		)
Other comprehensive income, after tax	0.2			—			—			0.2			—
Contributions	—			—			—			—			0.1
Balances at March 31, 2012	$	937.7		$	936.4		$	12.0		$	(10.7	)	$	14.3
Distributions	—			—			—			—			(5.0		)
Other comprehensive income, after tax	0.3			—			—			0.3			—
Balances at September 30, 2011	$	942.5		$	950.9		$	(9.0	)	$	0.6		$	14.2

	OB Holdings’ Common Shareholder’s Equity
	Common shareholder’s equity			Common shares and paid-in surplus			Retained (deficit) earnings			Accum. other comprehensive ~~loss~~income, after tax			Noncontrolling interests, after tax
	($ in millions)
Balances at January 1, 2010	$	1,391.5		$	970.5		$	427.2		$	(6.2	)	$	19.1
Balances at January 1, 2011	$	960.5		$	961.5		$	(1.3	)	$	0.3		$	19.9
Net income	7832.45			—			7832.45			—			10.64
Issuance of common shares	—			—			—			—			0.3
Dividends to OneBeacon U.S. Enterprises Holdings, Inc.	(~~270~~19.04		)	—			(~~270~~19.04		)	—			—
Dividends	—			—			—			—			(0.7		)
Return of capital to OneBeacon U.S. Enterprises Holdings, Inc.	(10.6		)	(10.6		)	—			—			—
Contributions	—			—			—			—			0.5
Dividends	—			—			—			—			(0.9		)
Distributions	—			—			—			—			(1.0		)
Other comprehensive income, after tax	0.1			—			—			0.1			—
Other comprehensive loss, after tax	(0.1		)	—			—			(0.1		)	—
Balances at March 31, 2011	$	963.1		$	950.9		$	11.8		$	0.4		$	19.7
Balances at September 30, 2010	$	1,199.8		$	970.5		$	235.6		$	(6.3	)	$	19.8

See Notes to Consolidated Financial Statements.

Table of Contents

ONEBEACON U.S. HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	Three months ended March 31,
	September 30,
	2012			2011
	2011		2010
	($ in millions)
	($ in millions)
Cash flows from operations:
Cash flows from operations:
Net income including noncontrolling interests	$	35.6		$	32.9
Net income including noncontrolling interests	$12.8		$80.0
Charges (credits) to reconcile net income to cash flows used for operations:
Charges (credits) to reconcile net income to cash flows (used for) provided from operations:
Net loss from discontinued operations	0.1			0.7
Net loss from discontinued operations	4.4		5.4
Net realized and unrealized investment gains	(28.1		)	(21.9		)
Net loss from sale of discontinued operations	18.2		—
Deferred income tax expense	12.0			13.7
Net realized and unrealized investment losses (gains)	12.6		(79.6	)
Other operating items:
Net realized gain on Personal Lines Transaction	—		(8.5	)
Net change in loss and LAE reserves	(109.0		)	(66.4		)
Net other realized losses	11.7		10.8
Net change in unearned premiums	29.9			(40.7		)
Deferred income tax (benefit) expense	(17.9	)	41.5
Net change in ceded reinsurance payable	(1.0		)	(58.9		)
Other operating items:
Net change in ceded unearned premiums	1.0			55.5
Net change in loss and LAE reserves	231.6		(282.3	)
Net change in premiums receivable	(23.6		)	12.5
Net change in unearned premiums	(31.2	)	(57.4	)
Net change in reinsurance recoverable on paid and unpaid losses	49.1			55.4
Net change in ceded reinsurance payable	(125.0	)	167.2
Net change in other assets and liabilities	(63.8		)	(41.7		)
Net change in ceded unearned premiums	102.4		(135.1	)
Net cash used for operations — continuing operations	(97.8		)	(58.9		)
Net change in premiums receivable	18.3		38.4
Net cash used for operations — discontinued operations	(2.0		)	1.4
Net change in reinsurance recoverable on paid and unpaid losses	(315.1	)	308.9
Net cash used for operations	(99.8		)	(57.5		)
Net change in other assets and liabilities	(40.4	)	(103.2	)
Cash flows from investing activities:
Net cash used for operations — continuing operations	(117.6	)	(13.9	)
Net maturities, purchases and sales of short-term investments	(51.7		)	(46.7		)
Net cash provided from operations — discontinued operations	0.8		0.5
Maturities of fixed maturity investments	66.2			126.3
Net cash used for operations	(116.8	)	(13.4	)
Sales of fixed maturity investments	611.7			356.2
Cash flows from investing activities:
Sales of common equity securities	11.2			17.6
Net maturities, purchases and sales of short-term investments	(2.5	)	(268.7	)
Sales of convertible fixed maturity investments	4.9			16.6
Maturities of fixed maturity investments	389.8		939.1
Distributions of other investments	5.6			18.2
Sales of fixed maturity investments	885.6		794.6
Purchases of fixed maturity investments	(532.7		)	(397.2		)
Sales of common equity securities	87.3		42.7
Purchases of common equity securities	(17.2		)	(17.8		)
Sales of convertible bonds	32.7		117.5
Purchases of convertible fixed maturity investments	(1.4		)	(8.6		)
Distributions and redemptions of other investments	34.9		11.4
Contributions for other investments	(1.5		)	(3.5		)
Purchases of fixed maturity investments	(1,017.0	)	(1,007.1	)
Net change in unsettled investment purchases and sales	36.9			27.5
Purchases of common equity securities	(52.0	)	(97.7	)
Net acquisitions of property and equipment	(0.5		)	(2.1		)
Purchases of convertible bonds	(20.2	)	(31.6	)
Net cash provided from investing activities — continuing operations	131.5			86.5
Contributions for other investments	(9.8	)	(45.8	)
Net cash provided from investing activities — discontinued operations	—			—
Proceeds from the Personal Lines Transaction	—		166.6
Net cash provided from investing activities	131.5			86.5
Note receivable due from OneBeacon Insurance Group, Ltd.	—		(188.0	)
Cash flows from financing activities:
Net change in unsettled investment purchases and sales	(9.8	)	56.8
Cash dividends paid to OneBeacon U.S. Enterprises Holdings, Inc.	(15.5		)	(19.4		)
Net acquisitions of property and equipment	(3.2	)	(4.2	)
Return of capital to OneBeacon U.S. Enterprises Holdings, Inc.	(14.5		)	(10.6		)
Net cash provided from investing activities — continuing operations	315.8		485.6
Net cash used for financing activities — continuing operations	(30.0		)	(30.0		)
Net cash provided from investing activities — discontinued operations	—		—
Net cash used for financing activities — discontinued operations	—			—
Net cash provided from investing activities	315.8		485.6
Net cash used for financing activities	(30.0		)	(30.0		)
Cash flows from financing activities:
Net increase (decrease) in cash during period	1.7			(1.0		)
Repayment of debt	—		(14.0	)
Cash reclassified from assets held for sale	5.5			—
Repurchases of debt	(161.6	)	(197.3	)
Cash transferred as part of the AutoOne Transaction	(3.5		)	—
Cash dividends paid to OneBeacon U.S. Enterprises Holdings, Inc.	(19.4	)	(270.0	)
Net increase (decrease) excluding cash relating to the AutoOne Transaction	3.7			(1.0		)
Return of capital to OneBeacon U.S. Enterprises Holdings, Inc.	(10.6	)	—
Cash balance at beginning of period	49.0			33.2
Net cash used for financing activities — continuing operations	(191.6	)	(481.3	)
Cash balance at end of period	$	52.7		$	32.2
Net cash used for financing activities — discontinued operations	—		—
Supplemental cash flows information:
Net cash used for financing activities	(191.6	)	(481.3	)
Interest paid	$	—		$	—
Net increase (decrease) in cash during period	7.4		(9.1	)
Tax payments (refunds), including payments made under tax sharing agreements	12.2			(4.2		)
Cash reclassified to assets held for sale	(5.5	)	—
Net increase (decrease) after reclassification of cash to assets held for sale	1.9		(9.1	)
Cash balance at beginning of period	33.2		43.6
Cash balance at end of period	$35.1		$34.5
Supplemental cash flows information:
Interest paid	$12.6		$18.1
Tax payments, including payments made under tax sharing agreements	21.6		34.0

See Notes to Consolidated Financial Statements.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Nature of Operations and Summary of Significant Accounting Policies

Basis of presentation

These interim consolidated financial statements include the accounts of OneBeacon U.S. Holdings, Inc. (the “Company” or “OBH”) and its subsidiaries (collectively, “OB Holdings”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The OB Holdings operating companies are U.S.-based property and casualty insurance writers, most of which operate in a multi-company pool. OB Holdings offers a wide range of specialty insurance products and services sold through independent agencies, regional and national brokers, wholesalers and managing general agencies.

OBH was created in 2000 by White Mountains Insurance Group, Ltd. (“White Mountains”) to acquire and subsequently be the holding company for OneBeacon Insurance Group LLC (together with its subsidiaries, “OneBeacon”). On June 1, 2001, OBH acquired OneBeacon from Aviva plc (“Aviva”~~, formerly CGNU~~), (the “OneBeacon Acquisition”). During 2006, White Mountains undertook an internal reorganization and formed OneBeacon Insurance Group, Ltd. (“OBIG”) for the purpose of holding certain of its property and casualty insurance businesses. As part of this reorganization, certain of White Mountains’ businesses that were historically indirect wholly-owned subsidiaries of White Mountains, including OBH, became indirect wholly-owned subsidiaries of OBIG. As of ~~September~~March 3031, ~~2011~~2012, White Mountains owned 75.52% of OBIG’s common shares. Within this report, the term “OB Holdings” is used to refer to one or more entities within the consolidated organization, as the context requires. The Company is a U.S.-based company with its corporate headquarters located at 601 Carlson Parkway, Minnetonka, Minnesota 55305.

OB Holdings’ reportable segments are Specialty Insurance Operations, Other Insurance Operations and Investing, Financing and Corporate Operations. The Specialty Insurance Operations segment is comprised of ~~twelve~~a number of underwriting units that are aggregated into three major underwriting units for financial reporting: Managing General Agency (“MGA”) Business, Specialty Industries and Specialty Products. OB Holdings’ Other Insurance Operations segment, ~~as further described below, now~~ includes the results of the non-specialty commercial lines business, ~~and~~to ~~the~~which ~~traditional~~OB ~~personal~~Holdings ~~lines~~sold ~~business~~the renewal rights, other run-off business and certain purchase accounting adjustments relating to the OneBeacon Acquisition. Investing, Financing and Corporate Operations includes the investing and financing activities for OB Holdings on a consolidated basis, and certain other activities conducted bythrough the Company.

On ~~August~~February 3022, ~~2011~~2012, OBIG and certain of its subsidiaries ~~entered~~completed ~~into a definitive agreement (~~the ~~“AutoOne~~sale ~~Purchase~~of ~~Agreement”)~~its ~~to sell the~~ AutoOne Insurance business (“AutoOne”) ~~business~~ to Interboro Holdings, Inc. (“Interboro”). ~~See~~(the ~~Note~~“AutoOne 2Transaction”). ~~and~~See Note 132. ~~Formed in 2001, the~~ AutoOne ~~division~~has ~~offers~~offered products and services to assigned risk markets primarily in New York and New Jersey. AutoOne had been included within the Other Insurance Operations segment, however, as a result of ~~entering into~~ the ~~AutoOne Purchase Agreement~~sale, AutoOne has been presented as discontinued operations in the statements of operations and cash flows with the prior periods reclassified to conform to the current presentation. The AutoOne disposal group excludes investing and financing activities from amounts classified as discontinued operations. ~~OneBeacon~~OB Holdings’s investing and financing operations are conducted on an overall consolidated level and accordingly, there are no separately identifiable ~~cash~~ investing or financing cash flows associated with AutoOne. Pursuant to the terms of the AutoOne ~~Purchase Agreement~~Transaction, at closing, the ~~AOIC~~legal ~~and~~entities ~~AOSIC~~included ~~legal~~in ~~entities~~the ~~will~~sale ~~hold~~held an agreed upon level of invested assets and capital. The assets and liabilities associated with the AutoOne business as of ~~September~~December 3031, 2011 have been presented in the balance sheet as held for sale ~~sheet~~ assuming the investing and financing steps required to effect the sale were completed as of the current balance sheet date. The prior year balance sheet has not been reclassified to conform to the current period’s presentation because the assets and liabilities associated with AutoOne in the prior year would not provide a meaningful comparison to the assets and liabilities presented as held for sale at SeptemberDecember 3031, 2011.

~~Historically,~~All OBsignificant ~~Holdings~~intercompany ~~has~~transactions ~~offered~~have abeen ~~range~~eliminated ofin ~~specialty,~~consolidation. ~~commercial~~These ~~and~~interim ~~personal~~financial ~~products~~statements ~~and~~include ~~services~~all adjustments, ~~however~~consisting of a normal recurring nature, inconsidered necessary by management to fairly state the ~~wake~~financial position, results of ~~recent~~operations ~~transactions~~and cash flows of OB Holdings. isThese ~~now~~interim ~~focused~~financial ~~exclusively~~statements onmay ~~specialty~~not ~~business.~~be Onindicative ~~December 3,~~of ~~2009,~~financial OBresults ~~Holdings~~for ~~sold~~ the ~~renewal~~full ~~rights~~year toand ~~its~~should ~~non-specialty~~be ~~commercial~~read ~~lines~~in ~~business~~conjunction ~~and~~with onthe ~~July 1,~~Company’s ~~2010,~~2011 OBAnnual ~~Holdings~~Report ~~completed~~on ~~the~~Form 10-K. ~~sale~~The preparation of ~~its~~financial ~~traditional~~statements ~~personal~~in ~~lines~~conformity ~~business~~with ~~(Note~~GAAP ~~2).~~requires Tomanagement ~~better~~to ~~align~~make OBestimates ~~Holdings’~~and ~~operating~~assumptions ~~and~~that ~~reporting~~affect ~~structure~~the ~~with~~reported ~~its~~amounts ~~business~~of ~~profile~~assets asand aliabilities ~~result~~as of the ~~transactions,~~date OBof ~~Holdings~~the ~~revised~~financial ~~its~~statements ~~segment~~and ~~structure~~the ~~into~~reported ~~Specialty~~amounts ~~Insurance~~of ~~Operations,~~revenues ~~Other~~and ~~Insurance~~expenses ~~Operations~~during ~~and~~the ~~Investing,~~reporting ~~Financing~~period. ~~and~~Actual ~~Corporate~~results ~~Operations,~~could asdiffer ~~described~~from ~~above~~those estimates. AsRefer ~~part~~to of the ~~resegmentation,~~Company’s ~~agency~~2011 ~~results~~Annual Report on Form 10-K for ~~business~~a ~~written~~complete ondiscussion regarding OB Holdings’ ~~paper~~significant ~~for~~accounting ~~which~~policies. OBAs ~~Holdings~~described ~~has~~above, ancertain ~~ownership~~amounts ~~interest~~in the prior period financial statements have been reclassified ~~within~~to ~~the~~conform ~~underwriting~~to ~~results.~~the ~~See~~current ~~Note 7~~presentation.

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~~All~~Recently ~~significant~~Adopted ~~intercompany~~Changes ~~transactions have been eliminated~~ in ~~consolidation.~~Accounting These interim financial statements include all adjustments, consisting of a normal recurring nature, considered necessary by management to fairly state the financial position, results of operations and cash flows of OB Holdings. These interim financial statements may not be indicative of financial results for the full year and should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Refer to the Company’s 2010 Annual Report on Form 10-K for a complete discussion regarding OB Holdings’ significant accounting policies. Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation.Principles

Recently Issued Accounting Pronouncements

Policy Acquisition Costs

On ~~October~~January 131, ~~2010~~2012, ~~the~~OB Holdings adopted Financial Accounting Standards Board (“FASB”) ~~issued~~ Accounting Standards Update (“ASU”) 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, codified within Accounting Standards Codification (“ASC”) 944. ~~The~~ASU ~~new~~2010-26 ~~standard~~ changes the types of policy acquisition costs that are eligible for deferral. Specifically, ~~the~~ASU ~~new~~2010-26 ~~guidance~~ limits deferrable costs to those that are incremental direct costs of contract acquisition and certain costs related to acquisition activities performed by the insurer, such as underwriting, policy issuance and processing, medical and inspection costs and sales force contract selling. ASU 2010-26 defines incremental direct costs as those costs that result directly from and were essential to the contract acquisition and would not have been incurred absent the acquisition. Accordingly, under ~~the~~ASC ~~new guidance~~2010-26, deferrable acquisition costs are limited to costs related to successful contract acquisitions. Acquisition costs that are not eligible for deferral are to be charged to expense in the period incurred.

OB Holdings adopted ASU 2010-26 isprospectively. ~~effective~~As ~~for~~a ~~interim~~result ~~periods~~of ~~and~~adopting ~~annual~~ASU ~~fiscal~~2010-26, ~~years~~$5.6 ~~beginning~~million ~~after~~of ~~December~~unamortized deferred acquisition costs as of January 151, ~~2011~~2012, primarily relating to a portion of profit sharing commission that had been deferred under prior guidance, have been determined to no longer be deferrable and ~~may~~will be ~~applied~~recognized ~~prospectively~~in orexpense ~~retrospectively.~~over OBthe ~~Holdings~~original isamortization ~~currently~~period. ~~evaluating~~During the ~~effect~~three months ended March 31, 2012, $2.4 million of the ~~adoption~~$5.6 million of unamortized acquisition costs as of January 1, 2012 was recognized in expense. If OB Holdings had followed ASU 2010-26 ~~will~~in 2011, $1.8 million of acquisition costs that had been deferred would have onbeen ~~its~~recognized ~~financial~~in ~~position~~expense ~~and~~during ~~results~~the ofthree ~~operations~~months ended March 31, 2011.

Fair Value Measurements and Disclosures

On ~~May~~January 121, ~~2011~~2012, ~~the~~OB ~~FASB~~Holdings ~~issued~~adopted ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS (ASC 820). ASU 2011-04 clarifies existing guidance with respect to the concepts of highest and best use and valuation premise and measuring instruments classified within a reporting entity’s shareholders’ equity. ASU 2011-04 also clarifies disclosure requirements, requiring disclosure of quantitative information about unobservable inputs used in Level 3 fair value measurements. ASU 2011-04 also amends existing guidance. In circumstances where a reporting entity manages a portfolio of financial assets and liabilities based on the net market and counterparty credit risk exposures, ASU 2011-04 permits determination of the fair value of those instruments to be based on the net risk exposure. In addition, ASU 2011-04 permits the application of premiums or discounts to be applied in a fair value measurement to the extent that market participants would consider them in valuing the financial instruments. ASU 2011-04 also expands the required disclosures for Level 3 measurements, requiring that reporting entities provide a narrative description of the sensitivity of Level 3 fair value measurements to changes in unobservable inputs and the interrelationships between those inputs, if any. ~~ASU~~As ~~2011-04~~a isresult ~~effective for interim and annual periods beginning after December 15, 2011. OB Holdings is currently evaluating the effect the adoption~~ of adopting ASU 2011-04, ~~will~~OB ~~have~~Holdings onexpanded its ~~financial~~fair ~~position~~value ~~and~~disclosures. ~~results~~See ofNote ~~operations~~5.

Comprehensive Income

On ~~June~~January 161, ~~2011~~2012, ~~the~~OB ~~FASB~~Holdings ~~issued~~adopted ASU 2011-05, ~~Presentation of~~ Comprehensive Income (ASC 220). ASU 2011-05 requires ~~presentation~~all ~~of the~~ components of ~~net income, the total of other~~ comprehensive income ~~and total comprehensive income~~ to be ~~presented~~reported onin a ~~single~~continuous financial statement. ~~The~~or ~~option~~in oftwo ~~presenting~~consecutive ~~other~~statements ~~comprehensive~~displaying ~~income in~~ the ~~statement~~components of ~~changes~~net inincome ~~equity has been eliminated by ASU 2011-05. ASU 2011-05 is effective for fiscal years~~ and ~~interim~~the ~~periods~~components ~~within~~of ~~those~~other ~~fiscal~~comprehensive ~~years ending after December 15, 2011~~income. Since OB Holdings already presents comprehensive income in ~~accordance~~a ~~with~~continuous ~~the~~financial ~~requirements~~statement, adoption of ASU 2011-05, sohad ~~there~~no ~~will~~effect beon noOB ~~effect~~Holdings’ ~~upon~~financial ~~adoption~~statement presentation.

Goodwill Impairment

On January 1, 2012, OB Holdings adopted ASU 2011-08, Testing Goodwill for Impairment (ASC 350). ASU 2011-08 amends the guidance that requires an entity to test goodwill for impairment on at least an annual basis using a two-step quantitative test. The new guidance permits an entity to first assess facts and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines on the basis of this assessment that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performance of the two-step quantitative test is not required. Upon adoption, ASU 2011-08 had no effect on OB Holdings’ financial position, results of operations or cash flows.

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~~Goodwill~~Recently ~~Impairment~~Issued Accounting Pronouncements

OnOffsetting ~~September 15,~~Assets 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (ASC 350). ASU 2011-08 amends the guidance that requires an entity to test goodwill for impairment on at least an annual basis using a two-step quantitative test. The new guidance permits an entity to first assess facts and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines on the basis of this assessment that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performance of the two-step quantitative test is not required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. OB Holdings expects that adoption of ASU 2011-08 will have no material effect on its financial position, results of operations or cash flows.Liabilities

On December 16, 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (ASC 210). The new standard expands the required disclosures in circumstance where either balances have been offset or the right of offset exists. The required disclosures are intended to provide information to enable financial statement users to evaluate the effect or potential effect of netting arrangements on a reporting entity’s financial position. Disclosures required under the new standard include the gross amount of assets and liabilities recognized; the amounts that have been offset to arrive at the amounts presented in the statement of financial position; and any amounts subject to an enforceable master netting arrangement, whether or not such amounts have been offset. In addition, a description of the rights of offset should be disclosed. ASU 2011-11 is effective for periods beginning on or after January 1, 2013. OB Holdings is currently evaluating the effect adoption will have on its disclosures, but does not expect adoption to have a material effect on its financial position, results of operations or cash flows.

NOTE 2. Acquisitions and Dispositions

On ~~August~~February 3022, ~~2011~~2012, OBIG and certain of its subsidiaries ~~entered~~completed ~~into~~ the ~~AutoOne~~sale ~~Purchase~~of ~~Agreement to sell~~ the AutoOne business to Interboro ~~(the “AutoOne Transaction”)~~. Pursuant to the terms of the ~~AutoOne Purchase Agreement~~sale, at closing, OB Holdings ~~will~~transferred ~~transfer~~ to Interboro all of the issued and outstanding shares of common stock of AutoOne Insurance Company (“AOIC”) and AutoOne Select Insurance Company (“AOSIC”), through which substantially all of the AutoOne business iswas written on a direct basis. At closing, OneBeacon ~~will~~ also ~~transfer~~transferred the assets, liabilities (including loss reserves and unearned premiums) and ~~equity~~ capital of the business as well as substantially all of the AutoOne infrastructure including ~~staff,~~ systems and office space as well as certain staff. The AutoOne Transaction also ~~includes~~included the execution of a reinsurance agreement with certain subsidiaries of the Company pursuant to which OneBeacon ~~will cede~~cedes, on a 100% quota share basis, AutoOne business not directly written by AOIC and AOSIC. The AutoOne Transaction is expected to close in the fourth quarter of 2011, subject to regulatory approvals. As a result of entering into the AutoOne Purchase Agreement, AutoOne is now reported as discontinued operations. See Note 12 13 for further information regarding ~~discontinued~~balances ~~operations. During~~classified ~~the~~as ~~third~~held ~~quarter~~for ofsale ~~2011,~~and OBactivity ~~Holdings~~reported ~~recorded~~as andiscontinued ~~after tax net charge of approximately $18~~operations.~~2 million reflecting the estimated loss on sale of the AutoOne business.~~

OnAs ~~July 1,~~part ~~2010, OBIG and certain~~ of ~~its subsidiaries completed~~ the ~~sale~~AutoOne ~~of its traditional personal lines business (the “Personal Lines~~ Transaction~~”) to Tower Group~~, ~~Inc.~~Interboro LLC, ~~(“Tower”).~~the ~~The~~parent ~~Personal~~company ~~Lines~~of ~~Transaction included two insurance companies~~Interboro, ~~York~~issued ~~Insurance~~a ~~Company~~$3.0 million ofpromissory ~~Maine~~note ~~(“York”)~~to ~~and~~OneBeacon ~~Massachusetts Homeland~~ Insurance Company (“~~MHIC~~OBIC”),. ~~through~~Interboro LLC ~~which~~is ~~the~~required ~~majority~~to ofrepay the ~~traditional~~note ~~personal~~in ~~lines~~$1.0 million ~~business~~increments ~~was written~~ on aeach ~~direct~~of ~~basis, two attorneys-in-fact managing~~ the ~~reciprocal insurance exchanges (“reciprocals”) that wrote the traditional personal lines business in New York and New Jersey~~third, ~~the~~fourth ~~surplus notes issued by the New York~~ and ~~New~~fifth ~~Jersey~~anniversaries ~~reciprocals~~of ~~and~~ the ~~remaining~~closing ~~renewal rights to certain other traditional personal lines insurance policies. In addition~~date, ~~the~~or ~~Personal Lines Transaction included the execution of reinsurance agreements with certain subsidiaries of the Company pursuant to which OneBeacon cedes~~February 22, ~~on a 100% quota share basis~~2015, ~~traditional~~2016 ~~personal lines business not directly written by York~~ and ~~MHIC and assumes, on a 100% quota share basis, non-traditional personal lines business written directly by York~~2017. ~~For~~In ~~the nine months ended September 30~~addition, Interboro LLC ~~2010, OB Holdings recorded a total after tax net gain on the sale of $24.6 million that~~ is ~~comprised~~required ofto ~~$8.5~~pre-pay ~~million~~principal ~~included~~ in ~~net~~an ~~other~~amount ~~revenues~~equal ~~and $16.1 million included in the tax provision. Included in OB Holdings’ second quarter 2010 financial statements was $5.6 million of the tax benefit related~~ to ~~the~~100% ~~difference between the tax basis~~ of ~~the~~any ~~companies~~dividend ~~sold~~or asdistribution ~~part~~received offrom ~~the~~its ~~Personal~~subsidiaries, ~~Lines Transaction and the~~ net ~~asset value~~ of ~~those~~taxes ~~entities~~and ~~under~~less ~~GAAP. OB Holdings’ third quarter 2010 financial statements reflect the remaining~~ $~~19.~~0.2 million ~~of after tax net gain on the sale~~. ~~During~~Interest ~~the~~will ~~second~~accrue ~~quarter of 2011, OneBeacon~~ and ~~Tower~~be ~~reached~~payable ~~agreement~~quarterly onat ~~post-closing~~a ~~adjustments~~rate ~~resulting~~of inLIBOR noplus ~~material~~550 ~~change~~basis ~~to the $24~~points.~~6 million after tax net gain on sale that OB Holdings had recorded during 2010.~~

AsExcept ~~part~~as ofdescribed ~~the Personal Lines Transaction~~above, ~~OneBeacon and Tower also entered into a Transition Services Agreement (“TSA”), pursuant to which OneBeacon is providing certain services to Tower~~ during the three~~-year~~ ~~term~~months ofended ~~the~~March 31, ~~TSA.~~2012 Tower reimburses OneBeacon for all expenses incurred to provide these services. Reimbursement for these services is netted against the expense incurred. The Personal Lines Transaction did not meet the criteria for discontinued operations accounting because of significant continuing cash flows between OneBeacon and ~~the~~2011, ~~business~~there ~~sold~~were ~~relating~~no toacquisitions ~~TSA~~or ~~services and reinsurance activities~~dispositions.

Except as described above with respect to the sale of AutoOne, during the first nine months of 2011, there were no acquisitions or dispositions. Except as described below with respect to the Personal Lines Transaction, during the first nine months of 2010, there were no acquisitions or dispositions.

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NOTE 3. Reserves for Unpaid Loss and LAE

The following table summarizes the loss and LAE reserve activities of OB Holdings’ insurance subsidiaries for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011:

	Three months ended September 30,						Nine months ended September 30,
	Three months ended March 31,
	2011			2010			2011			2010
	2012			2011
	($ in millions)
Gross beginning balance	$	3,~~131~~358.56		$	3,~~609~~295.25		$	~~3,295.5~~		$	~~3,934.8~~
Less beginning reinsurance recoverable on unpaid losses	(12,~~825~~167.95		)	(21,~~100~~893.72		)	~~(1,893.2~~		)	~~(2,192.9~~		)
Net loss and LAE reserves	1,~~305~~191.61			1,~~508~~402.53			~~1,402.3~~			~~1,741.9~~
Loss and LAE incurred relating to:
Current year losses	~~156~~138.48			~~173~~135.05			~~439.9~~			~~761.4~~
Prior year losses	(910.85		)	(175.81		)	~~(25.0~~		)	~~(42.1~~		)
Total incurred loss and LAE from continuing operations	~~146~~149.63			~~155~~130.24			~~414.9~~			~~719.3~~
Loss and LAE paid relating to:
Current year losses	(6522.3		)	(9225.71		)	~~(144.5~~		)	~~(287.8~~		)
Prior year losses	(~~108~~177.5		)	(~~121~~142.43		)	~~(384.7~~		)	~~(478.6~~		)
Total loss and LAE payments from continuing operations	(~~173~~199.8		)	(~~214~~167.14		)	~~(529.2~~		)	~~(766.4~~		)
Total incurred loss and LAE from discontinued operations	166.07			2414.72			~~44.1~~			~~56.2~~
Total loss and LAE payments from discontinued operations	(167.6		)	(2318.48		)	~~(54.3~~		)	~~(69.1~~		)
Net loss and LAE reserves	1,~~277~~139.87			1,~~450~~360.97			~~1,277.8~~			~~1,681.9~~
Net loss and LAE reserves reclassified (to) from held for sale (1)(2)	(58.0		)	231.0			(58.0		)	—
Net loss and LAE reserves reclassified from held for sale	64.7			—
Net loss and LAE reserves sold as part of the Personal Lines Transaction (2)	—			(231.0		)	—			(231.0		)
Net loss and LAE reserves sold as part of the AutoOne Transaction	(63.8		)	—
Net ending balance	1,~~219~~140.86			1,~~450~~360.97			~~1,219.8~~			~~1,450.9~~
Plus ending reinsurance recoverable on unpaid losses	2,~~239~~109.10			1,~~939~~864.30			~~2,239.1~~			~~1,939.3~~
Gross ending balance	$	3,~~458~~249.96		$	3,~~390~~224.27		$	~~3,458.9~~		$	~~3,390.2~~

~~(1) In~~During the ~~third~~three ~~quarter~~months ended March 31, 2012, OB Holdings experienced $10.5 million of ~~2011~~unfavorable loss and LAE reserve development on prior accident year loss reserves, with $5812.04 million in Other Insurance Operations, partially offset by $1.9 million of ~~net~~favorable loss and LAE reserve development on prior accident year loss reserves in Specialty Insurance Operations. The unfavorable loss reserve development in the run-off business was primarily driven by case incurred development on a small number of claims related to multiple peril liability lines and general liability lines and also the ~~AutoOne~~impact ~~Transaction~~of ~~were~~an ~~reclassified~~adverse tocourt ~~held~~ruling in Mississippi regarding a disputed assessment from an involuntary pool for ~~sale~~hurricane Katrina claims. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and general liability lines. During the three months ended March 31, 2011, OB Holdings experienced $5.1 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $1.2 million in Specialty Insurance Operations and $3.9 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and general liability lines.

~~(2)~~ In connection with purchase accounting for the ~~second~~OneBeacon ~~quarter~~Acquisition, OB Holdings was required to adjust to fair value the loss and LAE reserves and the related reinsurance recoverables on the balance sheet. As of ~~2010~~March 31, 2012 and December 31, 2011, the remaining fair value reductions to both loss and LAE reserves and reinsurance recoverable on unpaid losses were $~~231~~160.0 million ofand $163.3 million, respectively. The net reduction to loss and LAE reserves ~~related~~is tobeing ~~the~~accreted ~~Personal~~through ~~Lines~~an ~~Transaction~~income ~~were~~statement ~~reclassified~~charge toratably ~~held~~with ~~for~~and ~~sale.~~over ~~The~~the ~~Personal~~period ~~Lines~~the ~~Transaction~~claims ~~closed~~are ~~in July 2010~~settled.

During the three months ended September 30, 2011, OB Holdings experienced $9.8 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $6.0 million in Specialty Insurance Operations and $3.8 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the three months ended September 30, 2010, OB Holdings experienced $17.8 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $7.4 million in Specialty Insurance Operations and $10.4 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the three months ended September 30, 2010, AutoOne experienced $6.0 million in adverse loss reserve development which is included in discontinued operations.

During the nine months ended September 30, 2011, OB Holdings experienced $25.0 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $14.3 million in Specialty Insurance Operations and $10.7 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. During the nine months ended September 30, 2010, OB Holdings experienced $42.1 million of favorable loss and LAE reserve development on prior accident year loss reserves, with $18.3 million in Specialty Insurance Operations, $23.8 million in Other Insurance Operations. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. The favorable development also included a one-time $6.5 million release of commercial and personal auto reserves associated with participation in an involuntary auto pool. During the nine months ended September 30, 2010, AutoOne experienced $6.0 million in adverse loss reserve development which is included in discontinued operations.

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In connection with purchase accounting for the OneBeacon Acquisition, OB Holdings was required to adjust to fair value the loss and LAE reserves and the related reinsurance recoverables on the balance sheets. The net reduction to loss and LAE reserves was accreted through an income statement charge ratably with and over the period the claims were settled. As of both September 30, 2011 and December 31, 2010, the outstanding pre-tax unaccreted adjustment was $0.

NOTE 4. Reinsurance

In the normal course of business, OB Holdings’ insurance subsidiaries seek to limit losses that may arise from catastrophes or other events by reinsuring with third party reinsurers. OB Holdings remains liable for risks reinsured even if the reinsurer does not honor its obligations under reinsurance contracts.

Effective May 1, 2011, OB Holdings renewed its property catastrophe reinsurance program through April 30, 2012. The program provides coverage for OB Holdings’ property business as well as certain acts of terrorism. Under the program, the first $50.0 million of losses resulting from any single catastrophe are retained and the next $175.0 million of losses resulting from the catastrophe are reinsured in three layers, although OB Holdings retains a co-participation (of 26% of losses infrom ~~excess of~~ $50.0 million up to $100.0 million and 10% of losses infrom ~~excess~~$100.0 ofmillion to $~~100~~175.0 million. upLosses tofrom $175.0 million) to $225.0 million are fully reinsured. Any loss above $225.0 million would be retained in full. In the event of a catastrophe, OB Holdings’ property catastrophe reinsurance program is reinstated for the remainder of the original contract term by paying a reinstatement premium that is based on the percentage of coverage reinstated and the original property catastrophe coverage premium. OB Holdings expects to renew the property catastrophe reinsurance program on substantially similar terms.

At March 31, 2012, OB Holdings had ~~entered~~$25.9 million ~~into~~of areinsurance ~~30%~~recoverables ~~quota~~on ~~share~~paid ~~agreement~~losses ~~with~~and a$2,269.0 million ~~group~~(gross of ~~reinsurers~~$160.0 million ~~that~~in ~~ran~~purchase ~~from~~accounting ~~January 1~~adjustments, ~~2009~~as ~~through~~described ~~December~~in Note ~~31,~~3) ~~2009,~~that ~~and~~will ~~had~~become ~~renewed~~recoverable ~~the~~if ~~agreement~~claims ~~effective~~are ~~January 1,~~paid ~~2010~~in accordance with current reserve estimates. ~~Through~~Reinsurance ~~June 30,~~contracts ~~2010,~~do not relieve OB Holdings ~~ceded~~of ~~$25~~its obligations.6 ~~million~~Therefore, collectability of ~~written~~balances ~~premiums~~due from ~~its~~reinsurers ~~Northeast~~is ~~homeowners~~critical ~~business~~to ~~written~~OB ~~through~~Holdings’ ~~OneBeacon~~financial ~~Insurance~~strength. ~~Company~~OB ~~(“OBIC”)~~Holdings ~~and~~is ~~its~~selective ~~subsidiary~~in ~~companies,~~regard ~~along~~to ~~with~~its ~~Adirondack~~reinsurers, ~~Insurance~~principally ~~Exchange~~placing ~~(“Adirondack~~reinsurance ~~Insurance”)~~with ~~and~~those ~~New~~reinsurers ~~Jersey~~with ~~Skylands~~strong ~~Insurance~~financial ~~Agency~~condition, ~~(“NJSIA”)~~industry inratings ~~New York~~ and ~~New~~underwriting ~~Jersey, respectively~~ability. ~~Effective~~Management ~~July 1,~~monitors ~~2010,~~ the ~~closing~~financial ~~date~~condition and ratings of ~~the~~its ~~Personal~~reinsurers ~~Lines~~on ~~Transaction,~~an ~~the~~ongoing ~~agreement~~basis. ~~was~~As ~~amended~~a toresult, ~~remove~~uncollectible OBamounts ~~Holdings~~have ashistorically anot ~~signatory~~been significant.

At September 30, 2011, OB Holdings had $13.7 million of reinsurance recoverables on paid losses and $2,405.7 million (gross of $166.6 million in purchase accounting adjustments, as described in Note 3) that will become recoverable if claims are paid in accordance with current reserve estimates. Reinsurance contracts do not relieve OB Holdings of its obligation. Therefore, collectibility of balances due from its reinsurers is critical to OB Holdings’ financial strength. OB Holdings is selective in regard to its reinsurers, principally placing reinsurance with those reinsurers with strong financial condition, industry ratings and underwriting ability. Management monitors the financial condition and ratings of its reinsurers on an ongoing basis. As a result, uncollectible amounts have historically not been significant.

The following table provides a listing of OB Holdings’ top reinsurers for its insurance operations, excluding industry pools and associations and affiliates of OB Holdings, based upon recoverable amounts, the percentage of total reinsurance recoverables and the reinsurers’ A.M. Best Company, Inc. (“A.M. Best”) ratings.

($ in millions)	Balance at ~~September~~March 3031, ~~2011~~2012		% of total		A.M. Best Rating (1)
National Indemnity Company and General Reinsurance Corporation (2)	$	1,565.2	65	%	A	++
National Indemnity Company and General Reinsurance Corporation(2)	$	1,504.9	66	%	A++
Hanover Insurance Company	~~110~~79.19		53	%	A
Tokio Marine and Nichido Fire (3)	55.8		2	%	A	++
Tokio Marine and Nichido Fire(3)	55.0		2	%	A++
Tower Insurance Company	5329.79		21	%	A-	-
Munich Reinsurance America	3124.50		1	%	A+	+

(1) A.M. Best ratings as detailed above are: “A++” (Superior, which is the highest of fifteen financial strength ratings), “A+” (Superior, which is the second highest of fifteen financial strength ratings), “A” (Excellent, which is the third highest of fifteen financial strength ratings) and “A-” (Excellent, which is the fourth highest of fifteen financial strength ratings).

(2) Includes $198.3 million of Third -Party Recoverables (as defined below), which NICO (as defined below) would pay under the terms of the NICO Cover (as defined below) if they are unable to collect from third -party reinsurers.

(3) Includes $29.~~3 million~~0 million of reinsurance recoverables from various reinsurers that are guaranteed by Tokio Marine and Nichido Fire under the terms of a 100% quota share reinsurance agreement between Houston General Insurance Company and Tokio Marine and Nichido Fire.

In connection with the OneBeacon Acquisition, Aviva caused OB Holdings to purchase two reinsurance contracts from subsidiaries of Berkshire Hathaway Inc.: a reinsurance contract with National Indemnity Company (“NICO”), for up to $2.5 billion in old asbestos and environmental (“A&E”) claims and certain other exposures (the “NICO Cover”) and an adverse loss reserve development cover from General Reinsurance Corporation (“GRC”) for up to $570.0 million, comprised of $400.0 million of adverse loss reserve development occurring in years 2000 and prior (the “GRC Cover”) in addition to $170.0 million of reserves ceded as of the date of the OneBeacon Acquisition. The NICO Cover and GRC Cover, which were contingent on and occurred contemporaneously with the OneBeacon Acquisition, were put in place in lieu of a seller guarantee of loss and LAE reserves and are therefore accounted for under GAAP as a seller guarantee.

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InUnder ~~connection~~the ~~with~~terms of the ~~OneBeacon~~NICO ~~Acquisition~~Cover, ~~Aviva~~NICO ~~caused~~receives ~~OneBeacon~~the toeconomic ~~purchase~~benefit ~~two~~of reinsurance ~~contracts~~recoverables from ~~Berkshire~~certain ~~Hathaway~~of ~~Inc.:~~OB aHoldings’ ~~reinsurance~~third ~~contract~~party ~~with~~reinsurers ~~National Indemnity Company~~ (“~~NICO”),~~Third ~~for~~Party ~~up to $2.5 billion in old asbestos and environmental (“A&E~~Reinsurers”) ~~claims~~in ~~and~~existence ~~certain~~at ~~other~~the ~~exposures~~time (the “NICO Cover”) ~~and~~was anexecuted ~~adverse~~(“Third ~~loss~~Party ~~reserve~~Recoverables”). ~~development~~As ~~cover~~a ~~from~~result, ~~General~~the ~~Reinsurance~~Third ~~Corporation~~Party ~~(“GRC”)~~Recoverables ~~for~~serve up to protect the $~~570~~2.05 ~~million,~~billion ~~comprised~~limit of ~~$400.0 million~~NICO ofcoverage ~~adverse~~for ~~loss~~the ~~reserve~~benefit ~~development~~of ~~occurring~~OB inHoldings. ~~years~~OB ~~2000~~Holdings ~~and~~estimates ~~prior~~that ~~(the~~on ~~“GRC~~an ~~Cover”)~~incurred inbasis ~~addition~~it tohas used approximately $~~170~~2.03 ~~million~~billion of ~~reserves~~the ~~ceded~~coverage asprovided ofby ~~the~~NICO ~~date~~at ofMarch 31, ~~the~~2012. ~~OneBeacon~~Net ~~Acquisition.~~losses ~~The~~paid ~~NICO~~totaled ~~Cover~~approximately ~~and~~$1.4 ~~GRC~~billion ~~Cover,~~as ~~which~~of ~~were~~March 31, ~~contingent~~2012. onTo ~~and~~the ~~occurred~~extent ~~contemporaneously~~that ~~with~~actual ~~the~~experience ~~OneBeacon~~differs ~~Acquisition,~~from ~~were~~OB ~~put~~Holdings’ inestimate ~~place~~of inultimate ~~lieu~~A&E oflosses aand ~~seller~~Third ~~guarantee~~Party ofRecoverables, ~~loss~~future ~~and~~losses ~~LAE~~could ~~reserves~~exceed ~~and~~the ~~are~~$198.3 ~~therefore~~million ~~accounted~~of ~~for~~protection remaining under ~~GAAP~~the asNICO aCover ~~seller~~at ~~guarantee~~March 31, 2012.

InPursuant ~~September 2011~~to the GRC Cover, OB Holdings ~~completed~~is anot ~~study~~entitled ofto ~~its~~recover ~~legacy~~losses ~~A&E~~to ~~exposures.~~the ~~The~~full ~~previous~~contract ~~study~~limit ~~was~~if ~~based~~such onlosses ~~experience~~are ~~through~~reimbursed ~~2007.~~by ~~Reasonable~~GRC ~~estimates~~more ofquickly ~~potential~~than ~~adverse~~anticipated ~~scenarios~~at ~~continue~~the totime bethe ~~within~~contract ~~the~~was $2signed.5 ~~billion~~OB ~~reinsurance~~Holdings ~~cover~~intends ~~issued~~to byseek ~~NICO.~~reimbursement ~~Based~~from onGRC ~~the~~only ~~results~~for ofclaims ~~the~~which ~~study,~~result OBin ~~Holdings~~payment ~~increased~~patterns ~~the~~similar ~~point~~to ~~estimate~~those ofsupporting ~~incurred~~its ~~losses~~recoverables ~~ceded~~recorded pursuant to ~~NICO~~the ~~from~~GRC $2Cover.2 ~~billion~~The toeconomic ~~$2.3~~cost ~~billion,~~of annot ~~increase~~submitting ofcertain ~~$121.9~~other ~~million,~~eligible ~~net~~claims ofto ~~underlying~~GRC ~~reinsurance.~~is ~~Due~~primarily to the ~~NICO~~investment ~~Cover,~~spread ~~there~~between ~~was~~the norate ~~impact~~credited toby ~~income~~GRC orand ~~equity~~the ~~from~~rate ~~the~~achieved ~~change~~by inOB ~~the~~Holdings ~~estimate.~~on ~~See~~its ~~Item~~own 2investments. ~~“Management’s~~This ~~Discussion~~cost, ~~and~~if ~~Analysis~~any, ofis ~~Financial~~expected ~~Condition~~to ~~and~~be ~~Results~~nominal. ofOB ~~Operations”~~Holdings —has ~~specifically~~ceded ~~Asbestos~~estimated ~~and~~incurred ~~Environmental~~losses ~~Exposures~~of in$562.0 million to GRC under the ~~Other~~GRC ~~Insurance~~Cover. ~~Operations~~As ~~segment~~of ~~discussion~~March 31, ~~for~~2012, aOB ~~detailed~~Holdings ~~discussion~~has $423.7 million of ~~the~~reinsurance ~~results~~recoverable ofon ~~this~~unpaid ~~study~~losses outstanding under the GRC Cover.

~~Under~~NOTE the terms of the NICO Cover, NICO receives the economic benefit of reinsurance recoverables from certain of OB Holdings’ third party reinsurers (“Third Party Reinsurers”) in existence at the time the NICO Cover was executed (“Third Party Recoverables”). As a result, the Third Party Recoverables serve to protect the $2.5 ~~billion limit of NICO coverage for the benefit of OB Holdings~~. OBInvestment Holdings estimates that on an incurred basis it has used approximately $2.3 billion of the coverage provided by NICO at September 30, 2011. Since entering into the NICO Cover, approximately 8% of the $2.3 billion of utilized coverage relates to uncollectible Third Party Recoverables and settlements on Third Party Recoverables through September 30, 2011. Net losses paid totaled approximately $1.4 billion as of September 30, 2011. To the extent that actual experience differs from OB Holdings’ estimate of ultimate A&E losses and Third Party Recoverables, future losses could exceed the $198.3 million of protection remaining under the NICO Cover at September 30, 2011.Securities

~~Pursuant to the GRC Cover,~~ OB Holdings’ isinvested ~~not~~assets ~~entitled to recover losses to the full contract limit if such losses~~ are ~~reimbursed~~comprised by GRC more quickly than anticipated at the time the contract was signed. OB Holdings intends to seek reimbursement from GRC only for claims which result in payment patterns similar to those supporting its recoverables recorded pursuant to the GRC Cover. The economic cost of ~~not~~securities ~~submitting~~and ~~certain~~ other ~~eligible~~investments ~~claims~~held tofor ~~GRC~~general ~~is primarily the~~ investment ~~spread between the rate credited by GRC and the rate achieved by OB Holdings on its own investments~~purposes. ~~This~~Refer ~~cost, if any, is expected~~ to ~~be nominal. During~~ the ~~three~~Company’s ~~and nine months ended September 30,~~ 2011, ~~$13.6~~Annual ~~million~~Report ~~and~~on ~~$60.7 million, respectively, was collected under the GRC Cover. During the three and nine months ended September~~Form ~~30,~~10-K ~~2010,~~for ~~$61.3~~a ~~million~~complete ~~was collected under the GRC Cover~~discussion.

In accordance with ASC 825, OB Holdings classifies its portfolio of fixed maturity investments and common equity securities, including convertible fixed maturity investments, held for general investment purposes as trading securities. Trading securities are reported at fair value as of the balance sheet date as determined by quoted market prices when available. Realized and unrealized investment gains and losses on trading securities are reported in net realized and unrealized investment gains and losses in revenues on a pre-tax basis.

Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year. Short-term investments are carried at amortized cost, which approximated fair value as of March 31, 2012 and December 31, 2011.

Other investments primarily include hedge funds and private equity funds. OB Holdings measures its investments in hedge funds and private equity funds at fair value with changes therein reported in net realized and unrealized investment gains and losses in revenues on a pre-tax basis. Other investments also includes an investment in a community reinvestment vehicle which is accounted for at fair value and a tax advantaged federal affordable housing development fund which is accounted for under the equity method.

OB Holdings’ net investment income is comprised primarily of interest income associated with OB Holdings’ fixed maturity investments, dividend income from its equity investments and interest income from its short-term investments. Net investment income for the three months ended March 31, 2012 and 2011 consisted of the following:

	Three months ended March 31,
	2012			2011
	($ in millions)
Investment income:
Fixed maturity investments	$	12.6		$	19.1
Short-term investments	—			—
Common equity securities	1.6			1.3
Convertible fixed maturity investments	1.1			1.0
Other investments	(0.1		)	—
Gross investment income	15.2			21.4
Less investment expenses	(1.6		)	(1.7		)
Net investment income, pre-tax	$	13.6		$	19.7

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~~NOTE~~The 5.composition ~~Investment~~of ~~Securities~~net realized investment gains, a component of net realized and unrealized investment gains, consisted of the following:

OB Holdings’ invested assets are comprised of securities and other investments held for general investment purposes. Refer to the Company’s 2010 Annual Report on Form 10-K for a complete discussion.

	Three months ended March 31,
	2012		2011
	($ in millions)
Fixed maturity investments	$	14.5	$	10.6
Short-term investments	—		—
Common equity securities	3.4		2.5
Convertible fixed maturity investments	0.8		3.3
Other investments	1.1		4.8
Net realized investment gains, pre-tax	$	19.8	$	21.2

InThe ~~accordance~~net ~~with~~changes ~~ASC~~in 825, OB Holdings classifies its portfolio of fixed maturity investments and common equity securities, including convertible bonds, held for general investment purposes as trading securities. Trading securities are reported at fair value asfor of the ~~balance~~three ~~sheet~~months ~~date~~ended asMarch 31, ~~determined~~2012 ~~by quoted market prices when available. Realized~~ and ~~unrealized~~2011 ~~investment gains and losses on trading securities~~ are ~~reported~~as ~~in net realized and unrealized investment gains and losses in revenues on a pre-tax basis.~~follows:

	Three months ended March 31, 2012
	Changes in net unrealized gains and losses (1)			Changes in net foreign currency translation gains and losses (1)		Total net changes in fair value reflected in revenues (1)
	($ in millions)
Fixed maturity investments	$	(2.1	)	$	0.1	$	(2.0	)
Short-term investments	—			—		—
Common equity securities	4.3			—		4.3
Convertible fixed maturity investments	2.2			—		2.2
Other investments	3.8			—		3.8
Total	$	8.2		$	0.1	$	8.3

	Three months ended March 31, 2011
	Changes in net unrealized gains and losses (1)			Changes in net foreign currency translation gains and losses (1)		Total net changes in fair value reflected in revenues (1)
	($ in millions)
Fixed maturity investments	$	(3.9	)	$	0.1	$	(3.8	)
Short-term investments	—			—		—
Common equity securities	5.7			—		5.7
Convertible fixed maturity investments	(2.8		)	—		(2.8		)
Other investments	1.6			—		1.6
Total	$	0.6		$	0.1	$	0.7

OB(1) Includes ~~Holdings’~~changes in net ~~investment~~deferred ~~income~~gains isand ~~comprised~~losses ~~primarily~~on sales of ~~interest~~investments ~~income~~between ~~associated with~~ OB Holdings’ ~~fixed~~and ~~maturity~~entities ~~investments,~~under ~~dividend~~White ~~income~~Mountains’ ~~from~~common ~~its~~control ~~equity~~of ~~investments~~$(0.1) million and ~~interest~~$(0.4) ~~income~~million, ~~from its short~~pre-~~term~~tax, ~~investments. Net investment income~~ for the three ~~and six~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, ~~consisted of the following:~~respectively.

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
	($ in millions)
Investment income:
Fixed maturity investments	$	14.5		$	21.3		$	51.7		$	73.3
Short-term investments	—			0.2			0.1			0.7
Common equity securities	1.4			1.1			3.7			3.0
Convertible bonds	0.8			1.2			2.5			4.2
Other investments	0.1			(0.1		)	(0.3		)	0.5
Gross investment income	16.8			23.7			57.7			81.7
Less investment expenses	(1.6		)	(2.1		)	(5.0		)	(6.8		)
Net investment income, pre-tax	$	15.2		$	21.6		$	52.7		$	74.9

The components of OB Holdings’ ending net unrealized investment gains and losses, excluding the impact of net unrealized foreign currency translation gains and losses, on its trading investment portfolio as of March 31, 2012 and December 31, 2011 were as follows:

The composition of net realized investment gains (losses), a component of net realized and unrealized investment gains (losses), consisted of the following:

	March 31,			December 31,
	2012			2011
	($ in millions)
Investment securities:
Gross unrealized investment gains	$	115.2		$	118.0
Gross unrealized investment losses	(10.1		)	(21.2		)
Net unrealized gains from investment securities	105.1			96.8
Income taxes	(36.7		)	(33.9		)
Total net unrealized investment gains, after tax	$	68.4		$	62.9

	Three months ended September 30,					Nine months ended September 30,
	2011		2010			2011		2010
	($ in millions)
Fixed maturity investments	$	6.8	$	16.1		$	28.7	$	46.1
Short-term investments	—		—			—		—
Common equity securities	14.5		(0.3		)	18.3		1.3
Convertible bonds	0.3		3.9			4.7		14.4
Other investments (1)	0.8		2.6			8.4		(0.3		)
Net realized investment gains (losses), pre-tax	$	22.4	$	22.3		$	60.1	$	61.5

(1) The nine months ended September 30, 2010 include $1.3 million of realized losses related to the impairment of a receivable related to an outstanding hedge fund redemption.

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The ~~net~~cost ~~changes~~or inamortized ~~fair~~cost, ~~value~~gross ~~for~~unrealized ~~the~~investment ~~three~~gains and ~~nine~~losses, ~~months~~net ~~ended~~foreign ~~September~~currency gains and losses and carrying values of OB Holdings’ fixed maturity investments as of March 3031, 2012 and December 31, 2011 ~~are~~were as follows:

	Three months ended September 30, 2011									Nine months ended September 30, 2011
	March 31, 2012
	Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)			Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)
	Cost or amortized cost			Gross unrealized gains			Gross unrealized losses			Net foreign currency gains			Carrying value
	($ in millions)
Fixed maturity investments	$	(14.8	)	$	(0.3	)	$	(15.1	)	$	(17.7	)	$	(0.2	)	$	(17.9	)
U.S. Government and agency obligations	$	203.1		$	1.3		$	—		$	—		$	204.4
Short-term investments	—			(0.1		)	(0.1		)	—			—			—
Debt securities issued by industrial corporations	588.0			28.5			(0.6		)	—			615.9
Common equity securities	(44.4		)	—			(44.4		)	(43.8		)	(0.1		)	(43.9		)
Municipal obligations	2.2			—			—			—			2.2
Convertible bonds	(6.7		)	—			(6.7		)	(13.3		)	—			(13.3		)
Asset-backed securities	768.6			4.5			(1.3		)	—			771.8
Other investments	(0.5		)	—			(0.5		)	2.4			—			2.4
Foreign government obligations	7.6			0.5			—			—			8.1
Total	$	(66.4	)	$	(0.4	)	$	(66.8	)	$	(72.4	)	$	(0.3	)	$	(72.7	)
Preferred stocks	78.3			4.4			(0.3		)	—			82.4
Total fixed maturity investments	$	1,647.8		$	39.2		$	(2.2	)	$	—		$	1,684.8

(1) Includes changes in net deferred gains and losses on sales of investments between OB Holdings and entities under White Mountains’ common control of $(0.2) million and $(1.5) million, pre-tax, for the three and nine months ended September 30, 2011, respectively.

	December 31, 2011(1)
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency losses			Carrying value
	($ in millions)
U.S. Government and agency obligations	$	213.6	$	1.8	$	—		$	—		$	215.4
Debt securities issued by industrial corporations	654.8		32.7		(1.9		)	(0.1		)	685.5
Municipal obligations	2.2		—		—			—			2.2
Asset-backed securities	862.1		9.8		(0.8		)	—			871.1
Foreign government obligations	7.7		0.5		(0.1		)	—			8.1
Preferred stocks	78.3		3.2		(6.2		)	—			75.3
Total fixed maturity investments	$	1,818.7	$	48.0	$	(9.0	)	$	(0.1	)	$	1,857.6

~~The~~(1) Carrying ~~net~~value ~~changes~~includes in$111.8 ~~fair~~million ~~value~~of ~~for~~fixed ~~the~~maturity ~~three~~investments ~~and~~reclassified ~~nine~~to ~~months~~assets ~~ended~~held ~~September 30,~~for ~~2010~~sale ~~are~~in the consolidated balance sheet as ~~follows:~~part of the AutoOne Transaction.

	Three months ended September 30, 2010							Nine months ended September 30, 2010
	Changes in net unrealized gains and losses(1)		Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)		Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)
	($ in millions)
Fixed maturity investments	$	5.2	$	(1.8	)	$	3.4	$	4.3		$	(1.9	)	$	2.4
Short-term investments	—		0.1			0.1		—			(0.8		)	(0.8		)
Common equity securities	23.4		—			23.4		18.8			—			18.8
Convertible bonds	2.2		—			2.2		(6.2		)	—			(6.2		)
Other investments	0.2		—			0.2		3.9			—			3.9
Total	$	31.0	$	(1.7	)	$	29.3	$	20.8		$	(2.7	)	$	18.1

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses and carrying values of OB Holdings’ common equity securities, convertible fixed maturity investments and other investments as of March 31, 2012 and December 31, 2011 were as follows:

(1) Includes changes in net deferred gains and losses on sales of investments between OB Holdings and entities under White Mountains’ common control of $(0.2) million and $(1.4) million, pre-tax, for the three and nine months ended September 30, 2010, respectively.

	March 31, 2012
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	228.9	$	33.2	$	(4.9	)	$	—	$	257.2
Convertible fixed maturity investments	67.0		5.6		(0.1		)	—		72.5
Other investments	121.6		37.2		(2.9		)	—		155.9

The components of OB Holdings’ ending net unrealized investment gains and losses, excluding the impact of net unrealized foreign currency translation gains and losses, on its trading investment portfolio as of September 30, 2011 and December 31, 2010 were as follows:

	December 31, 2011
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	219.5	$	28.1	$	(4.1	)	$	—	$	243.5
Convertible fixed maturity investments	69.2		4.1		(0.8		)	—		72.5
Other investments	124.6		37.8		(7.3		)	—		155.1

	September 30,			December 31,
	2011			2010
	($ in millions)
Investment securities:
Gross unrealized investment gains	$	106.6		$	161.0
Gross unrealized investment losses	(34.3		)	(17.8		)
Net unrealized gains from investment securities	72.3			143.2
Income taxes	(25.3		)	(50.1		)
Total net unrealized investment gains, after tax	$	47.0		$	93.1

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~~The~~Fair ~~cost~~value or amortized cost, gross unrealized investment gains and losses, net foreign currency losses and carrying values of OB Holdings’ fixed maturity investments as of September 30, 2011 and December 31, 2010 were as follows:measurements

	September 30, 2011 (1)
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency losses			Carrying value
	($ in millions)
U.S. Government and agency obligations	$	221.9	$	2.1	$	(0.1	)	$	—		$	223.9
Debt securities issued by corporations	685.0		34.3		(2.5		)	—			716.8
Municipal obligations	1.8		—		—			—			1.8
Asset-backed securities	950.1		13.7		(1.3		)	—			962.5
Foreign government obligations	7.7		0.6		—			(0.2		)	8.1
Preferred stocks	78.3		3.3		(10.5		)	—			71.1
Total fixed maturity investments	$	1,944.8	$	54.0	$	(14.4	)	$	(0.2	)	$	1,984.2

OB Holdings records its investments in accordance with ASC 820 which defines fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value information. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an “exit price”). Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). Quoted prices in active markets for identical assets or liabilities have the highest priority (“Level 1”), followed by observable inputs other than quoted prices, including quoted prices for similar but not identical assets or liabilities (“Level 2”) and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”).

~~(1) Carrying~~As ~~value~~of ~~includes~~March 31, ~~$102.9~~2012 ~~million~~and ofDecember 31, ~~fixed~~2011, ~~maturity~~approximately ~~investments~~90% ~~reclassified~~and to92%, ~~assets~~respectively, ~~held~~of ~~for~~the ~~sale~~investment inportfolio ~~the~~recorded ~~consolidated~~at ~~balance~~fair ~~sheet~~value aswas ~~part~~priced ofbased ~~the~~upon ~~AutoOne~~observable ~~Transaction~~inputs.

	December 31, 2010
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
U.S. Government and agency obligations	$	241.7	$	9.0	$	—		$	—	$	250.7
Debt securities issued by corporations	825.6		44.7		(5.4		)	—		864.9
Municipal obligations	2.1		—		—			—		2.1
Asset-backed securities	1,027.6		9.1		(7.7		)	—		1,029.0
Foreign government obligations	9.7		0.6		—			—		10.3
Preferred stocks	77.5		5.9		—			—		83.4
Total fixed maturity investments	$	2,184.2	$	69.3	$	(13.1	)	$	—	$	2,240.4

OB Holdings uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, OB Holdings uses the quoted market prices provided by the outside pricing services to determine fair value. The outside pricing services OB Holdings uses have indicated that they will only provide prices where observable inputs are available. In circumstances where quoted market prices are unavailable or are not considered reasonable, OB Holdings estimates the fair value using industry standard pricing models and observable inputs such as benchmark interest rates, matrix pricing, market comparables, broker quotes, issuer spreads, bids, offers, credit rating prepayment speeds and other relevant inputs. In those circumstances, such fair value measurements are considered a lower level measurement in the fair value hierarchy.

~~The~~OB ~~cost~~Holdings’ orinvestments ~~amortized~~in ~~cost~~debt securities, ~~gross~~including ~~unrealized~~asset-backed ~~investment~~securities, ~~gains~~are generally valued using matrix and ~~losses~~other pricing models. Key inputs include benchmark yields, ~~net~~benchmark ~~foreign~~securities, ~~currency~~reported ~~gains~~trades, issuer spreads, bids, offers, credit ratings and ~~carrying~~prepayment ~~values~~speeds. ofIncome OBon ~~Holdings’~~mortgage-backed ~~common~~and ~~equity~~asset-backed securities, ~~convertible~~is ~~bonds~~recognized using an effective yield based on anticipated prepayments and ~~other~~the ~~investments~~estimated aseconomic life of ~~September 30~~the securities. When actual prepayments differ significantly from anticipated prepayments, ~~2011~~the estimated economic life is recalculated and ~~December 31,~~the ~~2010~~remaining ~~were~~unamortized aspremium ~~follows:~~or discount is amortized prospectively over the remaining economic life.

	September 30, 2011
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	220.2	$	16.2	$	(12.0	)	$	—	$	224.4
Convertible bonds	75.2		3.1		(4.4		)	—		73.9
Other investments	127.3		33.3		(3.5		)	—		157.1

	December 31, 2010
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	237.2	$	48.4	$	(0.4	)	$	0.1	$	285.3
Convertible bonds	82.2		11.6		—			—		93.8
Other investments	144.0		31.7		(4.3		)	—		171.4

In circumstances where the underlying investments are publicly traded, such as the investments made by hedge funds, the fair value of the underlying investments is determined using current market prices. In circumstances where the underlying investments are not publicly traded, such as the investments made by private equity funds, the private equity fund managers have considered the need for a liquidity discount on each of the underlying investments when determining the fund’s net asset value in accordance with ASC 820. In circumstances where OB Holdings’ portion of a fund’s net asset value is deemed to differ from fair value due to illiquidity or other factors associated with OB Holdings’ investment in the fund, including counterparty credit risk, the net asset value is adjusted accordingly. At March 31, 2012 and December 31, 2011, OB Holdings did not record a liquidity adjustment to the net asset value related to its investments in hedge funds or private equity funds.

As of March 31, 2012 and December 31, 2011, other investments reported at fair value represented approximately 6% and 5%, respectively, of the investment portfolio recorded at fair value. Other investments accounted for at fair value as of March 31, 2012 and December 31, 2011 were comprised of $54.2 million and $53.5 million, respectively, in hedge funds, $66.1 million and $65.7 million, respectively, in private equity funds, $14.1 million for both periods of an investment in a community reinvestment vehicle. At both March 31, 2012 and December 31, 2011, OneBeacon held investments in 9 hedge funds and 14 private equity funds. The largest investment in a single fund was $12.6 million and $13.7 million, respectively, at March 31, 2012 and December 31, 2011. As of March 31, 2012 and December 31, 2011, other investments also included $21.5 million and $21.8 million, respectively, of an investment in a tax advantaged federal affordable housing development fund which is accounted for using the equity method.

Table of Contents

~~Fair~~The fair value measurements at March 31, 2012 and December 31, 2011 and their related inputs are as follows:

OB Holdings records its investments in accordance with ASC 820 which provides a revised definition of fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value information. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an “exit price”). ASC 820 establishes a fair value hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets or liabilities have the highest priority (“Level 1”), followed by observable inputs other than quoted prices, including quoted prices for similar, but not identical assets or liabilities (“Level 2”) and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”).

	Fair value at March 31, 2012		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	204.4	$	204.4	$	—	$	—
Debt securities issued by corporations:
Consumer	212.6		—		212.6		—
Industrial	118.0		—		118.0		—
Financial	67.7		—		67.7		—
Communications	37.9		—		37.9		—
Energy	48.0		—		48.0		—
Basic materials	77.8		—		77.8		—
Utilities	38.7		—		38.7		—
Technology	15.2		—		15.2		—
Debt securities issued by corporations	615.9		—		615.9		—
Municipal obligations	2.2		—		2.2		—
Asset-backed securities	771.8		—		735.9		35.9
Foreign government obligations	8.1		7.4		0.7		—
Preferred stocks	82.4		—		12.6		69.8
Fixed maturity investments	1,684.8		211.8		1,367.3		105.7
Short-term investments	274.9		274.9		—		—
Common equity securities:
Financials	71.4		70.6		—		0.8
Basic Materials	50.5		50.5		—		—
Consumer	66.8		66.7		0.1		—
Energy	31.2		31.2		—		—
Utilities	17.0		17.0		—		—
Other	20.3		20.3		—		—
Common equity securities	257.2		256.3		0.1		0.8
Convertible fixed maturity investments	72.5		—		72.5		—
Other investments(1)	134.4		—		—		134.4
Total(1)	$	2,423.8	$	743.0	$	1,439.9	$	240.9

As of both September 30, 2011 and December 31, 2010, approximately 90%, of the investment portfolio recorded at fair value was priced based upon observable inputs.

OB Holdings uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, OB Holdings uses the quoted market prices provided by the outside pricing services to determine fair value. The outside pricing services OB Holdings uses have indicated that they will only provide prices where observable inputs are available. In circumstances where quoted market prices are unavailable, OB Holdings utilizes fair value estimates based upon reference to other observable inputs other than quoted prices, including matrix pricing, benchmark interest rates, market comparables, broker quotes and other relevant observable inputs. In circumstances where observable inputs are adjusted to reflect management’s best estimate of fair value, such fair value measurements are considered a lower level measurement in the fair value hierarchy.

Other investments, which are primarily comprised of hedge funds and private equity funds for which the fair value option has been elected, are carried at fair value based upon OB Holdings’ proportionate interest in the underlying fund’s net asset value, which is deemed to approximate fair value. The fair value of OB Holdings’ investments in hedge funds and private equity funds has been estimated using net asset value because it reflects the fair value of the funds’ underlying investments in accordance with ASC 820. OB Holdings employs a number of procedures to assess the reasonableness of the fair value measurements, including obtaining and reviewing each fund’s audited financial statements and discussing each fund’s pricing with the fund’s manager. However, since the fund managers do not provide sufficient information to independently evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. Accordingly, the fair values of OB Holdings’ investment in hedge funds and private equity funds have been classified as Level 3 under the fair value hierarchy.

In circumstances where the underlying investments are publicly traded, such as the investments made by hedge funds, the fair value of the underlying investments is determined using current market prices. In circumstances where the underlying investments are not publicly traded, such as the investments made by private equity funds, the private equity fund managers have considered the need for a liquidity discount on each of the underlying investments when determining the fund’s net asset value in accordance with ASC 820. In circumstances where OB Holdings’ portion of a fund’s net asset value is deemed to differ from fair value due to illiquidity or other factors associated with OB Holdings’ investment in the fund, including counterparty credit risk, the net asset value is adjusted accordingly. At September 30, 2011 and December 31, 2010, OB Holdings did not record a liquidity adjustment to the net asset value related to its investments in hedge funds or private equity funds.

As of both September 30, 2011 and December 31, 2010, other investments represented approximately 5% of the investment portfolio recorded at fair value. Other investments accounted for at fair value as of September 30, 2011 and December 31, 2010 were comprised of $51.2 million and $63.4 million, respectively, in hedge funds, $70.1 million and $72.7 million, respectively, in private equity funds and $14.1 million for both periods of an investment in a community reinvestment vehicle. At September 30, 2011 and December 31, 2010, OB Holdings held investments in 9 and 10 hedge funds, respectively, and 14 and 15 private equity funds, respectively. The largest investment in a single fund was $16.0 million and $24.6 million, respectively, at September 30, 2011 and December 31, 2010.

As of September 30, 2011 and December 31, 2010, other investments also included $21.7 million and $21.2 million, respectively, of an investment in a tax advantaged federal affordable housing development fund which is accounted for using the equity method.

Table of Contents

The fair value measurements at September 30, 2011 and December 31, 2010 and their related inputs are as follows:

	Fair value at December 31, 2011(2)		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	215.4	$	215.4	$	—	$	—
Debt securities issued by corporations:
Consumer	261.9		—		261.9		—
Industrial	126.0		—		126.0		—
Financial	56.4		—		56.4		—
Communications	46.1		—		46.1		—
Energy	60.5		—		60.5		—
Basic materials	77.9		—		77.9		—
Utilities	42.0		—		42.0		—
Technology	14.7		—		14.7		—
Debt securities issued by corporations	685.5		—		685.5		—
Municipal obligations	2.2		—		2.2		—
Asset-backed securities	871.1		—		868.8		2.3
Foreign government obligations	8.1		7.4		0.7		—
Preferred stocks	75.3		—		11.5		63.8
Fixed maturity investments	1,857.6		222.8		1,568.7		66.1
Short-term investments	291.8		291.8		—		—
Common equity securities:
Financials	65.8		65.0		—		0.8
Basic Materials	50.5		50.5		—		—
Consumer	64.3		64.2		0.1		—
Energy	29.3		29.3		—		—
Utilities	16.3		16.3		—		—
Other	17.3		17.3		—		—
Common equity securities	243.5		242.6		0.1		0.8
Convertible fixed maturity investments	72.5		—		72.5		—
Other investments(1)	133.3		—		—		133.3
Total(1)	$	2,598.7	$	757.2	$	1,641.3	$	200.2

	Fair value at September 30, 2011 (2)		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	223.9	$	223.9	$	—	$	—
Debt securities issued by corporations:
Consumer	252.0		—		252.0		—
Industrial	159.9		—		159.9		—
Financial	65.5		—		65.5		—
Communications	58.6		—		58.6		—
Energy	49.7		—		49.7		—
Basic materials	60.1		—		60.1		—
Utilities	56.3		—		56.3		—
Technology	14.7		—		14.7		—
Debt securities issued by corporations	716.8		—		716.8		—
Municipal obligations	1.8		—		1.8		—
Asset-backed securities	962.5		—		904.2		58.3
Foreign government obligations	8.1		7.3		0.8		—
Preferred stocks	71.1		—		11.6		59.5
Fixed maturity investments	1,984.2		231.2		1,635.2		117.8
Short-term investments	169.5		169.5		—		—
Common equity securities:
Financials	60.2		59.4		—		0.8
Basic Materials	47.7		47.7		—		—
Consumer	59.4		59.4		—		—
Energy	25.3		25.3		—		—
Utilities	17.8		17.8		—		—
Other	14.0		13.9		0.1		—
Common equity securities	224.4		223.5		0.1		0.8
Convertible bonds	73.9		—		73.9		—
Other investments(1)	135.4		—		—		135.4
Total(1)	$	2,587.4	$	624.2	$	1,709.2	$	254.0

(1) Excludes the carrying value of $21.5 million and $21.8 million, respectively, associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of March 31, 2012 and December 31, 2011.

(2) Fair value includes $111.8 million of fixed maturity investments reclassified to assets held for sale in the December 31, 2011 consolidated balance sheet as part of the AutoOne Transaction.

At both March 31, 2012 and December 31, 2011, OB Holdings held one private preferred stock that represented 85% of its preferred stock portfolio. OB Holdings used quoted market prices for similar securities that were adjusted to reflect management’s best estimate of fair value; this security is classified as a Level 3 measurement.

In addition to the investment portfolio described above, OB Holdings had $40.1 million and $36.9 million, respectively, of liabilities recorded at fair value and included in other liabilities as of March 31, 2012 and December 31, 2011. These liabilities relate to securities that have been sold short by a limited partnership that OB Holdings invests in and is required to consolidate in accordance with GAAP. As of March 31, 2012 and December 31, 2011, all of the liabilities included in the $40.1 million and $36.9 million, respectively, have been classified as Level 1 measurements.

Table of Contents

	Fair value at December 31, 2010		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	250.7	$	250.7	$	—	$	—
Debt securities issued by corporations:
Consumer	282.6		—		282.6		—
Industrial	212.7		—		212.7		—
Financial	85.7		—		85.7		—
Communications	70.9		—		70.9		—
Energy	60.7		—		60.7		—
Basic materials	76.8		—		76.8		—
Utilities	61.0		—		61.0		—
Technology	14.5		—		14.5		—
Debt securities issued by corporations	864.9		—		864.9		—
Municipal obligations	2.1		—		2.1		—
Asset-backed securities	1,029.0		—		1,001.3		27.7
Foreign government obligations	10.3		9.6		0.7		—
Preferred stocks	83.4		—		12.0		71.4
Fixed maturity investments	2,240.4		260.3		1,881.0		99.1
Short-term investments	166.8		166.8		—		—
Common equity securities:
Financials	104.1		66.7		—		37.4
Basic Materials	57.0		57.0		—		—
Consumer	50.0		49.9		0.1		—
Energy	36.0		33.7		—		2.3
Utilities	22.4		22.4		—		—
Other	15.8		15.7		0.1		—
Common equity securities	285.3		245.4		0.2		39.7
Convertible bonds	93.8		—		93.8		—
Other investments(1)	150.2		—		—		150.2
Total(1)	$	2,936.5	$	672.5	$	1,975.0	$	289.0

The following table summarizes the ratings of OB Holdings’ corporate debt securities as of March 31, 2012 and December 31, 2011:

(1) Excludes the carrying value of $21.7 million and $21.2 million, respectively, associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of September 30, 2011 and December 31, 2010.

	March 31, 2012		December 31, 2011
	($ in millions)
AA	$	45.1	$	59.2
A	277.2		272.9
BBB	281.6		342.7
BB	7.4		6.1
Other	4.6		4.6
Debt securities issued by corporations	$	615.9	$	685.5

~~(2) Carrying~~Rollforwards ~~value includes $102.9 million~~ of ~~fixed~~Fair ~~maturity~~Value ~~investments~~Measurements ~~reclassified~~by ~~to assets held for sale in the September 30, 2011 consolidated balance sheet as part of the AutoOne Transaction.~~Level

AtThe ~~September 30,~~changes ~~2011~~in ~~and~~Level ~~December 31,~~1 ~~2010,~~fair OBvalue ~~Holdings~~measurements ~~held~~for ~~one~~the ~~private~~three ~~preferred~~months ~~stock~~ended ~~that represented approximately 84% and 86%~~March 31, ~~respectively,~~2012 ofare ~~its preferred stock portfolio. OB Holdings used quoted market prices for similar securities that were adjusted to reflect management’s best estimate of fair value; this security is classified~~ as ~~a Level 3 measurement.~~follows:

In addition to the investment portfolio described above, OB Holdings had $35.2 million and $41.3 million, respectively, of liabilities recorded at fair value and included in other liabilities as of September 30, 2011 and December 31, 2010. These liabilities relate to securities that have been sold short by a limited partnership that OB Holdings invests in and is required to consolidate in accordance with GAAP. As of September 30, 2011 and December 31, 2010, all of the liabilities included in the $35.2 million and $41.3 million, respectively, have been classified as Level 1 measurements.

	Fixed maturity investments			Common equity securities			Convertible bonds		Other investments		Total (1)
	($ in millions)
Balance at January 1, 2012	$	222.8		$	242.6		$	—	$	—	$	465.4
Amortization/accretion	(0.1		)	—			—		—		(0.1		)
Total net realized and unrealized gains (losses)	0.1			7.7			—		—		7.8
Purchases	17.8			14.9			—		—		32.7
Sales	(28.8		)	(8.9		)	—		—		(37.7		)
Transfers in	—			—			—		—		—
Transfers out	—			—			—		—		—
Balance at March 31, 2012	$	211.8		$	256.3		$	—	$	—	$	468.1

(1) Excludes short-term investments which have been classified as Level 1 measurements.

The changes in Level 2 fair value measurements for the three months ended March 31, 2012 are as follows:

	Fixed maturity investments			Common equity securities		Convertible bonds			Other investments		Total
	($ in millions)
Balance at January 1, 2012	$	1,568.7		$	0.1	$	72.5		$	—	$	1,641.3
Amortization/accretion	(2.6		)	—		0.6			—		(2.0		)
Total net realized and unrealized gains (losses)	6.6			—		3.0			—		9.6
Purchases	519.0			—		1.4			—		520.4
Sales	(724.4		)	—		(5.0		)	—		(729.4		)
Transfers in	—			—		—			—		—
Transfers out	—			—		—			—		—
Balance at March 31, 2012	$	1,367.3		$	0.1	$	72.5		$	—	$	1,439.9

Table of Contents

The ~~following~~changes ~~table~~in ~~summarizes~~Level ~~the~~3 ~~ratings~~fair ofvalue OBmeasurements ~~Holdings’~~for ~~corporate~~the ~~debt~~three ~~securities~~months asended ~~of September~~March 3031, ~~2011~~2012 ~~and~~are ~~December 31,~~as ~~2010~~follows:

	September 30, 2011			December 31, 2010
	Fixed maturity investments			Common equity securities		Convertible bonds		Other investments(1)			Total(1)
	($ in millions)
AA	$	68.9		$	81.0
Balance at January 1, 2012	$	66.1		$	0.8	$	—	$	133.3		$	200.2
A	266.1			350.5
Amortization/accretion	0.1			—		—		—			0.1
BBB	378.2			424.2
Total net realized and unrealized gains (losses)	5.8			—		—		4.9			10.7
BB	—			8.8
Purchases	34.1			—		—		1.2			35.3
Other	3.6			0.4
Sales	(0.4		)	—		—		(5.0		)	(5.4		)
Debt securities issued by corporations	$	716.8		$	864.9
Transfers in	—			—		—		—			—
Transfers out	—			—		—		—			—
Balance at March 31, 2012	$	105.7		$	0.8	$	—	$	134.4		$	240.9

~~Rollforwards~~(1) Excludes the carrying value of ~~Fair~~$21.5 million ~~Value~~associated ~~Measurements~~with bya ~~Level~~tax advantaged federal affordable housing development fund accounted for using the equity method.

The changes in Level 13 fair value measurements for the three ~~and nine~~ months ended ~~September~~March 3031, 2011 are as follows:

	Fixed maturity investments			Common equity securities			Convertible bonds		Other investments(1)			Total(1)
	($ in millions)
Balance at January 1, 2011	$	~~260~~99.31		$	~~245~~39.47		$	—	$	—150.2		$	~~505~~289.70
Amortization/accretion	0.8			—			—		—			0.8
Total net realized and unrealized gains (losses)	1.9			9.6			—		—			11.5
Purchases	130.7			24.0			—		—			154.7
Sales	(130.9		)	(24.7		)	—		—			(155.6		)
Transfers in	—			—			—		—			—
Transfers out	—			—			—		—			—
Balance at March 31, 2011	$	262.8		$	254.3		$	—	$	—		$	517.1
Amortization/accretion	0.6			—			—		—			0.6
Total net realized and unrealized gains (losses)	0.5			(4.4		)	—		—			(3.9		)
Purchases	39.5			11.9			—		—			51.4
Sales	(73.7		)	(12.6		)	—		—			(86.3		)
Transfers in	—			—			—		—			—
Transfers out	—			—			—		—			—
Balance at June 30, 2011	$	229.7		$	249.2		$	—	$	—		$	478.9
Amortization/accretion	—			—			—		—			—
Total net realized and unrealized gains (losses)	(01.58		)	(291.3		)	—		—6.2			~~(29~~6.87		)
Purchases	150.83			223.17			—		—1.8			375.98
Sales	~~(13.8~~—		)	(180.51		)	—		—(16.8		)	(3216.39		)
Transfers in	—			—			—		—			—
Transfers out	—(27.7		)	—			—		—			—(27.7		)
Balance at September 30, 2011	$	231.2		$	223.5		$	—	$	—		$	454.7
Balance at March 31, 2011	$	73.5		$	42.0		$	—	$	141.4		$	256.9

(1) Excludes ~~short-term~~the ~~investments~~carrying ~~which~~value ~~are~~of ~~deemed~~$21.6 million toassociated ~~have~~with a ~~Level~~tax 1advantaged ~~designation~~federal affordable housing development fund accounted for using the equity method.

“Transfers out” of Level 3 fixed maturity investments of $27.7 million for the three months ended March 31, 2011 were comprised of securities which had been previously classified as a Level 3 measurement and were recategorized as a Level 2 measurement when quoted market prices for similar securities that were considered reliable and could be validated against an alternative source became available.

Table of Contents

~~The~~Significant ~~changes~~Unobservable ~~in Level 2 fair value measurements for the three and nine months ended September 30, 2011 are as follows:~~Inputs

	Fixed maturity investments			Common equity securities			Convertible bonds			Other investments		Total
	($ in millions)
Balance at January 1, 2011	$	1,881.0		$	0.2		$	93.8		$	—	$	1,975.0
Amortization/accretion	(4.2		)	—			0.3			—		(3.9		)
Total net realized and unrealized gains (losses)	—			—			0.5			—		0.5
Purchases	444.8			—			12.1			—		456.9
Sales	(528.6		)	—			(21.1		)	—		(549.7		)
Transfers in	27.7			—			1.4			—		29.1
Transfers out	(1.4		)	—			—			—		(1.4		)
Balance at March 31, 2011	$	1,819.3		$	0.2		$	87.0		$	—	$	1,906.5
Amortization/accretion	(3.4		)	—			0.3			—		(3.1		)
Total net realized and unrealized gains (losses)	15.5			(0.1		)	(2.8		)	—		12.6
Purchases	318.9						5.9			—		324.8
Sales	(429.4		)	—			(15.2		)	—		(444.6		)
Transfers in	—			—			—			—		—
Transfers out	—			—			—			—		—
Balance at June 30, 2011	$	1,720.9		$	0.1		$	75.2		$	—	$	1,796.2
Amortization/accretion	(3.5		)	—			0.3			—		(3.2		)
Total net realized and unrealized gains (losses)	2.9			—			(6.4		)	—		(3.5		)
Purchases	197.5			—			9.4			—		206.9
Sales	(304.6		)	—			(4.6		)	—		(309.2		)
Transfers in	22.0			—			—			—		22.0
Transfers out	—			—			—			—		—
Balance at September 30, 2011	$	1,635.2		$	0.1		$	73.9		$	—	$	1,709.2

As described above, in certain circumstances, OneBeacon estimates the fair value of investments using industry standard pricing models and both observable and unobservable inputs.

The ~~changes~~following summarizes significant unobservable inputs used in ~~Level~~estimating 3the fair value ~~measurements~~of ~~for~~investment ~~the~~securities ~~three~~classified ~~and~~within ~~nine~~Level ~~months~~3 ~~ended~~at ~~September~~March 3031, ~~2011 are as follows~~2012:

	Fixed maturity investments			Common equity securities			Convertible bonds		Other investments(1)			Total(1)
Description	Fair Value			Ratings Range(1)		Valuation Techniques		Unobservable Inputs	Input Range(1)
($ in millions)	~~($ in millions)~~
Balance at January 1, 2011	$	99.1		$	39.7		$	—	$	150.2		$	289.0
Agency residential mortgage-backed securities	$	33.6		AA+		Discounted cash flow		Prepayment rate Discount yield	15 CPR (2) 2.1%
Amortization/accretion	—			—			—		—			—
Non-agency residential mortgage-backed securities	$	2.3		CCC		Discounted cash flow		Prepayment rate Probability of default Loss severity Discount yield	10 CPR CDR Vector (3) 40.0% 8.0%
Total net realized and unrealized gains (losses)	1.8			(1.3		)	—		6.2			6.7
Preferred stock	$	69.8		NR		Discounted cash flow		Discount yield	8.8%
Purchases	0.3			3.7			—		1.8			5.8
Sales	—			(0.1		)	—		(16.8		)	(16.9		)
Transfers in	—			—			—		—			—
Transfers out	(27.7		)	—			—		—			(27.7		)
Balance at March 31, 2011	$	73.5		$	42.0		$	—	$	141.4		$	256.9
Amortization/accretion	—			—			—		—			—
Total net realized and unrealized gains (losses)	(3.4		)	0.3			—		4.2			1.1
Purchases	22.2			—			—		0.8			23.0
Sales	—			—			—		(9.8		)	(9.8		)
Transfers in	—			—			—		—			—
Transfers out	—			—			—		—			—
Balance at June 30, 2011	$	92.3		$	42.3		$	—	$	136.6		$	271.2
Amortization/accretion	—			—			—		—			—
Total net realized and unrealized gains (losses)	(11.0		)	(2.4		)	—		0.3			(13.1		)
Purchases	58.5			—			—		1.2			59.7
Sales	—			(39.1		)	—		(2.7		)	(41.8		)
Transfers in	—			—			—		—			—
Transfers out	(22.0		)	—			—		—			(22.0		)
Balance at September 30, 2011	$	117.8		$	0.8		$	—	$	135.4		254.0

(1) ~~Excludes~~ As ~~the carrying value~~ of ~~$21.7~~March 31, ~~million~~2012, ~~associated~~each ~~with~~asset atype ~~tax~~consists ~~advantaged~~of ~~federal~~one ~~affordable housing development fund accounted for using the equity method~~security.

(2) CPR refers to “Constant Prepayment Rate”.

(3) CDR refers to “Constant Default Rate”.

The assumed prepayment rate is a significant unobservable input used to estimate the fair value of investments in agency residential mortgage-backed securities (“RMBS”). Generally for bonds priced at a premium, increases in prepayment speeds will result in a lower fair value, while decreases in prepayment speeds may result in a higher fair value. Unobservable inputs used to estimate the fair value of investments in non-agency RMBS are the assumed prepayment rate, probability of default and loss severity. These three items can have material, yet varying impacts (either positive or negative) on the value of non-agency RMBS, the direction and severity of which are dependent on the deal structure and collateral performance.

The following table summarizes the change in net unrealized gains or losses for assets designated as Level 3 for the three months ended March 31, 2012 and 2011:

	Three months ended March 31,
	2012		2011
	($ in millions)
Fixed maturity investments	$	5.7	$	1.8
Short-term investments	—		—
Common equity securities	—		(1.3		)
Convertible fixed maturity investments	—		—
Other investments	3.8		1.5
Total	$	9.5	$	2.0

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“Transfers out” of Level 3 fixed maturity investments of $22.0 million and $27.7 million for the three months ended September 30, 2011 and March 31, 2011, respectively, were comprised of securities which had been previously classified as a Level 3 measurement and were recategorized as a Level 2 measurement when quoted market prices for similar securities that were considered reliable and could be validated against an alternative source became available.

The following table summarizes the change in net unrealized gains or losses for assets designated as Level 3 for the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
	($ in millions)
Fixed maturity investments	$	(11.0	)	$	3.4	$	(12.1	)	$	0.6
Short-term investments	—			—		—			—
Common equity securities	—			2.0		(0.1		)	5.8
Convertible bonds	—			—		—			—
Other investments	(0.5		)	0.2		2.4			3.9
Total	$	(11.5	)	$	5.6	$	(9.8	)	$	10.3

Asset-backed Securities

OB Holdings purchases commercial and residential mortgage -backed securities ~~with~~to ~~the~~maximize ~~goal of maximizing~~ its risk adjusted returns in the context of a diversified portfolio. OB Holdings’ non-agency commercial mortgage-backed portfolio (“CMBS”) is generally short tenor, ~~fixed rate~~ and structurally senior, with more than 20 points of subordination on average for fixed rate CMBS and approximately 7050 points of subordination on average for floating rate CMBS as of ~~September~~March 3031, ~~2011~~2012. In general, subordination represents the percentage of principal loss on the underlying collateral that would have to occur before the security incurs a loss. These collateral losses, instead, are first absorbed by other securities lower in the capital structure. OB Holdings believes this structural protection mitigates the risk of loss tied to refinancing challenges facing the commercial real estate market. As of ~~September~~March 3031, ~~2011~~2012, on average approximately 21% of the underlying loans were reported as non-performing for all CMBS held by OB Holdings. OB Holdings is not an originator of residential mortgage loans and did not hold any ~~residential mortgage-backed securities (“~~RMBS”) categorized as sub-prime as of ~~September~~March 3031, ~~2011~~2012. OB Holdings’ investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage -backed securities as of ~~September~~March 3031, ~~2011~~2012. OB Holdings considers sub-prime mortgage -backed securities to be those that have underlying loan pools that exhibit weak credit characteristics or are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., OB Holdings considers investments backed primarily by second-liens to be a sub-prime ~~risk~~risks regardless of credit scores or other metrics).

There are also mortgage -backed securities that OB Holdings categorizes as “non-prime” (also called “Alt A” or “A-”) that are backed by collateral that has overall credit quality between prime and sub-prime, as determined based on OB Holdings’ review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. As of ~~September~~March 3031, ~~2011~~2012, OB Holdings ~~did~~held ~~not~~$2.3 million ~~hold~~of ~~any~~ mortgage -backed securities that were classified as non-prime. OB Holdings’ non-agency residential mortgage-backed portfolio is generally of moderate average life, fixed rate and structurally senior. OB Holdings does not own any collateralized debt obligations, including residential mortgage-backed collateralized debt obligations.

The following table summarizes the carrying value of OB Holdings’ asset-backed securities as of March 31, 2012 and December 31, 2011:

	March 31, 2012						December 31, 2011
	Fair Value		Level 2		Level 3		Fair Value		Level 2		Level 3
	($ in millions )
Mortgage-backed securities:
Agency:
GNMA	$	498.9	$	498.9	$	—	$	588.4	$	588.4	$	—
FNMA	130.6		130.6		—		156.4		156.4		—
FHLMC	37.6		4.0		33.6		4.9		4.9		—
Total agency(1)	667.1		633.5		33.6		749.7		749.7		—
Non-agency:
Residential	13.6		11.3		2.3		13.7		11.4		2.3
Commercial	75.3		75.3		—		58.4		58.4		—
Total Non-agency	88.9		86.6		2.3		72.1		69.8		2.3
Total mortgage-backed securities	756.0		720.1		35.9		821.8		819.5		2.3
Other asset-backed securities:
Credit card receivables	5.2		5.2		—		46.0		46.0		—
Vehicle receivables	10.6		10.6		—		3.3		3.3		—
Total other asset-backed securities	15.8		15.8		—		49.3		49.3		—
Total asset-backed securities	$	771.8	$	735.9	$	35.9	$	871.1	$	868.8	$	2.3

(1) Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

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The following table summarizes the carrying value of OB Holdings’ asset-backed securities as of September 30, 2011 and December 31, 2010:

	September 30, 2011						December 31, 2010
	Fair Value		Level 2		Level 3		Fair Value		Level 2		Level 3
	($ in millions)
Mortgage-backed securities:
Agency:
GNMA	$	642.2	$	583.9	$	58.3	$	657.6	$	636.3	$	21.3
FNMA	125.5		125.5		—		134.3		134.3		—
FHLMC	12.6		12.6		—		19.0		19.0		—
Total agency(1)	780.3		722.0		58.3		810.9		789.6		21.3
Non-agency:
Residential	8.1		8.1		—		6.4		—		6.4
Commercial	70.9		70.9		—		36.3		36.3		—
Total Non-agency	79.0		79.0		—		42.7		36.3		6.4
Total mortgage-backed securities	859.3		801.0		58.3		853.6		825.9		27.7
Other asset-backed securities:
Credit card receivables	28.9		28.9		—		67.8		67.8		—
Vehicle receivables	74.3		74.3		—		107.6		107.6		—
Total other asset-backed securities	103.2		103.2		—		175.4		175.4		—
Total asset-backed securities	$	962.5	$	904.2	$	58.3	$	1,029.0	$	1,001.3	$	27.7

Non-agency Mortgage-backed Securities

The security issuance years of OB Holdings’ investments in non-agency RMBS and non-agency CMBS securities as of ~~September~~March 3031, ~~2011~~2012 are as follows:

	Fair Value		2003		2005		2007		2009		2010		2011
	Security Issuance Year
	($ in millions)
	Fair Value		2007		2009		2010		2011		2012
Non-agency RMBS	$	8.1	$	—	$	—	$	—	$	—	$	8.1	$	—
	($ in millions)
Non-agency CMBS	70.9		0.8		10.9		4.3		3.9		—		51.0
Non-agency RMBS	$	13.6	$	2.3	$	—	$	8.1	$	3.2	$	—
Total	$	79.0	$	0.8	$	10.9	$	4.3	$	3.9	$	8.1	$	51.0
Non-agency CMBS	75.3		4.5		3.9		4.1		61.8		1.0
Total	$	88.9	$	6.8	$	3.9	$	12.2	$	65.0	$	1.0

Non-agency Residential Mortgage-backed Securities

The classification of the underlying collateral quality and the tranche levels of OB Holdings’ non-agency RMBS securities are as follows as of ~~September~~March 3031, ~~2011~~2012:

	Fair Value		Super Senior(1)		Senior(2)		Subordinate(3)
	($ in millions)
Prime	$	811.13	$	—	$	811.13	$	—
Sub-prime	—		—		—		—
Non-prime	2.3		2.3		—		—
Total	$	813.16	$	—2.3	$	811.13	$	—

(1) At issuance, Super Senior were rated AAA by Standard & Poor’s ~~Rating~~Financial ~~Service~~Services LLC (“Standard & Poor’s”) or Aaa by Moody’s Investors Service, Inc. ~~(“Moody’s”)~~ and were senior to other AAA or Aaa bonds.

(2) At issuance, Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to non-AAA or non-Aaa bonds.

(3) At issuance, Subordinate were not rated AAA by Standard & Poor’s or Aaa by Moody’s and were junior to other bonds.

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Non-agency Commercial Mortgage-backed Securities

The amount of fixed and floating rate securities and their tranche levels are as follows as of ~~September~~March 3031, ~~2011~~2012:

	Fair Value		Super Senior(1)		Senior(2)		Subordinate(3)
	($ in millions)
Fixed rate CMBS	$	5570.78	$	1025.01	$	45.7	$	—
Floating rate CMBS	154.25		154.25		—		—
Total	$	7075.93	$	2529.26	$	45.7	$	—

(1) At issuance, Super Senior were rated AAA by Standard & Poor’s, or Aaa by Moody’s or AAA by Fitch Ratings and were senior to other AAA or Aaa bonds.

(2) At issuance, Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to non-AAA or non-Aaa bonds.

(3) At issuance, Subordinate were not rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to other bonds.

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Other Investments

OB Holdings holds investments in hedge funds and private equity funds which are included in other investments. The fair value of these investments has been estimated using the net asset value of the funds. The decrease in the fair value of hedge funds and private equity funds is due to net redemptions during the period. The following ~~tables~~table ~~summarize~~summarizes investments in hedge funds and private equity funds at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011:

	September 30, 2011				December 31, 2010
	March 31, 2012				December 31, 2011
	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
	($ in millions)
Hedge funds
Long/short credit and distressed	$	15.2	$	—	$	15.1	$	—
Long bank loan	0.2		—		2.0.2		—
Long/short equity	3336.83		—		3936.81		—
Long/short equity activist	2.05		—		62.51		—
Total hedge funds	$	5154.2	$	—	$	6353.45	$	—
Private equity funds
Insurance	$	3.42	$	0.1	$	3.53	$	0.1
Distressed residential real estate	1612.02		—		2413.67		—
Energy infrastructure and services	1715.16		4.64		1316.63		54.26
Healthcare	1.28		3.52		01.81		43.05
Multi-sector	20.31		5.21		19.13		65.32
Private equity secondaries	7.63		2.64		67.96		2.96
Real estate	4.5.9		0.1		4.24		0.71
Total private equity funds	$	7066.1	$	1615.13	$	7265.7	$	1916.21
Total hedge funds and private equity funds(1)	$	~~121~~120.3	$	1615.13	$	~~136~~119.12	$	1916.21

(1) Other investments also includes $14.1 million of an investment in a community reinvestment vehicle as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011 and $21.75 million and $21.28 million, respectively, of an investment in a tax advantaged federal affordable housing development fund as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011.

Redemptions of investments in certain funds are subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the March 31, 2012 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:

	Hedge Funds—Active Funds
	30 - 59 days notice		60 - 89 days notice		90 - 119 days notice		120+ days notice		Total
	($ in millions)
Redemption frequency
Monthly	$	—	$	—	$	—	$	6.6	$	6.6
Quarterly	25.2		8.1		11.7		—		45.0
Annual	—		—		2.4		0.2		2.6
Total	$	25.2	$	8.1	$	14.1	$	6.8	$	54.2

Certain of the hedge fund investments are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund’s underlying investments are liquidated. At March 31, 2012, $1.6 million of hedge funds were in liquidation. The actual amount of the final distribution is subject to market fluctuations. The date at which such distributions will be received is not determinable at March 31, 2012.

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~~Redemptions~~OB ofHoldings ~~investments~~has inalso ~~certain~~submitted ~~funds~~redemption ~~are~~requests ~~subject~~for tocertain ~~restrictions~~of ~~including~~its ~~lock-up~~investments ~~periods~~in ~~where~~active nohedge ~~redemptions~~funds. orAt ~~withdrawals~~March 31, ~~are allowed~~2012, ~~restrictions~~redemptions onof ~~redemption~~$2.5 million ~~frequency~~were ~~and~~outstanding. ~~advance~~The ~~notice~~date ~~periods~~at ~~for~~which ~~redemptions.~~such ~~Amounts requested for~~ redemptions ~~remain~~will ~~subject~~be toreceived ~~market~~is ~~fluctuations~~not ~~until~~determinable ~~the~~at ~~redemption effective date~~March 31, ~~which~~2012. ~~generally~~Redemptions ~~falls~~are atrecorded ~~the~~as ~~end~~receivables ofwhen ~~the~~approved ~~defined~~by ~~redemption period. The following summarizes~~ the ~~September 30, 2011 fair value of~~ hedge funds ~~subject to restrictions on redemption frequency~~ and ~~advance~~when ~~notice~~no ~~period~~longer ~~requirements~~subject ~~for~~to ~~investments~~market ~~in active hedge funds:~~fluctuations.

	Hedge Funds—Active Funds
	30 - 59 days notice		60 - 89 days notice		90 - 119 days notice		120+ days notice		Total
	($ in millions)
Redemption frequency
Monthly	$	—	$	—	$	—	$	6.0	$	6.0
Quarterly	23.7		8.0		11.3		—		43.0
Annual	—		—		2.0		0.2		2.2
Total	$	23.7	$	8.0	$	13.3	$	6.2	$	51.2

Investments in private equity funds are generally subject to “lock-up” periods during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investment. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. At March 31, 2012, investments in private equity funds were subject to lock-up periods as follows:

Certain of the hedge fund investments are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund’s underlying investments are liquidated. At September 30, 2011, $1.6 million of hedge funds were in liquidation. The actual amount of the final distribution is subject to market fluctuations. The date at which such distributions will be received is not determinable at September 30, 2011.

	1 - 3 years		3 - 5 years		5 - 10 years		>10 years		Total
	($ in millions)
Private Equity Funds—expected lock-up period remaining	$	15.4	$	12.0	$	38.7	$	—	$	66.1

OB Holdings has also submitted redemption requests for certain of its investments in active hedge funds. At September 30, 2011, redemptions of $2.0 million were outstanding. The date at which such redemptions will be received is not determinable at September 30, 2011. Redemptions are recorded as receivables when approved by the hedge funds and when no longer subject to market fluctuations.

Investments in private equity funds are generally subject to “lock-up” periods during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investment. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. At September 30, 2011, investments in private equity funds were subject to lock-up periods as follows:

	1 - 3 years		3 - 5 years		5 - 10 years		>10 years		Total
	($ in millions)
Private Equity Funds—expected lock up period remaining	$	19.4	$	—	$	50.7	$	—	$	70.1

NOTE 6. Debt

OB Holdings’ debt outstanding as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011 consisted of the following:

	September 30, 2011			December 31, 2010
	March 31, 2012			December 31, 2011
	($ in millions)
Senior unsecured notes, at face value	$	269.9		$	~~419~~269.9
Unamortized original issue discount	(0.21		)	(0.32		)
Senior unsecured notes, carrying value	$	269.78		$	~~419~~269.67

Senior Notes

In May 2003, the Company issued $700.0 million face value of senior unsecured debt through a public offering, at an issue price of 99.7% (the “Senior Notes”) and received $693.4 million of proceeds. The Senior Notes bear an annual interest rate of 5.875%, payable semi-annually in arrears on May 15 and November 15, until maturity on May 15, 2013, and are fully and unconditionally guaranteed as to the payment of principal and interest by White Mountains ~~pursuant to a separation agreement~~. Refer to “Note 1615. Related Party Disclosures” of the Company’s ~~2010~~2011 Annual Report on Form 10-K. The Company incurred $7.3 million in expenses related to the issuance of the Senior Notes (including the $4.5 million underwriting discount), which have been deferred and are being recognized into interest expense over the life of the Senior Notes. Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the Senior Notes have an effective yield to maturity of approximately 6.0% per annum. At ~~September~~March 3031, ~~2011~~2012, White Mountains and the Company ~~was~~were in compliance with all of the covenants under the Senior Notes.

NOTE 7. Segment Information

OB Holdings’ reportable segments are: (1) Specialty Insurance Operations, (2) Other Insurance Operations and (3) Investing, Financing and Corporate Operations. OB Holdings has made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company’s subsidiaries and affiliates; (ii) the manner in which the Company’s subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the chief operating decision makers and OBIG’s Board of Directors (the “Board”).

The Specialty Insurance Operations segment is comprised of a number of underwriting units that are aggregated into three major underwriting units for financial reporting: MGA Business, Specialty Industries and Specialty Products, representing an aggregation of OB Holdings’ specialty businesses based on those that are distributed through MGAs, those that are targeted to specific industries and those that offer targeted products. Currently, OB Holdings’ specialty lines products relate to professional liability, marine, collector cars and boats, technology, property and inland marine, excess property, group accident, entertainment, sports and leisure, environmental, public entities, energy and tuition refund. In addition, in April 2012, OB Holdings announced the formation of its newest specialty business, OneBeacon Program Group which is included in MGA Business. In determining the aggregation of OB Holdings’ specialty businesses, management considered many factors, including the nature of its insurance products and services and the production processes, the types or classes of customers, methods of distribution and the regulatory environment.

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OnThe ~~March 24,~~Other ~~2011,~~Insurance ~~the~~Operations ~~Company~~segment ~~commenced~~includes athe ~~cash~~results ~~tender offer for up to $150.0 million in aggregate principal amount~~ of the ~~Senior~~non-specialty ~~Notes~~commercial atlines abusiness ~~price~~which ofwas $1transferred,~~045~~ ~~per~~the ~~$1,000~~traditional ~~principal~~personal ~~amount.~~lines ~~The~~business ~~cash tender offer,~~ which was ~~not~~sold, ~~subject~~other torun-off ~~the~~business ~~tender~~which ofconsists ~~any minimum principal amount~~ of ~~Senior~~national ~~Notes,~~accounts ~~expired~~and onprograms ~~April 20,~~and ~~2011.~~regional ~~Holders~~agency ofbusiness ~~Senior~~transferred ~~Notes~~to ~~who~~Liberty ~~tendered~~Mutual onInsurance orGroup ~~before~~effective ~~April~~November 61, ~~2011 received an early tender payment of $30 for every $1~~2001,~~000~~ ~~principal~~and ~~amount~~certain ofpurchase ~~Senior~~accounting ~~Notes~~adjustments ~~validly~~relating ~~tendered. Payment for the Senior Notes included accrued and unpaid interest up~~ to the ~~settlement~~OneBeacon ~~date~~Acquisition. ~~The Company accepted and retired $150.0 million aggregate principal amount of the Senior Notes for $161.6 million, which resulted in a $12.0 million pre-tax loss, including transaction fees.~~

~~On May 3~~Investing, ~~2010,~~Financing ~~the~~and ~~Company~~Corporate ~~commenced~~Operations aincludes ~~cash~~the ~~tender~~investing ~~offer~~and ~~for~~financing upactivities tofor ~~$200.0~~OB ~~million~~Holdings inon ~~aggregate~~a ~~principal~~consolidated ~~amount~~basis, ofand ~~the~~certain ~~Senior~~other ~~Notes~~activities atconducted athrough ~~price~~the ofCompany ~~$1,027.50~~and ~~per~~its ~~$1,000~~intermediate ~~principal~~holding ~~amount~~company subsidiaries. ~~The~~Invested ~~cash~~assets ~~tender~~are ~~offer, which was~~ not ~~subject~~allocated to ~~the~~Specialty ~~tender~~Insurance ofOperations ~~any~~or ~~minimum~~Other ~~principal~~Insurance ~~amount~~Operations ofsince ~~Senior~~OB ~~Notes,~~Holdings ~~expired~~does onnot ~~May 28,~~manage ~~2010.~~its ~~Holders~~assets ofby ~~Senior~~segment. ~~Notes~~Invested ~~who~~assets, ~~tendered~~net oninvestment orincome ~~before~~and ~~May 14,~~net ~~2010~~realized ~~received~~and anunrealized ~~early~~investment ~~tender~~gains ~~payment~~(losses) ofrelated ~~$30~~to ~~for~~OB ~~every~~Holdings’ ~~$1,000~~Specialty ~~principal~~Insurance ~~amount~~Operations ofand ~~Senior~~Other ~~Notes~~Insurance ~~validly~~Operations ~~tendered.~~segments ~~Payment~~are ~~for~~included in the ~~Senior~~Investing, ~~Notes~~Financing ~~included~~and ~~accrued~~Corporate ~~and~~Operations ~~unpaid~~segment ~~interest~~since upthese toassets ~~the~~are ~~settlement~~available ~~date.~~for ~~The~~payment ~~Company~~of ~~accepted~~losses and ~~retired~~expenses ~~$156.4~~for ~~million~~all ~~aggregate~~segments. ~~principal~~Debt ~~amount~~and of the ~~Senior~~related ~~Notes,~~interest ofexpense ~~which~~on ~~$155.2~~debt ~~million~~also ~~was~~are ~~tendered~~not byallocated ~~the~~to ~~early~~or ~~tender~~managed ~~deadline,~~by ~~for~~segment ~~purchase~~and ~~for~~are ~~$165.4~~included ~~million, which resulted~~ in athe ~~$9.6~~Investing, ~~million~~Financing ~~pre-tax~~and ~~loss,~~Corporate ~~including~~Operations ~~transaction fees~~segment.

~~During~~Financial ~~the~~information ~~second quarter of 2010, the Company repurchased and retired $18.2 million of outstanding Senior Notes~~ for ~~$18.9~~OB ~~million,~~Holdings’ ~~which~~segments resulted in a $0.7 million loss. During the first quarter of 2010, the Company repurchased and retired $11.5 million of outstanding Senior Notes for $11.9 million, which resulted in a $0.5 million loss. During the first quarter of 2010, OBIC purchased $1.1 million of outstanding Senior Notes for $1.1 million.follows:

Other Debt of Operating Subsidiaries

	Specialty Insurance Operations			Other Insurance Operations			Investing, Financing and Corporate Operations			Total
	($ in millions)
Three months ended March 31, 2012
Earned premiums	$	271.8		$	1.0		$	—		$	272.8
Loss and LAE	(136.5		)	(12.8		)	—			(149.3		)
Policy acquisition expenses	(58.2		)	0.8			—			(57.4		)
Other underwriting expenses	(47.4		)	(1.4		)	—			(48.8		)
Total underwriting income	29.7			(12.4		)	—			17.3
Net investment income	—			—			13.6			13.6
Net realized and unrealized investment gains	—			—			28.1			28.1
Net other revenues (expenses)	0.1			0.2			(0.2		)	0.1
General and administrative expenses	(0.3		)	—			(0.7		)	(1.0		)
Interest expense on debt	—			—			(4.1		)	(4.1		)
Pre-tax income (loss) from continuing operations	$	29.5		$	(12.2	)	$	36.7		$	54.0
Three months ended March 31, 2011
Earned premiums	$	241.9		$	3.2		$	—		$	245.1
Loss and LAE	(132.6		)	2.2			—			(130.4		)
Policy acquisition expenses	(49.2		)	0.2			—			(49.0		)
Other underwriting expenses	(46.4		)	(2.9		)	—			(49.3		)
Total underwriting income	13.7			2.7			—			16.4
Net investment income	—			—			19.7			19.7
Net realized and unrealized investment gains	—			—			21.9			21.9
Net other revenues (expenses)	0.1			0.9			(0.2		)	0.8
General and administrative expenses	(0.5		)	—			(0.7		)	(1.2		)
Interest expense on debt	—			—			(6.3		)	(6.3		)
Pre-tax income from continuing operations	$	13.3		$	3.6		$	34.4		$	51.3

In April 2011, OBH entered into a $200.0 million revolving credit facility with Mill Shares Holdings., Ltd., a subsidiary of OBIG, that matures in December 2013. In May 2011, OBH had drawn $40.0 million on the facility. In June 2011, OBH repaid the $40.0 million that had been drawn on the facility.

In connection with the acquisition of Atlantic Specialty Insurance Company on March 31, 2004, OB Holdings issued a $20.0 million ten-year note to the seller (the “Atlantic Specialty Note”). OB Holdings was required to repay $2.0 million of principal on the Atlantic Specialty Note each year, commencing in January 2007. During the three months ended March 31, 2010, OB Holdings repaid $14.0 million on the Atlantic Specialty Note, representing the outstanding principal on the note.

NOTE 7. Segment Information

To better align its operating and reporting structure with OB Holdings’ go-forward business profile that resulted from the sale of the non-specialty commercial lines business to The Hanover Insurance Group (“The Hanover”) (the “Commercial Lines Transaction”) and the Personal Lines Transaction, which have transformed OB Holdings into a specialty lines company, management re-evaluated its segments during the fourth quarter of 2010 to determine the most effective management reporting structure. As a result, OB Holdings’ reportable segments are: (1) Specialty Insurance Operations, (2) Other Insurance Operations and (3) Investing, Financing and Corporate Operations. OB Holdings made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company’s subsidiaries and affiliates; (ii) the manner in which the Company’s subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the chief operating decision makers and OBIG’s Board of Directors (the “Board”).

The Specialty Insurance Operations segment is comprised of twelve underwriting units that are aggregated into three major underwriting units for financial reporting: MGA Business, Specialty Industries and Specialty Products, representing an aggregation of OB Holdings’ specialty businesses based on those that are distributed through MGAs, those that are targeted to specific industries and those that offer targeted products. Currently, OB Holdings’ specialty lines products cover or include: professional liability, marine, collector cars and boats, property and inland marine, excess property, accident and health, technology, public entities, energy, entertainment, sports and leisure, tuition reimbursement and excess and surplus lines. In determining how to aggregate OB Holdings’ specialty businesses, management considered many factors, including the nature of its insurance products and services and the production processes, the types or classes of customers, methods of distribution and the regulatory environment.

The Other Insurance Operations segment includes the results of the non-specialty commercial lines business which was transferred to The Hanover and the traditional personal lines business which was sold in the Personal Lines Transaction, other run-off business which consists of national accounts, certain specialty programs and regional agency business transferred to Liberty Mutual Insurance Group effective November 1, 2001, and certain purchase accounting adjustments relating to the OneBeacon Acquisition. As described in Note 1, prior to entering into the AutoOne Purchase Agreement on August 30, 2011, results for AutoOne were included

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in Other Insurance Operations and are now included in discontinued operations. The prior periods have been reclassified to conform to the current presentation.

	Specialty Insurance Operations		Other Insurance Operations		Investing, Financing and Corporate Operations		Total
	($ in millions)
March 31, 2012
Total investments	$	—	$	—	$	2,445.3	$	2,445.3
Reinsurance recoverable on paid and unpaid losses	54.9		2,080.0		—		2,134.9
Deferred acquisition costs	117.9		—		—		117.9
Ceded unearned premiums	9.6		0.1		—		9.7
Loss and LAE reserves	858.1		2,391.5		—		3,249.6
Unearned premiums	555.9		2.0		—		557.9
Debt	—		—		269.8		269.8
December 31, 2011
Total investments	$	—	$	—	$	2,508.7	$	2,508.7
Reinsurance recoverable on paid and unpaid losses	62.7		2,121.3		—		2,184.0
Deferred acquisition costs	123.3		0.2		—		123.5
Ceded unearned premiums	10.5		0.2		—		10.7
Loss and LAE reserves	868.6		2,490.0		—		3,358.6
Unearned premiums	525.6		2.4		—		528.0
Debt	—		—		269.7		269.7

~~Investing,~~The ~~Financing~~following ~~and~~tables ~~Corporate~~provide ~~Operations~~net ~~includes~~written ~~the~~premiums, ~~investing~~earned premiums and ~~financing~~ratios ~~activities~~ for OB Holdings’ oninsurance aoperations ~~consolidated basis, and certain other activities conducted~~ by ~~the Company. Invested assets are not allocated to Specialty Insurance Operations or Other Insurance Operations since OB Holdings does not manage its assets by~~ segment. ~~Invested assets, net investment income~~ and ~~net~~in ~~realized~~total, ~~and~~as ~~unrealized~~well ~~investment~~as ~~gains~~for ~~(losses)~~the ~~related~~three tomajor OBunderwriting ~~Holdings’~~units within Specialty Insurance Operations ~~and Other Insurance Operations segments are included in the Investing~~, ~~Financing and Corporate Operations segment since these assets are available~~ for ~~payment of losses and expenses for all segments. Debt and~~ the ~~related~~three ~~interest~~months ~~expense~~ended ~~on debt also are not allocated to or managed by segment and are included in the Investing~~March 31, ~~Financing~~2012 and ~~Corporate Operations segment.~~2011:

Previously, OB Holdings reported and managed its business through an Insurance Operations segment and an Other Operations segment. Within the Insurance Operations segment, OB Holdings reported and managed its specialty lines businesses within a specialty lines underwriting unit and its traditional personal lines businesses and AutoOne within a personal lines underwriting unit, nearly all of which was subject to the Personal Lines Transaction. The Insurance Operations segment also included run-off business, which consisted primarily of non-specialty commercial lines business and other run-off business. Certain other activities conducted by the Company were included in the Other Operations segment. Investing and Financing activities were included within the Insurance Operations segment if they were owned or owed by insurance company legal entities or within the Other Operations segment if they were owned or owed by the Company.

($ in millions)	MGA Business			Specialty Industries			Specialty Products			Specialty Insurance Operations(1)			Other Insurance Operations(2)		Total
Three months ended March 31, 2012
Net written premiums	$	55.7		$	110.3		$	137.1		$	303.1		$	0.5	$	303.6
Earned premiums	72.9			98.7			100.2			271.8			1.0		272.8
Ratios:
Loss and LAE	42.5		%	50.2		%	55.9		%	50.2		%	n/m		54.7		%
Expense	44.3			38.2			35.5			38.9			n/m		38.9
Total GAAP combined	86.8		%	88.4		%	91.4		%	89.1		%	n/m		93.6		%
Three months ended March 31, 2011
Net written premiums	$	48.5		$	85.6		$	124.2		$	258.3		$	1.6	$	259.9
Earned premiums	66.0			80.9			95.0			241.9			3.2		245.1
Ratios:
Loss and LAE	45.3		%	57.0		%	59.6		%	54.8		%	n/m		53.2		%
Expense	42.1			42.4			35.3			39.5			n/m		40.1
Total GAAP combined	87.4		%	99.4		%	94.9		%	94.3		%	n/m		93.3		%

~~Financial~~(1) Within ~~information~~Specialty ~~for~~Insurance Operations, OB Holdings’ ~~segments~~reports ~~follows:~~its businesses through three major underwriting units, representing an aggregation of its specialty lines businesses. MGA Business includes Collector Cars and Boats, A.W.G. Dewar and OneBeacon Entertainment. In addition, in April 2012, OB Holdings announced the formation of its newest specialty business, OneBeacon Program Group which is included in MGA Business. Specialty Industries includes International Marine Underwriters, OneBeacon Technology Insurance, OneBeacon Accident Group, OneBeacon Government Risks and OneBeacon Energy Group. Specialty Products includes OneBeacon Professional Insurance, OneBeacon Property and Inland Marine, OneBeacon Specialty Property and OneBeacon Excess and Surplus.

	Specialty Insurance Operations			Other Insurance Operations			Investing, Financing and Corporate Operations			Total
	($ in millions)
Three months ended September 30, 2011
Earned premiums	$	259.1		$	(0.5	)	$	—		$	258.6
Loss and LAE	(149.7		)	3.1			—			(146.6		)
Policy acquisition expenses	(58.6		)	—			—			(58.6		)
Other underwriting expenses	(36.0		)	(2.7		)	—			(38.7		)
Total underwriting income (loss)	14.8			(0.1		)	—			14.7
Net investment income	—			—			15.2			15.2
Net realized and unrealized investment losses	—			—			(44.4		)	(44.4		)
Net other revenues (expenses)	0.3			0.1			(0.4		)	—
General and administrative expenses	(0.4		)	—			(0.7		)	(1.1		)
Interest expense on debt	—			—			(4.1		)	(4.1		)
Pre-tax income (loss)	$	14.7		$	—		$	(34.4	)	$	(19.7	)
Three months ended September 30, 2010
Earned premiums	$	249.6		$	44.0		$	—		$	293.6
Loss and LAE	(128.9		)	(26.3		)	—			(155.2		)
Policy acquisition expenses	(54.1		)	(10.2		)	—			(64.3		)
Other underwriting expenses	(42.6		)	(7.9		)	—			(50.5		)
Total underwriting income (loss)	24.0			(0.4		)	—			23.6
Net investment income	—			—			21.6			21.6
Net realized and unrealized investment gains	—			—			51.6			51.6
Net other revenues	0.6			12.2			0.1			12.9
General and administrative expenses	(0.7		)	0.6			(1.0		)	(1.1		)
Interest expense on debt	—			—			(6.4		)	(6.4		)
Pre-tax income	$	23.9		$	12.4		$	65.9		$	102.2

(2) As Other Insurance Operations consists of business in run-off, GAAP ratios are not meaningful.

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	Specialty Insurance Operations			Other Insurance Operations			Investing, Financing and Corporate Operations			Total
	($ in millions)
Nine months ended September 30, 2011
Earned premiums	$	747.9		$	3.3		$	—		$	751.2
Loss and LAE	(421.3		)	6.4			—			(414.9		)
Policy acquisition expenses	(161.3		)	0.2			—			(161.1		)
Other underwriting expenses	(124.4		)	(7.7		)	—			(132.1		)
Total underwriting income	40.9			2.2			—			43.1
Net investment income	—			—			52.7			52.7
Net realized and unrealized investment losses	—			—			(12.6		)	(12.6		)
Net other revenues (expenses)	0.5			1.6			(12.7		)	(10.6		)
General and administrative expenses	(1.3		)	—			(1.8		)	(3.1		)
Interest expense on debt	—			—			(16.6		)	(16.6		)
Pre-tax income	$	40.1		$	3.8		$	9.0		$	52.9
Nine months ended September 30, 2010
Earned premiums	$	726.7		$	408.0		$	—		$	1,134.7
Loss and LAE	(408.5		)	(310.8		)	—			(719.3		)
Policy acquisition expenses	(153.3		)	(95.0		)	—			(248.3		)
Other underwriting expenses	(118.5		)	(58.1		)	—			(176.6		)
Total underwriting income (loss)	46.4			(55.9		)	—			(9.5		)
Net investment income	—			—			74.9			74.9
Net realized and unrealized investment gains	—			—			79.6			79.6
Net other revenues (expenses)	1.4			12.2			(11.5		)	2.1
General and administrative expenses	(1.5		)	(0.1		)	(3.3		)	(4.9		)
Interest expense on debt	—			—			(23.4		)	(23.4		)
Pre-tax income (loss)	$	46.3		$	(43.8	)	$	116.3		$	118.8

NOTE 8. Retirement Plans

	Specialty Insurance Operations		Other Insurance Operations		Investing, Financing and Corporate Operations		Total
	($ in millions)
September 30, 2011
Total investments	$	—	$	—	$	2,506.2	$	2,506.2
Reinsurance recoverable on paid and unpaid losses	63.5		2,189.3		—		2,252.8
Deferred acquisition costs	129.1		0.5		—		129.6
Ceded unearned premiums	10.5		1.0		—		11.5
Loss and LAE reserves	883.8		2,575.1		—		3,458.9
Unearned premiums	548.6		10.8		—		559.4
Debt	—		—		269.7		269.7
December 31, 2010
Total investments	$	—	$	—	$	2,957.7	$	2,957.7
Reinsurance recoverable on paid and unpaid losses	60.1		1,877.6		—		1,937.7
Deferred acquisition costs	111.3		3.2		—		114.5
Ceded unearned premiums	10.8		103.1		—		113.9
Loss and LAE reserves	841.5		2,454.0		—		3,295.5
Unearned premiums	475.3		152.2		—		627.5
Debt	—		—		419.6		419.6

OneBeacon sponsors qualified and non-qualified, non-contributory, defined benefit pension plans covering substantially all employees who were employed as of December 31, 2001 and former employees who had met the eligibility requirements, as well as retirees. Current plans include the OneBeacon qualified pension plan (the “Qualified Plan”) and the OneBeacon non-qualified pension plan (the “Non-qualified Plan”) (collectively the “Plans”). OneBeacon’s Plans were frozen and curtailed in the fourth quarter of 2002.

The components of net periodic benefit cost (income) for the three months ended March 31, 2012 and 2011 were as follows:

	Three months ended March 31,
	2012			2011
	($ in millions)
Service cost	$	0.2		$	0.2
Interest cost	1.2			1.3
Expected return on plan assets	(1.7		)	(1.9		)
Amortization of unrecognized loss	0.2			0.1
Net periodic pension income before special termination benefits expense	(0.1		)	(0.3		)
Special termination benefits expense(1)	—			0.2
Net periodic benefit income	$	(0.1	)	$	(0.1	)

(1) Special termination benefits represent additional payments made from the Qualified Plan to certain vested participants when their employment was terminated due to a reduction in force.

OneBeacon does not expect to make a contribution to its Qualified Plan in 2012. OneBeacon anticipates contributing $2.4 million to the Non-qualified Plan in 2012, for which OneBeacon has assets held in a rabbi trust. As of March 31, 2012, $0.6 million in contributions have been made to the Non-qualified Plan.

NOTE 9. Employee Share-Based Incentive Compensation Plans

OB Holdings’ share-based compensation plans consist of performance shares. OB Holdings’ share-based compensation plans are designed to maximize shareholder value over long periods of time by aligning the financial interests of its management with those of its owners. Performance shares are payable only upon achievement of pre-defined business goals and are valued based on the market value of OBIG’s common shares at the time awards are earned. See “Performance Shares” below. Performance shares are typically paid in cash, though, in some instances, they may be paid in common shares or may be deferred in accordance with the terms of OB Holdings’ deferred compensation plan. OB Holdings expenses the full cost of all its share-based compensation.

OB Holdings records its share-based compensation in accordance with ASC 718. ASC 718 applies to new grants of share-based awards, award modifications and the remaining portion of the fair value of unvested awards. The unvested portion of OB Holdings performance share awards are subject to the fair value measurement and recognition requirements of ASC 718.

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The following tables provide net written premiums, earned premiums and ratios for OB Holdings’ insurance operations by segment and in total, as well as for the three major underwriting units within Specialty Insurance Operations, for the three and nine months ended September 30, 2011 and 2010:

($ in millions)	MGA Business			Specialty Industries			Specialty Products			Specialty Insurance Operations			Other Insurance Operations(1)			Total
Three months ended September 30, 2011
Net written premiums	$	110.5		$	89.7		$	97.0		$	297.2		$	(0.4	)	$	296.8
Earned premiums	69.8			90.2			99.1			259.1			(0.5		)	258.6
Ratios:
Loss and LAE	53.5		%	54.7		%	63.7		%	57.8		%	n/m			56.7		%
Expense	44.3			35.4			32.1			36.5			n/m			37.6
Total GAAP combined	97.8		%	90.1		%	95.8		%	94.3		%	n/m			94.3		%
Three months ended September 30, 2010
Net written premiums	$	102.7		$	75.7		$	95.1		$	273.5		$	(4.7	)	$	268.8
Earned premiums	65.7			76.7			107.2			249.6			44.0			293.6
Ratios:
Loss and LAE	48.3		%	54.1		%	51.9		%	51.7		%	59.8		%	52.9		%
Expense	43.9			42.1			33.3			38.7			41.1			39.1
Total GAAP combined	92.2		%	96.2		%	85.2		%	90.4		%	100.9		%	92.0		%
Nine months ended September 30, 2011
Net written premiums	$	230.7		$	278.2		$	312.6		$	821.5		$	0.8		$	822.3
Earned premiums	204.1			254.8			289.0			747.9			3.3			751.2
Ratios:
Loss and LAE	50.8		%	54.2		%	62.2		%	56.3		%	n/m			55.2		%
Expense	42.7			39.2			34.1			38.2			n/m			39.0
Total GAAP combined	93.5		%	93.4		%	96.3		%	94.5		%	n/m			94.2		%
Nine months ended September 30, 2010
Net written premiums	$	217.9		$	239.8		$	313.9		$	771.6		$	171.4		$	943.0
Earned premiums	196.1			223.0			307.6			726.7			408.0			1,134.7
Ratios:
Loss and LAE	50.3		%	55.2		%	60.7		%	56.2		%	76.2		%	63.4		%
Expense	39.7			41.2			33.2			37.4			37.5			37.4
Total GAAP combined	90.0		%	96.4		%	93.9		%	93.6		%	113.7		%	100.8		%

(1) As Other Insurance Operations consists of business in run-off, GAAP ratios are not meaningful for the 2011 periods.

NOTE 8. Variable Interest Entities

Reciprocals

Reciprocals are policyholder-owned insurance carriers organized as unincorporated associations. Each policyholder insured by the reciprocal shares risk with the other policyholders. Policyholders share profits and losses in the same proportion as the amount of insurance purchased but are not subject to assessment for net losses of the reciprocal.

OB Holdings had capitalized three reciprocals by loaning funds to them in exchange for surplus notes. In 2002, OB Holdings formed New Jersey Skylands Management LLC (“NJSM”) to provide management services for a fee to NJSIA, a reciprocal, and its wholly-owned subsidiary New Jersey Skylands Insurance Company (together, “New Jersey Skylands Insurance”). New Jersey Skylands Insurance was capitalized with a $31.3 million surplus note issued to OB Holdings in 2002. OB Holdings also loaned $0.2 million to New Jersey Skylands Insurance in the form of a security deposit. In 2004, OB Holdings formed Houston General Management Company to provide management services for a fee to another reciprocal, Houston General Insurance Exchange. During 2004, OB Holdings contributed $2.0 million of capital to Houston General Insurance Exchange. In 2005, OB Holdings contributed one of its subsidiaries, Houston General Insurance Company with assets of $149.4 million and liabilities of $127.6 million, to Houston General Insurance Exchange (together “Houston General Insurance”). Subsequent to the contribution of Houston General Insurance Company, Houston General Insurance Exchange issued a surplus note of $23.7 million to OB Holdings. In 2006, Adirondack AIF, LLC (“AAIF”), a wholly-owned subsidiary of OB Holdings, entered into an agreement to provide management services for a fee to Adirondack Insurance, a reciprocal. Adirondack Insurance was capitalized with a $70.7 million surplus note issued to OB Holdings in May 2006. Principal and interest on the surplus notes are repayable to OB Holdings only with regulatory approval. The obligation to

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repay principal on the notes is subordinated to all other liabilities including obligations to policyholders and claimants for benefits under insurance policies. OB Holdings has no ownership interest in the reciprocals.

Under the provisions of ASC 810, OB Holdings had determined that each of the reciprocals qualifies as a VIE. Further, OB Holdings had determined that it is the primary beneficiary as it has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE as a result of the management services provided to the reciprocal and the funds loaned to it. Accordingly, OB Holdings consolidates Houston General Insurance and, until the completion of the Personal Lines Transaction in July 2010, consolidated New Jersey Skylands Insurance and Adirondack Insurance. As described in Note 2, the Personal Lines Transaction, which was completed in July 2010, included the sale of NJSM and AAIF and the transfer of the surplus notes issued by New Jersey Skylands Insurance and Adirondack Insurance. Completion of the Personal Lines Transaction triggered deconsolidation of New Jersey Skylands Insurance and Adirondack Insurance.

Subsequent to the Personal Lines Transaction, Houston General Insurance remains as OB Holdings’ only reciprocal. At September 30, 2011 and December 31, 2010, consolidated amounts related to Houston General Insurance included total assets of $104.5 million and $118.0 million, respectively, and total liabilities of $124.3 million and $136.2 million, respectively. At September 30, 2011, the net amount of capital at risk is equal to the surplus note of $23.7 million less the accumulated losses of $19.8 million which includes accrued interest on the surplus note of $16.3 million which eliminates in consolidation.

NOTE 9. Retirement Plans

OneBeacon sponsors qualified and non-qualified, non-contributory, defined benefit pension plans covering substantially all employees who were employed as of December 31, 2001 and remain actively employed with OneBeacon. Current plans include a OneBeacon qualified pension plan (the “Qualified Plan”) and a OneBeacon non-qualified pension plan (the “Non-qualified Plan”) (collectively the “Plans”). OneBeacon’s Plans were frozen and curtailed in the fourth quarter of 2002.

The components of net periodic benefit cost for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
	($ in millions)
Service cost	$	0.2		$	0.2		$	0.6		$	0.6
Interest cost	1.3			1.6			3.9			4.6
Expected return on plan assets	(1.9		)	(1.8		)	(5.7		)	(5.6		)
Amortization of unrecognized loss	0.1			0.1			0.3			0.5
Net periodic pension (income) cost before settlement and special termination benefits expense	(0.3		)	0.1			(0.9		)	0.1
Settlement expense	—			0.2			—			0.2
Special termination benefits expense (1)	0.2			1.3			0.6			1.7
Net periodic benefit (income) cost	$	(0.1	)	$	1.6		$	(0.3	)	$	2.0

(1) Special termination benefits represent additional payments made from the Qualified Plan to certain vested participants when their employment was terminated due to a reduction in force.

OneBeacon does not expect to make a contribution to its Qualified Plan in 2011. OneBeacon anticipates contributing $2.4 million to the Non-qualified Plan in 2011, for which OneBeacon has assets held in a rabbi trust. As of September 30, 2011, $1.8 million in contributions have been made to the Non-qualified Plan.

As a result of the Commercial Lines Transaction and Personal Lines Transaction, the Plan experienced a partial plan settlement which required re-measurement of the remaining accumulated plan benefits in accordance with ASC 715. OneBeacon’s discount rate assumption used to account for the Qualified Plan reflects the rate at which the benefit obligation could effectively be settled. Based on consideration of published yields for high quality long-term corporate bonds, U.S. Treasuries, insurance company annuity contract pricings, and cash flow matching analysis utilizing the Citigroup Pension Discount Curve and Liability Index, the discount rate utilized for the revaluation of the Qualified Plan obligations was 4.75% as compared to 5.50% at December 31, 2009. As a result of the partial settlement and re-measurement, the Company recognized a loss of $0.2 million through pre-tax income and a pre-tax loss of $0.5 million through other comprehensive income in the three and nine months ended September 30, 2010. At the time

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of settlement, the remaining Qualified Plan liabilities, which were primarily attributable to Qualified Plan participants who were actively employed by OneBeacon was approximately $88.4 million.

NOTE 10. Employee Share-Based Incentive Compensation Plans

OB Holdings’ share-based compensation plans consist of performance shares. OB Holdings’ share-based compensation plans are designed to maximize shareholder value over long periods of time by aligning the financial interests of its management with those of its owners. Performance shares are payable only upon achievement of pre-defined business goals and are valued based on the market value of OBIG’s common shares at the time awards are earned. See “Performance Shares” below. Performance shares are typically paid in cash, though, in some instances, they may be paid in common shares or may be deferred in accordance with the terms of one of the deferred compensation plans of the Company’s subsidiaries. OB Holdings expenses the full cost of all its share-based compensation.

OB Holdings records its share-based compensation in accordance with ASC 718. ASC 718 applies to new grants of share-based awards, award modifications and the remaining portion of the fair value of unvested awards. The unvested portion of OB Holdings performance share awards is subject to the fair value measurement and recognition requirements of ASC 718.

Performance Shares

The following summarizes performance share activity for performance shares whose value is based upon the market price of an underlying OBIG common share (“OB Performance Shares”) for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011:

	Three months ended September 30,
	Three Months Ended March 31,
	2011					2010
	2012					2011
	Target OB Performance Shares outstanding		Accrued expense			Target OB Performance Shares outstanding		Accrued expense
	($ in millions)
Beginning of period	~~671~~642,~~727~~667		$	109.07		1,~~770~~464,~~423~~295		$	1518.25
Payments and deferrals (1)	—		—			(199,774	)	(2.2		)
Payments and deferrals (1)(2)(3)	(249,733	)	(7.5		)	(936,150	)	(10.5		)
New awards	—181,290		—			14194,~~618~~900		—
Forfeitures and net change in assumed forfeitures	(194,~~583~~479	)	~~0.1~~—			(204,~~438~~873	)	~~(0.3~~—		)
(Income) expense recognized	—		(0.5		)	—		1.7
Expense recognized	—		1.0			—		0.4
End of period	~~652~~569,~~144~~745		$	93.62		1718,~~564,829~~172		$	148.4

	Nine months ended September 30,
	2011					2010
	Target OB Performance Shares outstanding		Accrued expense			Target OB Performance Shares outstanding		Accrued expense
	($ in millions)
Beginning of period	1,464,295		$	18.5		2,224,215		$	15.1
Payments and deferrals (1)(2)(3)	(936,150	)	(10.5		)	(882,118	)	(4.5		)
New awards	194,900		—			293,478		—
Forfeitures and net change in assumed forfeitures	(70,901	)	(0.2		)	(70,746	)	(0.7		)
Expense recognized	—		1.8			—		4.5
End of period	652,144		$	9.6		1,564,829		$	14.4

(1) Performance share payments in 2012 for the 2009-2011 performance cycle were based upon a performance factor of 138.6%.

(1) As a result of the Commercial Lines Transaction and the Personal Lines Transaction, payments were made to certain former employees of OneBeacon prior to the end of the performance cycle (2008-2010, 2009-2011 and 2010-2012 performance cycles) on a pro rata basis based upon a performance factor of 100%.

(2) Performance share payments in 2011 for the 2008-2010 performance cycle were based upon a performance factor of 68.5%.

(3) ~~Performance~~ As ~~share~~a result of certain dispositions, payments inwere ~~2010~~made ~~for~~to certain former employees of OneBeacon prior to the ~~2007-2009~~end of the performance cycle ~~were~~(2009-2011 and 2010-2012 performance cycles) on a pro rata basis based upon a performance factor of ~~14.2~~100%.

29The following summarizes performance shares outstanding and accrued performance share expense at March 31, 2012 for each performance cycle:

	Target OB Performance Shares outstanding		Accrued expense
	($ in millions)
Performance cycle:
2009—2011	9,168		$	0.3
2010—2012	242,098		1.6
2011—2013	151,563		1.1
2012—2014	181,290		0.3
Sub-total	584,119		3.3
Assumed forfeitures	(14,374	)	(0.1		)
Total at March 31, 2012	569,745		$	3.2

If 100% of the outstanding performance shares had been vested on March 31, 2012, the total additional compensation cost to be recognized would have been $4.6 million, based on current accrual factors at March 31, 2012 (common share price and payout assumptions).

All performance shares earned and paid for the 2010-2012, 2009-2011 and 2008-2010 performance cycles were settled in cash or by deferral into OB Holdings’ deferred compensation plan.

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~~The~~NOTE ~~following~~10. ~~summarizes~~Income ~~performance shares outstanding and accrued performance share expense at September 30, 2011 for each performance cycle:~~Taxes

	Target OB Performance Shares outstanding		Accrued expense
	($ in millions)
Performance cycle:
2009—2011	259,102		$	7.2
2010—2012	251,557		1.9
2011—2013	151,563		0.6
Sub-total	662,222		9.7
Assumed forfeitures	(10,078	)	(0.1		)
Total at September 30, 2011	652,144		$	9.6

If 100% of the outstanding performance shares had been vested at September 30, 2011, the total additional compensation cost to be recognized would have been $3.7 million, based on current accrual factors at September 30, 2011 (common share price and payout assumptions).

All performance shares earned and paid for the 2010-2012, 2009-2011, 2008-2010 and 2007-2009 performance cycles were settled in cash or by deferral into certain non-qualified deferred compensation plans of the Company’s subsidiaries.

NOTE 11. Income Taxes

OBH and its subsidiaries are domiciled in the United States. Substantially all of OB Holdings’ operations are taxed in the United States.

OB Holdings’ income tax expense related to pre-tax ~~(loss)~~ income ~~for~~from ~~the~~continuing ~~three~~operations ~~months ended September 30, 2011 and 2010 represented net effective tax rates of (40.6)% and 22.9%, respectively. The effective tax rate~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 represented net effective tax rates of 33.19% and 2834.15%, respectively. The effective tax ~~rate~~rates for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~was higher than the U.S. statutory rate of 35% due to a pre-tax loss from operations, tax exempt interest~~ and dividend received deduction partially offset by state income taxes and an increase in the valuation allowance for the insurance reciprocal. The effective tax rate for the nine months ended September 30, 2011 ~~was~~were lower than the U.S. statutory rate of 35% due to tax exempt interest and dividend received deduction~~, partially offset by an increase in the valuation allowance for the insurance reciprocal~~. The effective tax rates for the three and nine months ended September 30, 2010 were lower than the U.S. statutory rate of 35% due to recognition of a deferred tax asset for a higher tax basis in and deconsolidation of the companies sold as part of the Personal Lines Transaction, partially offset by an increase in the valuation allowance for insurance reciprocals.

In arriving at the effective tax rate for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, OB Holdings forecasted the change in net realized and unrealized investment gains or losses for the years ending December 31, ~~2011~~2012 and ~~2010~~2011, respectively, and included these gains or losses in the effective tax rate calculation pursuant to ASC 740-270.

OB Holdings classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. With few exceptions, OB Holdings is no longer subject to U.S. federal orand state income tax examinations by tax authorities for years before 2005. OBH and its subsidiaries join in the filing of a federal consolidated tax return. The consolidated parent, which is not included in these financial statements, is OneBeacon U.S. Financial Services, Inc. (“OBFS”). In October 2008, the IRS commenced examination of OBFS’ U.S. income tax returns for 2005 and 2006. ~~On January 5, 2011, OBFS received a revised Form 4549-A (Income Tax Discrepancy Adjustments) from the IRS relating to the examination of tax years 2005 and 2006.~~ The estimated total assessment, including interest and utilization of alternative minimum and foreign tax credit carryovers, is $1819.78 million. The total assessment relating to OB Holdings, including interest, is $1921.41 million. OBFS disagrees with the adjustments proposed by the IRS and intends to defend its position. The timing of the resolution of these issues is uncertain, however, it is reasonably possible that the resolution could occur within the next twelve months. An estimate of the range of potential outcomes cannot be made at this time. When ultimately settled, OB Holdings does not expect the resolution of this examination to result in a material change to its financial position. ~~On July 28, 2011, the IRS commenced examination of OBFS’ U.S. income tax returns for 2007, 2008 and 2009.~~

30On July 28, 2011, the IRS commenced an examination of OBFS’ U.S. income tax returns for 2007, 2008 and 2009. OB Holdings does not expect a resolution of this examination to result in a material change to its financial position.

~~Table~~NOTE 11. Fair Value of ~~Contents~~Financial Instruments

NOTE 12. Fair Value of Financial Instruments

ASC 825 requires disclosure of fair value information of financial instruments. For certain financial instruments where quoted market prices are not available, other independent valuation techniques and assumptions are used. Because considerable judgment is used, these estimates are not necessarily indicative of amounts that could be realized in a current market exchange. Certain financial instruments are excluded from disclosure, including insurance contracts, other than financial guarantees and investment contracts. OB Holdings carries its financial instruments on its balance sheet at fair value with the exception of its fixed-rate, long-term indebtedness.

The fair values of the fixed-rate, long-term indebtedness were estimated by ~~discounting future cash flows~~ using ~~current market rates for similar obligations or using~~ quoted market prices. Considerable judgment is required to develop such estimates of fair value. Therefore, the estimate provided herein is not necessarily indicative of the amounts that could be realized in a current market exchange.

At ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011, the fair value of OBH’s Senior Notes (its fixed-rate, long-term indebtedness) based on quoted market prices was $~~276~~277.67 million and $~~435~~277.13 million, respectively, which compared to a carrying value of $269.78 million and $~~419~~269.67 million, respectively.

NOTE 13 12. Discontinued Operations

On ~~August~~February 3022, ~~2011~~2012, OBIG and certain of its subsidiaries ~~entered~~completed ~~into~~ the ~~AutoOne~~sale ~~Purchase~~of ~~Agreement to sell~~ the AutoOne business to Interboro. The AutoOne Transaction ~~includes~~included the sale of two insurance entities, AOIC and AOSIC, through which substantially all of the AutoOne business iswas written on a direct basis. The AutoOne Transaction ~~requires~~required the completion of various steps, including amendment of the OneBeacon Amended and Restated Reinsurance (Pooling) Agreement to remove AOIC and AOSIC as parties to the agreement in order for them to retain 100% of their respective direct business, the contribution of specified assets supporting the AutoOne operations, and the sale, transfer or exchange of all of AOIC’s and AOSIC’s investment assets, other than those on deposit with governmental authorities. The AutoOne Transaction also ~~includes~~included the execution of a reinsurance agreement with certain subsidiaries of the Company pursuant to which OneBeacon ~~will cede~~cedes, on a 100% quota share basis, AutoOne business not directly written by AOIC and AOSIC. ~~The transaction is expected to close in the fourth quarter of 2011, subject to regulatory approvals.~~

As of September 30, 2011, the transaction met the criteria for held for sale accounting. As a result, the assets and liabilities associated with the business being sold, after effecting the various steps contemplated by the AutoOne Purchase Agreement, are presented separately as single line items in the asset and liability sections of the consolidated balance sheet as of September 30, 2011. The following summarizes the major categories of assets and liabilities associated with the business classified as held for sale:28

	September 30, 2011
	($ in millions)
Investments	$	102.9
Cash	5.5
Premiums receivable	8.5
Deferred acquisition costs	2.2
Net deferred tax asset	1.5
Other assets	2.6
Total assets held for sale	$	123.2
Loss and LAE reserves	$	58.0
Unearned premiums	30.8
Other liabilities	9.4
Total liabilities held for sale	$	98.2
Net assets held for sale	$	25.0

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As ~~a result~~ of ~~entering~~December 31, ~~into~~2011, the ~~AutoOne~~transaction ~~Purchase~~met ~~Agreement,~~ the ~~results~~criteria offor ~~operations~~held for ~~the~~sale ~~AutoOne~~accounting. ~~division~~As ~~have~~a ~~been classified as discontinued operations and are presented~~result, ~~net of related income taxes, as such in~~ the ~~statements~~assets ofand ~~comprehensive~~liabilities ~~(loss)~~associated ~~income for all periods. Amounts reflected within discontinued operations are consistent~~ with ~~amounts previously reported within~~ the ~~Other~~business ~~Insurance~~being ~~Operations segment for the AutoOne division~~sold, ~~with~~after ~~the~~effecting ~~inclusion of~~ the ~~tax~~various ~~effects~~steps ~~which~~contemplated ~~previously~~by ~~were not separately calculated. Investing and financing activities for OB Holdings are managed on a consolidated basis and currently reported within~~ the ~~Investing,~~AutoOne ~~Financing and Corporate Operations segment. Therefore~~Transaction, noare ~~investment~~presented orseparately ~~financing~~as ~~activity~~single isline ~~included~~items in ~~discontinued operations. During~~ the ~~three~~asset ~~months~~and ~~ended~~liability ~~September 30,~~sections ~~2011, OB Holdings recorded a net charge~~ of ~~$28.0 million pre-tax, $18.2 million after tax, reflecting~~ the ~~estimated~~consolidated ~~loss~~balance onsheet ~~sale~~as of ~~the AutoOne business. This after tax net charge is included in Loss from sale of discontinued operations~~December 31, ~~net of tax, in the statements of comprehensive (loss) income~~2011. The following summarizes the ~~results~~major categories of ~~operations,~~assets ~~including~~and ~~related~~liabilities ~~income taxes~~ associated with the business classified as ~~discontinued~~held ~~operations~~for sale:

	Three months ended September 30,						Nine months ended September 30,
	December 31, 2011
	2011			2010			2011			2010
	($ in millions)
	($ in millions)
Investments	$	111.8
Net written premiums	$	13.2		$	18.9		$	46.4		$	60.1
Cash	5.5
Revenues
Premiums receivable	8.8
Earned premiums	$	16.2		$	24.3		$	52.1		$	64.7
Deferred acquisition costs	2.2
Total revenues	16.2			24.3			52.1			64.7
Net deferred tax asset	1.9
Expenses
Other assets	2.4
Loss and LAE	16.0			24.7			44.1			56.2
Total assets held for sale	$	132.6
Policy acquisition expenses	1.9			2.1			5.8			6.9
Loss and LAE reserves	$	64.7
Other underwriting expenses	2.5			3.3			9.0			9.9
Unearned premiums	34.1
Total expenses	20.4			30.1			58.9			73.0
Other liabilities	8.8
Pre-tax loss	(4.2		)	(5.8		)	(6.8		)	(8.3		)
Total liabilities held for sale	$	107.6
Income tax benefit	1.7			2.0			2.4			2.9
Net assets held for sale	$	25.0
Loss from discontinued operations, net of tax	$	(2.5	)	$	(3.8	)	$	(4.4	)	$	(5.4	)
Loss from sale of discontinued operations, net of tax	$	(18.2	)	$	—		$	(18.2	)	$	—

~~During~~Results ~~2010,~~of OBoperations ~~Holdings~~for ~~determined~~the ~~that~~AutoOne ~~unearned~~division ~~Limited~~have ~~Assignment~~been ~~Distribution~~classified ~~fees,~~as ~~which~~discontinued operations and are ~~included~~presented, innet ~~unearned~~of ~~premiums,~~related ~~had~~income ~~been~~taxes, ~~overstated~~as such in ~~years~~the ~~prior~~statements toof ~~2010~~comprehensive income and cash flows for all periods. InAmounts ~~order~~reflected towithin ~~correct~~discontinued ~~this~~operations ~~error~~are consistent with amounts previously reported within the Other Insurance Operations segment for the AutoOne division, with the inclusion of the tax effects which previously were not separately calculated. Investing and financing activities for OB Holdings ~~recorded~~are anmanaged ~~adjustment~~on ina consolidated basis and currently reported within the ~~three~~Investing, ~~months~~Financing and Corporate Operations segment. Therefore, no investment or financing activity is included in discontinued operations. During the year ended ~~September~~December 3031, ~~2010~~2011, OB Holdings recorded a net charge of $529.56 million pre-tax, $19.2 million after tax, reflecting the estimated loss on sale of the AutoOne business, which ~~increased~~includes ~~earned~~the ~~premiums~~$25.0 million of net assets held for sale as well as estimates for transaction costs. The following summarizes the results of operations, including related income taxes associated with the business classified as discontinued operations:

	Three months ended March 31,
	2012			2011
	($ in millions)
Net written premiums	$	2.2		$	18.2
Revenues
Earned premiums	$	7.8		$	18.4
Total revenues	7.8			18.4
Expenses
Loss and LAE	6.7			14.2
Policy acquisition expenses	1.0			2.0
Other underwriting expenses	0.2			3.1
Total expenses	7.9			19.3
Pre-tax loss	(0.1		)	(0.9		)
Income tax benefit	—			0.2
Loss from discontinued operations, net of tax	$	(0.1	)	$	(0.7	)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains “forward-looking statements.” Statements that are not historical in nature are forward-looking statements. OB Holdings cannot promise that ~~our~~its expectations in such forward-looking statements will turn out to be correct. OB Holdings’ actual results could be materially different from and worse than its expectations. See “Forward-Looking Statements” on page 5445 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.

Significant Transactions

~~Historically~~AutoOne. On February 22, we2012, ~~have~~OBIG ~~offered~~and acertain ~~range~~of its subsidiaries completed the sale of ~~specialty~~AutoOne Insurance business (AutoOne) to Interboro Holdings, Inc. ~~commercial~~(Interboro) ~~and~~(the ~~personal~~AutoOne Transaction). AutoOne offered products and services to assigned risk markets primarily in New York and New Jersey. AutoOne had been included within the Other Insurance Operations segment, however, as a result of the AutoOne Transaction, AutoOne has been presented as discontinued operations in the ~~wake~~statements of ~~recent~~operations ~~transactions~~with the prior period reclassified to conform to the current presentation. Pursuant to the terms of the AutoOne Transaction, at closing we ~~are~~transferred ~~now~~to ~~focused~~Interboro ~~exclusively~~all onof ~~specialty~~the issued and outstanding shares of common stock of AutoOne Insurance Company (AOIC) and AutoOne Select Insurance Company (AOSIC), through which substantially all of the AutoOne business was written on a direct basis. InAt ~~addition~~closing, we also transferred the ~~transactions~~assets, ~~freed~~liabilities up(including ~~significant~~loss reserves and unearned premiums) and capital, ~~increased~~of ~~our~~the ~~financial~~business ~~flexibility~~as ~~and~~well as substantially ~~reduced~~all ~~our~~of ~~catastrophe~~the ~~exposure~~AutoOne infrastructure including systems and office space as well as certain staff. The AutoOne Transaction also included the execution of a reinsurance agreement with certain subsidiaries of the Company pursuant to which OneBeacon cedes, on a 100% quota share basis, AutoOne business not directly written by AOIC and AOSIC.

Commercial lines. On December 3, 2009, we sold the renewal rights to our non-specialty commercial lines business to The Hanover Insurance Group (The Hanover) (the Commercial Lines Transaction). The transaction included small commercial accounts and the non-specialty portion of the middle-market business, beginning with January 1, 2010 effective dates. We continue to manage claims from business written prior to the Commercial Lines Transaction. Through June 30, 2010, we also managed claims from business fronted by OneBeacon and reinsured to The Hanover. We continue to provide claims system access and first notice of loss service to The Hanover. The Hanover reimburses us for our expenses incurred to provide the claims administration services. During the nine months ended September 30, 2011, we recorded $0.8 million in additional consideration for aggregate premium renewals exceeding $200 million. During the three and nine months ended September 30, 2010, we recorded $3.7 million in additional consideration.

Personal lines. On July 1, 2010, we completed the sale of our traditional personal lines business to Tower Group, Inc. (Tower) (the Personal Lines Transaction). The Personal Lines Transaction included two insurance companies through which the majority of the traditional personal lines business was written on a direct basis, two attorneys-in-fact managing the reciprocals that wrote the traditional personal lines business in New York and New Jersey, the surplus notes issued by the New York and New Jersey reciprocals and the remaining renewal rights to certain other traditional personal lines insurance policies. In addition, the Personal Lines Transaction included the execution of reinsurance agreements with certain subsidiaries of the Company pursuant to which we cede, on a 100% quota share basis, traditional personal lines business not directly written by companies included in the sale and assume, on a 100% quota share basis, non-traditional personal lines business written directly by York Insurance Company of Maine. OneBeacon and Tower also entered into a Transition Services Agreement (TSA), pursuant to which we provide certain services to Tower during the three-year term of the TSA. Tower reimburses us for all of our expenses incurred to provide these services. Reimbursement for these services is netted against the expense incurred. During the nine months ended September 30, 2010, we recorded a total after tax net gain on the sale of $24.6 million that was comprised of $8.5 million included in net other revenues and $16.1 million included in the tax provision. During the second quarter of 2011, OneBeacon and Tower reached agreement on post-closing adjustments resulting in no material change to the $24.6 million after tax net gain on sale that OB Holdings had recorded during 2010.

AutoOne. On August 30, 2011, OBIG and certain of its subsidiaries entered into an agreement (the AutoOne Purchase Agreement) to sell the AutoOne Insurance (AutoOne) business to Interboro Holdings, Inc. (the AutoOne Transaction). The AutoOne Transaction includes the sale of two insurance entities, AutoOne Insurance Company (AOIC) and AutoOne Select Insurance Company (AOSIC), through which substantially all of the AutoOne business is written on a direct basis. The AutoOne Transaction requires the completion of various steps, including amendment of the OneBeacon Amended and Restated Reinsurance (Pooling) Agreement to remove AOIC and AOSIC as parties to the agreement in order for them to retain 100% of their respective direct business, the contribution of specified assets supporting the AutoOne operations, and the sale, transfer or exchange of all of AOIC’s and AOSIC’s investment assets, other than those on deposit with governmental authorities. The AutoOne Transaction also includes the execution of a reinsurance agreement with certain subsidiaries of the Company pursuant to which OneBeacon will cede, on a 100% quota share basis, AutoOne business not directly written by AOIC and AOSIC. At closing, we will also transfer the assets, liabilities (including loss reserves and unearned premiums) and equity capital of the business as well as substantially all of the AutoOne infrastructure including staff, systems and office space. The transaction is expected to close in the fourth quarter of 2011, subject to regulatory approvals. As a result of entering into the AutoOne Purchase Agreement, AutoOne is now reported as discontinued operations. The prior periods have been reclassified to conform to the current presentation. During the three months ended September 30, 2011, we recorded an after tax net charge of approximately $18.2 million reflecting the estimated loss on sale of the AutoOne business.

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Recent Developments

To better align our operating and reporting structure with our business profile as a result of the transactions, we revised our segment structure into Specialty Insurance Operations, Other Insurance Operations and Investing, Financing and Corporate Operations. As part of the resegmentation, agency results for business written on our paper and in which we have an ownership interest have been reclassified within underwriting results. Previously, we reported and managed our business through an Insurance Operations segment and an Other Operations segment. Within the Insurance Operations segment, we reported and managed our specialty lines businesses within a specialty lines underwriting unit and our traditional personal lines businesses and AutoOne within a personal lines underwriting unit, nearly all of which was subject to the Personal Lines Transaction. The Insurance Operations segment also included run-off business, which consisted primarily of non-specialty commercial lines business and other run-off business. Certain other activities conducted by the Company were included in our Other Operations segment. Investing and Financing activities were included within the Insurance Operations segment if they were owned or owed by insurance company legal entities or within the Other Operations segment if they were owned or owed by the Company. The prior periods have been reclassified to conform to the current presentation.

Results of Operations

Review of Consolidated Results

A summary of our consolidated financial results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 is as follows:

	Three months ended September 30,						Nine months ended September 30,
	Three months ended March 31,
	2011			2010			2011			2010
	2012			2011
	($ in millions)
Net written premiums	$	~~296~~303.86		$	~~268~~259.89		$	~~822.3~~		$	~~943.0~~
Revenues
Earned premiums	$	~~258~~272.68		$	~~293~~245.61		$	~~751.2~~		$	~~1,134.7~~
Net investment income	1513.26			2119.67			~~52.7~~			~~74.9~~
Net realized and unrealized investment (losses) gains	(44.4		)	51.6			(12.6		)	79.6
Net realized and unrealized investment gains	28.1			21.9
Net other revenues (expenses)	—			12.9			(10.6		)	2.1
Net other revenues	0.1			0.8
Total revenues	~~229~~314.46			~~379~~287.75			~~780.7~~			~~1,291.3~~
Expenses
Loss and LAE	~~146~~149.63			~~155~~130.24			~~414.9~~			~~719.3~~
Policy acquisition expenses	5857.64			6449.30			~~161.1~~			~~248.3~~
Other underwriting expenses	3848.78			5049.53			~~132.1~~			~~176.6~~
General and administrative expenses	1.10			1.12			~~3.1~~			~~4.9~~
Interest expense on debt	4.1			6.43			~~16.6~~			~~23.4~~
Total expenses	~~249~~260.16			~~277~~236.52			~~727.8~~			~~1,172.5~~
Pre-tax (loss) income	(19.7		)	102.2			52.9			118.8
Pre-tax income from continuing operations	54.0			51.3
Income tax benefit (expense)	8.0			(23.4		)	(17.5		)	(33.4		)
Income tax expense	(18.3		)	(17.7		)
Net (loss) income from continuing operations	(11.7		)	78.8			35.4			85.4
Net income from continuing operations	35.7			33.6
Loss from discontinued operations, net of tax	(20.51		)	(30.87		)	~~(4.4~~		)	~~(5.4~~		)
Loss from sale of discontinued operations, net of tax	(18.2		)	—			(18.2		)	—
Net income including noncontrolling interests	35.6			32.9
Net (loss) income including noncontrolling interests	(32.4		)	75.0			12.8			80.0
Less: Net income attributable to noncontrolling interests	(0.6		)	(0.4		)
Less: Net income attributable to noncontrolling interests	(0.2		)	(0.8		)	(1.1		)	(1.6		)
Net income attributable to OB Holdings’ common shareholder	35.0			32.5
Net (loss) income attributable to OB Holdings’ common shareholder	(32.6		)	74.2			11.7			78.4
Change in other comprehensive income and loss items	0.2			0.1
Change in other comprehensive income and loss items	0.2			(0.3		)	0.3			(0.1		)
Comprehensive income attributable to OB Holdings’ common shareholder	$	35.2		$	32.6
Comprehensive (loss) income attributable to OB Holdings’ common shareholder	$	(32.4	)	$	73.9		$	12.0		$	78.3

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The following table provides ratios of our consolidated underwriting results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011:

	Three months ended September 30,				Nine months ended September 30,
	Three months ended March 31,
	2011		2010		2011		2010
	2012		2011
Ratios:(1)(2)(3)(4)
Loss and LAE	5654.7	%	5253.92	%	~~55.2~~	%	~~63.4~~	%
Expense	3738.69		3940.1		~~39.0~~		~~37.4~~
Total GAAP combined	9493.36	%	9293.03	%	~~94.2~~	%	~~100.8~~	%

(1) As Certain ~~part~~amounts ofin the ~~resegmentation,~~prior ~~agency~~period ~~results~~financial ~~for~~statements ~~business written on OneBeacon paper and in which OneBeacon has an ownership interest~~ have been reclassified ~~within the underwriting results. Financial information for the prior periods has been reclassified~~ to conform to ~~this~~the current presentation.

(2) Includes our long-term incentive compensation expense. For the three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, long-term incentive compensation expense ~~(decreased)~~ increased our total combined ratio by (1.~~5) points and 1.8 points, respectively. For the nine months ended September 30, 2011 and 2010, long-term incentive compensation expense increased our total combined ratio by 0.~~9 points and 12.81 points, respectively.

(3) Includes loss and LAE relating to catastrophes. For the three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, total calendar year incurred loss and LAE relating to catastrophes increased ~~(decreased)~~ our loss and LAE and total combined ratios by ~~5.2 points and (~~1.6)3 points, ~~respectively, including development on prior accident year catastrophes which had increased (decreased) our loss~~ and LAE and total combined ratios by 0.2 points and (0.5) points, respectively. For the nine months ended September 30, 2011 and 2010, total calendar year incurred loss and LAE relating to catastrophes increased our loss and LAE and total combined ratios by 5.0 points and 4.41 points, respectively, including development on prior accident year catastrophes which increased ~~(decreased)~~ our loss and LAE and total combined ratios by 0.54 points and (01.1) ~~points~~point, respectively.

(4) Prior accident year development, including development on catastrophes, for the three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 increased (decreased) our loss and LAE and total combined ratios by 3.8 points and 6(2.1) points, respectively. Prior accident year development, including development on catastrophes, for the nine months ended September 30, 2011 and 2010 decreased our loss and LAE and total combined ratios by 3.3 points and 3.7 points, respectively.

Consolidated Results—Three months ended ~~September~~March 3031, ~~2011~~2012 versus three months ended ~~September~~March 3031, ~~2010~~2011

Our comprehensive ~~(loss)~~ income attributable to OB Holdings’ common shareholder was $~~(32~~35.4)2 million in the three months ended ~~September~~March 3031, ~~2011~~2012, compared to $7332.96 million in the three months ended ~~September~~March 3031, ~~2010~~2011. Net ~~(loss)~~ income attributable to OB Holdings’ common shareholder was $~~(32~~35.6)0 million in the three months ended ~~September~~March 3031, ~~2011~~2012, compared to $7432.25 million in the three months ended ~~September~~March 3031, ~~2010~~2011.

Our total revenues ~~decreased~~increased 399.63% to $~~229~~314.46 million in the three months ended ~~September~~March 3031, ~~201s~~2012, compared to $~~379~~287.7 5 million in the three months ended ~~September~~March 3031, ~~2010~~2011. The ~~decrease~~increase ~~included~~was mainly due to an 11.93% ~~reduction~~increase in earned premiums ~~primarily~~related ~~due~~ to ~~the~~several ~~Commercial~~of ~~Lines~~our ~~Transaction~~specialty businesses as described below. Net realized and unrealized investment ~~(losses)~~ gains ~~decreased~~increased ~~$96~~28.03% ~~million~~ to $~~(44~~28.4)1 million, compared to $5121.69 million in the three months ended ~~September~~March 3031, ~~2010~~2011. Net investment income decreased 2931.60% to $1513.26 million in the three months ended ~~September~~March 3031, ~~2011~~2012 due to a 2212.29% decline in average invested assets~~, including invested assets of $102~~.9 ~~million reclassified to assets held for sale as part of the AutoOne Transaction.~~ The decline in average invested assets since ~~September~~March 3031, ~~2010~~2011 was driven by the ~~Personal~~AutoOne ~~Lines~~ Transaction, ~~repurchases of debt~~ and ~~the~~repurchases ~~Commercial Lines Transaction, including the impact~~ of ~~claim payments related to non-specialty commercial lines reserves~~debt. Net other revenues decreased to $0.1 million in the three months ended ~~September~~March 3031, ~~2011~~2012, compared to $120.9 8 million in the three months ended ~~September~~March 3031, ~~2010~~2011. The three months ended ~~September~~March 3031, ~~2010~~2011 included ~~the~~ $80.59 million ~~net~~in ~~gain~~additional onconsideration ~~the~~for ~~Personal~~aggregate ~~Lines~~premium ~~Transaction~~renewals ~~and~~exceeding $~~3.7~~ 200 million ~~of additional consideration~~ related to the ~~Commercial~~renewal ~~Lines~~rights ~~Transaction~~agreement for our commercial lines business.

Our total expenses ~~decreased~~increased 10.23% in the three months ended ~~September~~March 3031, ~~2011~~2012 to $~~249~~260.16 million, compared to $~~277~~236.5 2 million in the three months ended ~~September~~March 3031, ~~2010~~2011. Loss and LAE ~~decreased~~increased 514.5% to $~~146~~149.63 million in the three months ended ~~September~~March 3031, ~~2011~~2012, ~~reflective~~primarily related to unfavorable loss reserve development driven by case incurred development on a small number of run-off claims related to multiple peril liability lines and general liability lines and also the ~~decrease~~impact of an adverse court ruling in ~~our~~Mississippi ~~book~~regarding ofa ~~business~~disputed ~~resulting~~assessment from ~~the~~an ~~Commercial~~involuntary ~~Lines~~pool ~~Transaction~~for hurricane Katrina claims. Policy acquisition expenses ~~decreased~~increased 817.91% to $5857.64 million ~~and~~related ~~other~~to ~~underwriting~~higher ~~expenses~~commission ~~decreased~~expense ~~23.4%~~on toincreased ~~$38.7~~premium ~~million~~volumes inas ~~the~~well ~~three~~as ~~months~~lower ~~ended~~deferrals ~~September 30,~~under ~~2011,~~revised ~~reflective~~accounting guidance and amortization of ~~the~~previously ~~shrink~~deferred incosts. ~~our~~Interest ~~book~~expense ofdecreased ~~business~~34.9% ~~resulting~~reflective ~~from~~of ~~the~~actions ~~Commercial~~taken ~~Lines~~to ~~Transaction~~reduce outstanding debt.

35Our income tax expense related to pre-tax income from continuing operations for the three months ended March 31, 2012 and 2011 represented net effective tax rates of 33.9% and 34.5%, respectively. In arriving at the effective tax rate for the three months ended March 31, 2012 and 2011, we forecasted the change in net realized and unrealized investment gains or losses for the years ending December 31, 2012 and 2011, respectively, and included these gains or losses in the effective tax rate calculation pursuant to ASC 740-270.

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~~Interest~~Our GAAP combined ratio for the three months ended March 31, 2012 increased to 93.6% from 93.3% for the three months ended March 31, 2011. The loss and LAE ratio increased by 1.5 points to 54.7% while the expense ratio decreased 35by 1.2 points to 38.9%. The increase in the loss and LAE ratio was primarily due to unfavorable loss reserve development, partially offset by favorable loss reserve development in Specialty Insurance Operations. The three months ended March 31, 2012 included $410.15 million inor 3.8 points of unfavorable loss reserve development primarily driven by case incurred development on a small number of run-off claims related to multiple peril liability lines and general liability lines and also the impact of an adverse court ruling in Mississippi regarding a disputed assessment from an involuntary pool for hurricane Katrina claims. The three months ended ~~September~~March 3031, 2011 inincluded ~~line~~$5.1 ~~with~~million ~~the~~or ~~reduction~~2.1 points of favorable loss reserve development related to lower than expected severity on non-catastrophe losses on professional liability lines, multiple peril liability lines and general liability lines. The unfavorable loss reserve development was partially offset by a decrease in ~~outstanding~~current ~~debt~~accident year losses. ~~General~~The ~~and~~three ~~administrative~~months ~~expenses~~ended ~~were~~March 31, ~~flat~~2012 included $2.5 million or 0.9 points of current accident year catastrophe losses, as compared to ~~the~~$7.3 ~~prior~~million or 3.0 points of current accident year ~~period~~catastrophe losses in the three months ended March 31, 2011. The expense ratio decreased primarily due to other underwriting expenses related to lower employee costs, partially offset by an increase in policy acquisition expenses related to lower deferrals under revised accounting guidance and amortization of previously deferred costs.

Our income tax expense related to pre-tax (loss) income for the three months ended September 30, 2011 and 2010 represented net effective tax rates of (40.6)% and 22.9%, respectively. The effective tax rate for the three months ended September 30, 2011 was higher than the U.S. statutory rate of 35% due to a pre-tax loss from operations, tax exempt interest and dividend received deduction, partially offset by state income taxes and an increase in the valuation allowance for the insurance reciprocal. The effective tax rate for the three months ended September 30, 2010 was lower than the U.S. statutory rate of 35% due to recognition of a deferred tax asset for a higher tax basis in and deconsolidation of the companies sold as part of the Personal Lines Transaction, partially offset by an increase in the valuation allowance for insurance reciprocals. In arriving at the effective tax rate for the three months ended September 30, 2011 and 2010, we forecasted the change in net realized and unrealized investment gains or losses for the years ending December 31, 2011 and 2010, respectively, and included these gains or losses in the effective tax rate calculation pursuant to ASC 740-270.

Our discontinued operations represent the results for AutoOne. Pre-tax underwriting results from AutoOne were essentially unchanged from that for the prior year period, with a decrease in earned premiums offset by decreases in loss and LAE, policy acquisition expenses and other underwriting expenses. Earned premiums within discontinued operations for the three months ended September 30, 2010 included the benefit of a $5.5 million pre-tax correction of unearned Limited Assignment Distribution (LAD) fees. During the three months ended September 30, 2011, we recorded an estimated loss on the sale of AutoOne of $28.0 million pre-tax ($18.2 million after tax).

Our GAAP combined ratio for the three months ended September 30, 2011 increased to 94.3% from 92.0% for the three months ended September 30, 2010. The loss and LAE ratio increased by 3.8 points to 56.7% while the expense ratio decreased by 1.5 points to 37.6%. The increase in the loss and LAE ratio was primarily due to higher current accident year catastrophe losses and lower favorable loss reserve development. The three months ended September 30, 2011 included $13.0 million or 5.0 points of current accident year catastrophe losses, as compared to $(3.2) million or (1.1) points of current accident year catastrophe losses in the three months ended September 30, 2010. The three months ended September 30, 2011 included $9.8 million or 3.8 points of favorable loss reserve development, as compared to $17.8 million or 6.1 points of favorable loss reserve development in the three months ended September 30, 2010. The favorable loss reserve development was primarily related to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. The expense ratio decreased primarily due to other underwriting expenses related to a decrease in incentive compensation costs, partially offset by an increase in policy acquisition expenses.

Consolidated Results—Nine months ended September 30, 2011 versus nine months ended September 30, 2010

Our comprehensive income attributable to OB Holdings’ common shareholder was $12.0 million in the nine months ended September 30, 2011, compared to $78.3 million in the nine months ended September 30, 2010. Net income attributable to OB Holdings’ common shareholder was $11.7 million in the nine months ended September 30, 2011, compared to $78.4 million in the nine months ended September 30, 2010.

Our total revenues decreased 39.5% to $780.7 million in the nine months ended September 30, 2011, compared to $1,291.3 million in the nine months ended September 30, 2010. The decrease included a 33.8% reduction in earned premiums primarily due to the Personal Lines Transaction and Commercial Lines Transaction. Net realized and unrealized investment (losses) gains decreased $92.2 million to $(12.6) million, compared to $79.6 million in the nine months ended September 30, 2010. Net investment income decreased 29.6% to $52.7 million in the nine months ended September 30, 2011 due to a 24.5% decline in average invested assets, including invested assets of $102.9 million reclassified to assets held for sale as part of the AutoOne Transaction. The decline in average invested assets since September 30, 2010 was driven by the Personal Lines Transaction, repurchases of debt and the Commercial Lines Transaction, including the impact of claim payments related to non-specialty commercial lines reserves. Net other (expenses) revenues decreased $12.7 million to $(10.6) million in the nine months ended September 30, 2011, compared to $2.1 million in the nine months ended September 30, 2010. The nine months ended September 30, 2011 included a $12.0 million loss related to the purchase of a portion of our senior notes, partially offset by $0.8 million in additional consideration for aggregate premium renewals exceeding $200 million related to the Commercial Lines Transaction, as compared to the $8.5 million net gain on the Personal Lines Transaction and the $3.7 million of additional consideration related to the Commercial Lines Transaction, partially offset by a $10.8 million loss related to the purchase of a portion of our senior notes in the nine months ended September 30, 2010.

Our total expenses decreased 37.9% in the nine months ended September 30, 2011 to $727.8 million, compared to $1,172.5 million in the nine months ended September 30, 2010. Loss and LAE decreased 41.9% to $414.9 million in the nine months ended September 30, 2011, reflective of the decrease in our book of business resulting from the Commercial Lines Transaction and the Personal Lines Transaction. Policy acquisition expenses decreased 35.1% to $161.1 million and other underwriting expenses

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decreased 25.2% to $132.1 million in the nine months ended September 30, 2011, reflective of the shrink in our book of business resulting from the Commercial Lines Transaction and the Personal Lines Transaction. Interest expense decreased 29.1% to $16.6 million in the nine months ended September 30, 2011 in line with the reduction in outstanding debt. General and administrative expenses decreased 36.7% to $3.1 million.

Our income tax expense related to pre-tax income for the nine months ended September 30, 2011 and 2010 represented net effective tax rates of 33.1% and 28.1%, respectively. The effective tax rate for the nine months ended September 30, 2011 was lower than the U.S. statutory rate of 35% due to tax exempt interest and dividend received deduction, partially offset by state income taxes and an increase in the valuation allowance for the insurance reciprocal. The effective tax rate for the nine months ended September 30, 2010 was lower than the U.S. statutory rate of 35% due to recognition of a deferred tax asset for a higher tax basis in and deconsolidation of the companies sold as part of the Personal Lines Transaction, partially offset by an increase in the valuation allowance for insurance reciprocals. In arriving at the effective tax rate for the nine months ended September 30, 2011 and 2010, we forecasted the change in net realized and unrealized investment gains or losses for the years ending December 31, 2011 and 2010, respectively, and included these gains or losses in the effective tax rate calculation pursuant to ASC 740-270.

Our discontinued operations represent the results for AutoOne. Underwriting results from AutoOne were essentially unchanged from that for the prior year period, with a decrease in earned premiums offset by decreases in loss and LAE, policy acquisition expenses and other underwriting expenses. Earned premiums within discontinued operations for the nine months ended September 30, 2010 included the benefit of a $5.5 million pre-tax correction of unearned LAD fees. During the nine months ended September 30, 2011, we recorded an estimated loss on the sale of AutoOne of $28.0 million pre-tax ($18.2 million after tax).

Our GAAP combined ratio for the nine months ended September 30, 2011 decreased to 94.2% from 100.8% for the nine months ended September 30, 2010. The loss and LAE ratio decreased by 8.2 points to 55.2% while the expense ratio increased by 1.6 points to 39.0%. The decrease in the loss and LAE ratio was primarily due to a decrease in current accident year non-catastrophe losses. We experienced a number of large losses in our property and inland marine business within Specialty Insurance Operations and in our non-specialty commercial lines business within Other Insurance Operations during the nine months ended September 30, 2010. Current accident year catastrophe losses were unchanged as compared to the prior year period with 4.5 points included in both periods. The nine months ended September 30, 2011 included $34.0 million of current accident year catastrophe losses, as compared to $50.9 million of current accident year catastrophe losses in the nine months ended September 30, 2010. The nine months ended September 30, 2011 included $25.0 million or 3.3 points of favorable loss reserve development, as compared to $42.1 million or 3.7 points of favorable loss reserve development in the nine months ended September 30, 2010. The favorable loss reserve development was primarily related to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. The favorable development also included a one-time $6.5 million release of commercial and personal auto reserves associated with participation in an involuntary auto pool. The expense ratio increased primarily due to other underwriting expenses that have not decreased proportionately with the reduction in earned premium associated with the exited businesses, partially offset by a decrease in policy acquisition expenses.

Summary of Operations By Segment

Specialty Insurance Operations is comprised of ~~twelve~~a number of underwriting units that are aggregated into three major underwriting units: MGA Business, Specialty Industries and Specialty Products. Other Insurance Operations includes the non-specialty commercial lines business ~~and~~to ~~traditional~~which ~~personal~~we ~~lines~~sold ~~business~~the renewal rights, other run-off business and certain purchase accounting adjustments relating to our acquisition by White Mountains ~~Insurance~~in ~~Group, Ltd.~~2001 (~~White~~the ~~Mountains~~OneBeacon Acquisition). AutoOne had been included within the Other Insurance Operations segment, however, as a result of the sale, AutoOne has been presented as discontinued operations in ~~2001~~the (statements of operations with the ~~OneBeacon~~prior ~~Acquisition)~~period reclassified to conform to the current presentation. Investing, Financing and Corporate Operations includes the investing and financing activities for OB Holdings on a consolidated basis, and certain other activities conducted bythrough our ~~top~~ holding ~~company, OneBeacon U~~companies.S. ~~Holdings, Inc. (OBH).~~ The prior ~~periods~~period ~~have~~has been reclassified to conform to the current presentation. Our segment information is presented in Note 7—“Segment Information” of the accompanying consolidated financial statements.

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Specialty Insurance Operations

Financial results for our Specialty Insurance Operations segment for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 ~~are~~were as follows:

	Three months ended September 30,						Nine months ended September 30,
	Three months ended March 31,
	2011			2010			2011			2010
	2012			2011
	($ in millions)
Net written premiums	$	~~297~~303.21		$	~~273~~258.53		$	~~821.5~~		$	~~771.6~~
Earned premiums	$	~~259~~271.18		$	~~249~~241.69		$	~~747.9~~		$	~~726.7~~
Loss and LAE	(~~149~~136.75		)	(~~128~~132.96		)	~~(421.3~~		)	~~(408.5~~		)
Policy acquisition expenses	(58.62		)	(5449.12		)	~~(161.3~~		)	~~(153.3~~		)
Other underwriting expenses	(3647.04		)	(4246.64		)	~~(124.4~~		)	~~(118.5~~		)
Total underwriting income	1429.87			2413.07			~~40.9~~			~~46.4~~
Net other revenues	0.31			0.61			~~0.5~~			~~1.4~~
General and administrative expenses	(0.43		)	(0.75		)	~~(1.3~~		)	~~(1.5~~		)
Pre-tax income	$	14.7		$	23.9		$	40.1		$	46.3
Pre-tax income from continuing operations	$	29.5		$	13.3

The following table provides net written premiums, earned premiums and underwriting ratios by major underwriting unit and Specialty Insurance Operations in total for the three and nine months ended September 30, 2011 and 2010:32

($ in millions)	MGA Business			Specialty Industries			Specialty Products			Specialty Insurance Operations
Three months ended September 30, 2011
Net written premiums	$	110.5		$	89.7		$	97.0		$	297.2
Earned premiums	69.8			90.2			99.1			259.1
Ratios:(1)(2)(3)
Loss and LAE	53.5		%	54.7		%	63.7		%	57.8		%
Expense	44.3			35.4			32.1			36.5
Total GAAP combined	97.8		%	90.1		%	95.8		%	94.3		%
Three months ended September 30, 2010
Net written premiums	$	102.7		$	75.7		$	95.1		$	273.5
Earned premiums	65.7			76.7			107.2			249.6
Ratios:(1)(2)(3)
Loss and LAE	48.3		%	54.1		%	51.9		%	51.7		%
Expense	43.9			42.1			33.3			38.7
Total GAAP combined	92.2		%	96.2		%	85.2		%	90.4		%
Nine months ended September 30, 2011
Net written premiums	$	230.7		$	278.2		$	312.6		$	821.5
Earned premiums	204.1			254.8			289.0			747.9
Ratios:(1)(2)(3)
Loss and LAE	50.8		%	54.2		%	62.2		%	56.3		%
Expense	42.7			39.2			34.1			38.2
Total GAAP combined	93.5		%	93.4		%	96.3		%	94.5		%
Nine months ended September 30, 2010
Net written premiums	$	217.9		$	239.8		$	313.9		$	771.6
Earned premiums	196.1			223.0			307.6			726.7
Ratios:(1)(2)(3)
Loss and LAE	50.3		%	55.2		%	60.7		%	56.2		%
Expense	39.7			41.2			33.2			37.4
Total GAAP combined	90.0		%	96.4		%	93.9		%	93.6		%

(1) Includes our long-term incentive compensation expense. For the three months ended September 30, 2011 and 2010, long-term incentive compensation expense (decreased) increased our Specialty Insurance Operations combined ratio by (1.2) points and 1.9 points, respectively. For the nine months ended September 30, 2011 and 2010, long-term incentive

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~~compensation~~The ~~expense~~following ~~increased~~table ~~our~~provides net written premiums, earned premiums and underwriting ratios by major underwriting unit and Specialty Insurance Operations ~~combined~~in ~~ratio~~total byfor ~~0.8~~the ~~points~~three ~~and~~months ~~1.9~~ended ~~points~~March 31, ~~respectively.~~2012 and 2011:

(2) Includes loss and LAE relating to catastrophes. For the three months ended September 30, 2011 and 2010, total calendar year incurred loss and LAE relating to catastrophes increased (decreased) our Specialty Insurance Operations loss and LAE and total combined ratios by 4.8 points and (0.9) points, respectively, including development on prior accident year catastrophes which decreased our Specialty Insurance Operations loss and LAE and total combined ratios by 0.2 points and 0, respectively. For the nine months ended September 30, 2011 and 2010, total calendar year incurred loss and LAE relating to catastrophes increased our Specialty Insurance Operations loss and LAE and total combined ratios by 4.7 points and 2.5 points, respectively, including development on prior accident year catastrophes which increased our Specialty Insurance Operations loss and LAE and total combined ratios by 0.2 points and 0, respectively.

($ in millions)	MGA Business			Specialty Industries			Specialty Products			Specialty Insurance Operations
Three months ended March 31, 2012
Net written premiums	$	55.7		$	110.3		$	137.1		$	303.1
Earned premiums	72.9			98.7			100.2			271.8
Ratios:(1)(2)(3)
Loss and LAE	42.5		%	50.2		%	55.9		%	50.2		%
Expense	44.3			38.2			35.5			38.9
Total GAAP combined	86.8		%	88.4		%	91.4		%	89.1		%
Three months ended March 31, 2011
Net written premiums	$	48.5		$	85.6		$	124.2		$	258.3
Earned premiums	66.0			80.9			95.0			241.9
Ratios:(1)(2)(3)
Loss and LAE	45.3		%	57.0		%	59.6		%	54.8		%
Expense	42.1			42.4			35.3			39.5
Total GAAP combined	87.4		%	99.4		%	94.9		%	94.3		%

(31) ~~Prior~~Includes ~~accident~~our ~~year~~long-term ~~development,~~incentive ~~including~~compensation ~~development~~expense. onFor ~~catastrophes,~~each ~~for~~of the three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010 decreased our Specialty Insurance Operations loss and LAE and total combined ratios by 2.3 points and 3.0 points~~2011, ~~respectively.~~long-term ~~Prior~~incentive ~~accident~~compensation ~~year~~expense ~~development,~~increased ~~including development on catastrophes, for the nine months ended September 30, 2011 and 2010 decreased~~ our Specialty Insurance Operations ~~loss and LAE and total~~ combined ~~ratios~~ratio by 1.9 points ~~and 2~~.~~6 points, respectively.~~

~~Specialty~~(2) Includes ~~Insurance~~loss ~~Operations—Three~~and LAE relating to catastrophes. For the three months ended ~~September~~March 3031, 2012 and 2011, ~~versus~~total ~~three~~calendar ~~months~~year ~~ended~~incurred ~~September 30~~loss and LAE relating to catastrophes increased our Specialty Insurance Operations loss and LAE and total combined ratios by 1.3 points and 3.7 points, ~~2010~~respectively, including development on prior accident year catastrophes which increased our Specialty Insurance Operations loss and LAE and total combined ratios by 0.4 points and 0.7 points, respectively.

~~Overview. We reported a GAAP combined ratio of 94.~~(3%) Prior ~~for~~accident ~~the~~year ~~three~~development, ~~months~~including ~~ended~~development ~~September 30,~~on ~~2011~~catastrophes, ~~compared to 90.4%~~ for the three months ended ~~September~~March 3031, ~~2010,~~2012 ~~with~~and an2011 ~~increase~~decreased inour ~~the~~Specialty Insurance Operations loss and LAE ~~ratio~~and ~~partially~~total ~~offset~~combined ratios by a0.7 ~~decrease~~points inand ~~the expense ratio~~0.5 ~~The increase in our combined ratio reflects higher current accident year catastrophe losses primarily related to hurricane Irene~~points, ~~as well as lower favorable loss reserve development, partially offset by lower other underwriting expenses~~respectively.

~~MGA~~Specialty ~~Business. Net~~Insurance ~~written~~Operations—Three ~~premiums for MGA Business increased 7.6% to $110.5 million in the three~~ months ended ~~September~~March 3031, ~~2011~~2012 ~~from~~versus ~~$102.7 million in the~~ three months ended ~~September~~March 3031, 2010. The increase compared to the prior year period was primarily due to a $3.9 million increase in net written premiums from our collector cars and boats business driven by growth in new business as well as retention and a $3.8 million increase in net written premiums from OneBeacon Entertainment (OBE) related to growth in new business. Net written premiums from A.W.G. Dewar (Dewar) were flat as compared to the prior year period.2011

~~The~~Overview. We ~~MGA~~reported ~~Business~~a GAAP combined ratio ~~for~~of ~~the three months ended September 30, 2011 increased to 97~~89.81% ~~from 92.2%~~ for the three months ended ~~September~~March 3031, ~~2010. The loss and LAE ratio increased by 5.2 points to 53.5%~~2012, ~~while~~compared ~~the expense ratio increased by 0.4 points~~ to 4494.3%. ~~The~~for ~~increase in~~ the ~~loss and LAE ratio reflects a 5.4 point variance in loss reserve development as compared to the prior year period. The~~ three months ended ~~September~~March 3031, 2011 ~~included 0~~.7 ~~points~~The ofdecrease ~~adverse~~in ~~loss~~our ~~reserve~~combined ~~development,~~ratio ~~compared~~was ~~to 4.7 points of favorable loss reserve development~~ primarily ~~related~~due to ~~OBE. Current accident year non-catastrophe losses were 4.5 points~~ lower ~~than the prior year period, and almost entirely offset by~~ current accident year catastrophe ~~losses.~~and ~~The three months ended September 30, 2011 includes 4.0 points of current accident year~~ non-catastrophe losses, ~~primarily~~as ~~related~~well ~~to hurricane Irene which impacted our collector cars and boats business,~~ as ~~compared~~slightly ~~to (0.3) points in the three months ended September 30, 2010. The increase in the expense ratio was driven by~~ higher ~~policy~~favorable ~~acquisition~~loss ~~expenses~~reserve ~~related~~development toand ~~compensation, partially offset by~~ lower other underwriting expenses ~~related to incentive compensation costs and a higher earned premium base~~.

~~Specialty~~MGA ~~Industries~~Business. Net written premiums for ~~Specialty~~MGA ~~Industries~~Business increased 1814.58% to $8955.7 million in the three months ended ~~September~~March 3031, ~~2011~~2012 from $7548.7 5 million in the three months ended ~~September~~March 3031, ~~2010~~2011. The increase compared to the prior year period was primarily due to a $6.3 ~~million increase in net written premiums from OneBeacon Government Risks (OBGR), a $6~~.16 million increase in net written premiums from ~~OneBeacon~~our ~~Technology~~collector ~~Insurance~~cars ~~(OBTI),~~and aboats ~~$2.1~~business ~~million~~driven ~~increase~~by growth in ~~net~~new ~~written~~business ~~premiums~~as ~~from~~well ~~OneBeacon~~as ~~Energy~~retention ~~Group (OBEG)~~ and a $13.4 5 million increase in net written premiums from OneBeacon ~~Accident~~Entertainment ~~Group~~ (~~OBA~~OBE), ~~partially~~related ~~offset~~to bygrowth ain $1new business.~~9 million~~ ~~decrease~~Net ~~in net~~ written premiums ~~from~~for ~~International Marine Underwriters (IMU)~~A.W.G. ~~The~~Dewar ~~increase~~were ~~was~~essentially ~~primarily~~flat ~~due to new business~~ as ~~well~~compared asto ~~solid~~the ~~retention~~prior ~~levels~~year ~~despite competition in the marketplace~~period.

The ~~Specialty~~MGA ~~Industries~~Business combined ratio for the three months ended ~~September~~March 3031, ~~2011~~2012 decreased to 9086.18% from 9687.24% for the three months ended ~~September~~March 3031, ~~2010~~2011. The loss and LAE ratio ~~increased~~decreased by 02.68 points to 5442.75%, while the expense ratio ~~decreased~~increased by 62.12 points to 3544.43%. The decrease in the ~~expense~~loss and LAE ratio ~~was~~is primarily due to a 5.9 point decrease in ~~other~~unfavorable ~~underwriting~~loss ~~expenses~~reserve ~~related~~development. toThe ~~lower~~three ~~incentive~~months ~~compensation~~ended ~~costs~~March 31, ~~and~~2012 aincludes ~~higher~~0.8 ~~earned~~points ~~premium~~of ~~base,~~unfavorable ~~and~~loss areserve ~~decrease~~development, inas ~~policy~~compared ~~acquisition~~to ~~expenses~~6.7 ~~The~~points ~~increase~~

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