Fitch Ratings has affirmed and removed from Rating Watch Negative the 'BBB+' Issuer Default Ratings (IDRs) of White Mountains Insurance Group Ltd., and the 'BBB' senior debt ratings of White Mountains Re Group Ltd. and OneBeacon US Holdings Inc.

The rating outlook for all ratings is negative.

White Mountains' IDR and debt ratings were placed on Rating Watch Negative on March 16, 2009, reflecting Fitch's view of increased risk following the sizable decline in shareholders' equity in 2008 and resulting increase in financial leverage, and the potential for further near term declines in capital.

The rating agency's latest rating action reflects improvement in White Mountains' capital position and risk profile so far in 2009, with shareholders' equity increasing 11 percent to $3.2 billion at June 30, 2009, following the significant 38 percent decline in shareholders' equity to $2.9 billion at December 31, 2008. It said the increase through the first six months of 2009 was driven by $211 million of net income, compared to a net loss of $555 million in 2008, as credit and investment markets have partially recovered thus far in 2009.

Financial leverage also improved to a debt-to-total-capital ratio of 25 percent at June 30, 2009, down from 28 percent at December 31, 2008, reflecting the shareholders' equity increase as well as approximately $91 million in total debt reduction from repayments and repurchases of outstanding subsidiary debt, said Fitch.

The negative outlook reflects Fitch's view that near-term conditions in the financial markets continue to have the potential to cause volatility within White Mountains' operating results, particularly with regard to the potential for investment portfolio deterioration and additional losses in White Mountains Life Re. Furthermore, despite the company's capital position improving, shareholders' equity is still down 30 percent over the past 12 months, with the ratings agency saying that if the company suffers significant losses, the ratings could be lowered. However, if White Mountains is able to continue to improve its operating earnings and generate consistent internal capital growth in the near to intermediate term, the outlook could return to stable, it added.

Fitch favorably views White Mountains' decision to shift its investment strategy to capital preservation and temporarily away from its total return focus. As a result, the portfolio has reduced volatility and increased liquidity, with exposure to common equity securities and other investments of only seven percent at June 30, 2009, down from 20 percent at June 30, 2008, and a sizable amount of cash and short-term investments of 26 percent at June 30, 2009, up from 19 percent at June 30, 2008.

The ratings agency also notes that White Mountains' ratings are not affected by the company's recently announced proposed restructuring plan to reorganise its Bermuda reinsurance operations into a branch of Sirius International Insurance Corporation, based in Sweden, effective from September 1, 2009. It expects to withdraw the rating of White Mountains Re Bermuda Ltd. upon completion of the transaction.