Bermuda-based White Mountains Insurance Group has suffered a five percent drop in its invested assets value for the third quarter of 2008.

In a press release on preliminary third quarter earnings on Monday, the company said while it does not invest in collateralised loan or debt obligations, recent market volatility has forced a reduction in its book value per share to between $400 and $420, down from $444 last quarter.

"This was a difficult quarter," said chairman and CEO Ray Barrette. "Our equities performed worse than the S&P 500 for the quarter, while they remain ahead of the benchmark for the year.

"In fixed income securities, we were down in the quarter, leading to a slight decline for the year. The portion of our fixed income portfolio that is invested in mortgage-backed and asset-backed securities has performed well, being up over 1 percent for the first three quarters.

"The strengthening US dollar adversely impacted our performance."

Return on fixed maturity investments fell two to three percent for the quarter, the company said, while the total return on equity securities fell 13-15 percent compared to 8.4 percent for the S&P 500.

The company was also hit by a $100 million catastrophe loss and mark to market losses of $15 million.

"Our underwriting results for the quarter were impacted by after tax catastrophe losses of $100 million," Mr. Barrette said. "For the quarter, our segment GAAP combined ratios are estimated to be as follows: One Beacon, about 100 percent; White Mountains Re, about 120 percent; and Esurance, about 102 percent. Mark to market losses on the White Mountains Life Re portfolio were about $15 million."

Mr. Barrette said that the company expects final approval from the US Internal Revenue Service (IRS) on the Berkshire exchange by the end of this month.

Warren Buffett's Berkshire Hathaway announced in March it would sell its 16.3-percent stake in White Mountains in a transaction valued at $836 million.

Under the sale, Berkshire will exchange its 1.724 million shares for about $751 million of cash plus a unit that holds two businesses, Commercial Casualty Insurance Co and International American Group Inc, with $435 million of assets and $58 million of adjusted shareholder equity.

As of June 30, 2008, the company's total investments were roughly $11.5 billion.

In its statement, White Mountains remains comfortable with its mortgage backed securities.

"The company's high quality, short duration fixed maturity profile remains defensively positioned and had minimal exposure to the adverse credit effects during the third quarter," the company said. "As of June 30, 2008, the company had $2.6 billion in mortgage-backed securities, which represented 57 percent of the company's shareholder equity. $1.5 billion of the company's mortgage-backed securities owned at June 30, 2008 carry the full faith and credit guarantee of the US government. As of September 30, 2008, the mortgage-backed security portfolio was approximately $2.6 billion. Management remains comfortable with the credit outlook of this short duration, high quality portfolio."

The company, domiciled in Bermuda but run out of Hanover, New Hampshire, has had one of the highest list shares on the New York Stock Exchange. It share price hit $650 in 2005. It has traded as high as $561 this year but last week was caught in the market panic which scuppered insurance stocks and fell as low as $265.

In yesterday's trading shares declined sharply amid an overall market plunge. White Mountains shares closed at $315, down 11.83 percent or $42.25.