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Third Party Reinsurance
 12 Months Ended
Dec. 31, 2014
Reinsurance Disclosures [Abstract]  
Third-Party Reinsurance
Third-Party Reinsurance

In the normal course of business, White Mountains’s insurance and reinsurance subsidiaries seek to limit losses that may arise from catastrophes or other events by reinsuring with third-party reinsurers. White Mountains remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The effects of reinsurance on White Mountains’s insurance and reinsurance subsidiaries’ written and earned premiums and on losses and LAE were as follows (see Note 10 for balances related to White Mountains financial guarantee business):
 
 
Year ended December 31, 2014
Millions
 
OneBeacon
 
Sirius Group
 
HG/BAM (1)
 
Other (2)
 
Total
Written premiums:
 
 
 
 
 
 
 
 
 
 
Direct
 
$
1,257.5

 
$
208.7

 
$
16.2

 
$
22.6

 
$
1,505.0

Assumed
 
65.9

 
927.9

 
—

 
—

 
993.8

Gross written premiums
 
1,323.4

 
1,136.6

 
16.2

 
22.6

 
2,498.8

Ceded
 
(106.5
)
 
(254.1
)
 
—

 
(16.7
)
 
(377.3
)
Net written premiums
 
$
1,216.9

 
$
882.5

 
$
16.2

 
$
5.9

 
$
2,121.5

Earned premiums:
 
 
 
 
 
 
 
 
 
 
Direct
 
$
1,209.1

 
$
200.2

 
$
1.8

 
$
22.6

 
$
1,433.7

Assumed
 
70.9

 
925.4

 
—

 
—

 
996.3

Gross earned premiums
 
1,280.0

 
1,125.6

 
1.8

 
22.6

 
2,430.0

Ceded
 
(102.9
)
 
(251.7
)
 
—

 
(16.5
)
 
(371.1
)
Net earned premiums
 
$
1,177.1

 
$
873.9

 
1.8

 
$
6.1

 
$
2,058.9

Losses and LAE:
 
 
 
 
 
 
 
 
 
 
Direct
 
$
830.7

 
$
117.8

 
$
—

 
$
24.1

 
$
972.6

Assumed
 
63.7

 
378.1

 
—

 
—

 
441.8

Gross losses and LAE
 
894.4

 
495.9

 
—

 
24.1

 
1,414.4

Ceded
 
(79.3
)
 
(150.6
)
 
—

 
(15.2
)
 
(245.1
)
Net losses and LAE
 
$
815.1

 
$
345.3

 
$
—

 
$
8.9

 
$
1,169.3

(1) During 2014, BAM ceded $12.3 in written premiums ($1.4 in earned premiums) to HG Global, which have been eliminated within the HG/BAM segment.
(2) During 2014, SSIE ceded $16.0 in written premiums ($15.7 in earned premiums) to OneBeacon, which have been eliminated in consolidation.

 
 
Year ended December 31, 2013
Millions
 
OneBeacon
 
Sirius Group
 
Total
Written premiums:
 
 
 
 
 
 
Direct
 
$
1,103.1

 
$
177.3

 
$
1,280.4

Assumed
 
59.8

 
943.1

 
1,002.9

Gross written premiums
 
1,162.9

 
1,120.4

 
2,283.3

Ceded
 
(74.3
)
 
(243.8
)
 
(318.1
)
Net written premiums
 
$
1,088.6

 
$
876.6

 
$
1,965.2

Earned premiums:
 
 
 
 
 
 
Direct
 
$
1,043.3

 
$
174.0

 
$
1,217.3

Assumed
 
148.5

 
938.6

 
1,087.1

Gross earned premiums
 
1,191.8

 
1,112.6

 
2,304.4

Ceded
 
(71.4
)
 
(246.2
)
 
(317.6
)
Net earned premiums
 
$
1,120.4

 
$
866.4

 
$
1,986.8

Losses and LAE:
 
 
 
 
 
 
Direct
 
$
584.9

 
$
98.1

 
$
683.0

Assumed
 
76.3

 
455.5

 
531.8

Gross losses and LAE
 
661.2

 
553.6

 
1,214.8

Ceded
 
(39.1
)
 
(135.2
)
 
(174.3
)
Net losses and LAE
 
$
622.1

 
$
418.4

 
$
1,040.5


 
 
Year ended December 31, 2012
Millions
 
OneBeacon
 
Sirius Group
 
Total
Written premiums:
 
 
 
 
 
 
Direct
 
$
1,204.0

 
$
186.1

 
$
1,390.1

Assumed
 
55.2

 
992.7

 
1,047.9

Gross written premiums
 
1,259.2

 
1,178.8

 
2,438.0

Ceded
 
(80.0
)
 
(231.1
)
 
(311.1
)
Net written premiums
 
$
1,179.2

 
$
947.7

 
$
2,126.9

Earned premiums:
 
 
 
 
 
 
Direct
 
$
1,158.3

 
$
169.9

 
$
1,328.2

Assumed
 
52.8

 
988.3

 
1,041.1

Gross earned premiums
 
1,211.1

 
1,158.2

 
2,369.3

Ceded
 
(79.1
)
 
(226.6
)
 
(305.7
)
Net earned premiums
 
$
1,132.0

 
$
931.6

 
$
2,063.6

Losses and LAE:
 
 
 
 
 
 
Direct
 
$
687.5

 
$
96.9

 
$
784.4

Assumed
 
29.6

 
523.9

 
553.5

Gross losses and LAE
 
717.1

 
620.8

 
1,337.9

Ceded
 
(67.1
)
 
(76.9
)
 
(144.0
)
Net losses and LAE
 
$
650.0

 
$
543.9

 
$
1,193.9


OneBeacon
The timing and size of catastrophe losses are unpredictable and the level of losses experienced in any year could be material to OneBeacon’s operating results and financial condition. Examples of catastrophes include losses caused by earthquakes, wildfires, hurricanes and other types of storms and terrorist acts. The extent of losses caused by a catastrophic event is a function of severity and the amount and type of insured exposure in the affected area. In the normal course of business, OneBeacon's insurance subsidiaries seek to limit losses that may arise from catastrophes or other events through individual risk selection, imposing deductibles and limits, limiting its concentration of insurance in catastrophe-prone areas, such as coastal regions, and reinsuring with third-party reinsurers.
OneBeacon uses models (primarily AIR Worldwide (“AIR”) Touchstone version 2.0) to estimate potential losses from catastrophes. OneBeacon uses this model output in conjunction with other data to manage its exposure to catastrophe losses based on a probable maximum loss (“PML”) forecast to quantify its exposure to a 1-in-250-year catastrophe event.
OneBeacon purchases a general catastrophe reinsurance treaty with unaffiliated reinsurers to manage its exposure to large catastrophe losses. Effective May 1, 2014, OneBeacon renewed its property catastrophe reinsurance program through April 30, 2015. The program provides coverage for OneBeacon’s property business as well as certain acts of terrorism. Under the program, the first $20.0 million of losses resulting from any single catastrophe are retained and 100% of the next $110.0 million of losses resulting from the catastrophe are reinsured. The part of a catastrophe loss in excess of $130.0 million would be retained in full. In the event of a catastrophe, OneBeacon’s 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.
OneBeacon's current third party reinsurance programs provide varying degrees of coverage for terrorism events. The Company's overall terrorism exposure is impacted by the Terrorism Risk Insurance Program (the “Terrorism Act”), which is a federal program administered by the Department of the Treasury that provides for a shared system of public and
private compensation for commercial property and casualty losses resulting from events that reach the threshold for losses
($100.0 million in 2015 and increasing $20.0 million in subsequent years until the threshold becomes $200.0 million in 2020). The Terrorism Act limits the industry's aggregate liability for losses from certified terrorist acts by requiring the federal government to share a set amount of losses (85% in 2015 and decreasing 1% in subsequent years until it reaches a floor of 80% in 2020) once a company meets a specific retention or deductible as determined by its prior year's direct written premiums. It also limits the aggregate liability to be paid by the government and industry without further action by Congress to $100.0 billion. In exchange for this “backstop,” primary insurers are required to make coverage available to commercial insureds for losses from acts of terrorism as specified in the Terrorism Act. The following types of coverage are excluded from the program: commercial automobile, burglary and theft, surety, farmowners multi-peril and all professional liability coverage except directors and officers coverage.
All losses that result from a nuclear, biological, chemical or radiological terrorist attack are excluded from the Company's current third party reinsurance program. OneBeacon's property catastrophe treaty also excludes acts of terrorism certified pursuant to the Terrorism Act and committed by an individual or individuals acting on behalf of any foreign person or foreign interest. OneBeacon's casualty clash treaty provides coverage for losses that result from certified and non-certified acts of terrorism, on an aggregated basis, subject to a maximum of one full treaty limit. OneBeacon's property per risk, casualty and workers compensation treaties each provide full coverage for certified acts of terrorism on behalf of a non-foreign person or interest, but are sublimited to one full treaty limit for certified acts of terrorism committed on behalf of any foreign person or foreign interest. OneBeacon's healthcare treaty is sublimited to one full treaty limit of coverage for all acts of terrorism.
OneBeacon estimates its individual retention level for commercial policies subject to the Terrorism Act to be approximately $120.0 million in 2015. The federal government will pay 85% of covered terrorism losses that exceed OneBeacon’s or the industry’s retention levels in 2015, up to a total of $100.0 billion. As indicated above, OneBeacon’s 15% copay will increase annually beginning in 2016 by 1% until it reaches a limit of 20% in 2020.
In addition to the corporate catastrophe reinsurance protection, OneBeacon also purchases dedicated reinsurance protection for certain lines of business. OneBeacon’s specialty property business purchases a dedicated property catastrophe program providing 100% coverage for $30.0 million of loss in excess of $10.0 million, which inures to the benefit of the property catastrophe reinsurance program described previously. This treaty limit cannot be reinstated.
OneBeacon also purchases property-per-risk reinsurance coverage to reduce large loss volatility. The property-per-risk reinsurance program reinsures 100% of losses in excess of $5.0 million, down from $10.0 million for 2013, up to $100.0 million. Individual risk facultative reinsurance is purchased above $100.0 million. The property-per-risk treaty provides one limit of reinsurance protection for losses in excess of $5.0 million up to $100.0 million on an individual risk basis for certified acts of terrorism committed on behalf of any foreign person or foreign interest. However, any nuclear events, or biological, chemical or radiological terrorist attacks are not covered.
OneBeacon also maintains a casualty reinsurance program that provides protection for individual policies involving general liability, automobile liability, professional liability or umbrella liability. OneBeacon's healthcare professional liability treaty covers losses in excess of $5.0 million up to $10.0 million with a 10% co-participation. All other casualty business is covered in a separate treaty covering losses in excess of $5.0 million up to $11.0 million with a 10.0% co-participation. Losses in excess of $10.0 million for business subject to the healthcare professional liability treaty up to $20.0 million, and losses in excess of $11.0 million for all other casualty business up to $21.0 million are 100% reinsured by a combined Second Casualty Excess of Loss treaty layer. OneBeacon also purchases a treaty to protect against large workers compensation losses that covers 100% of the loss in excess of $2.0 million up to $10.0 million per occurrence. Additionally, for casualty and/or workers compensation catastrophe losses, OneBeacon maintains a dedicated clash treaty, which provides coverage in the event that one loss event results in two or more claims, that covers losses up to $60.0 million in excess of a $10.0 million retention.
OneBeacon purchases a per-occurrence treaty for marine business, both inland and ocean, that protects against large occurrences, whether a single large claim or a catastrophe. The marine treaty attaches at $2.0 million per occurrence. The first layer of the marine treaty is $5.0 million in excess of $2.0 million, with annual aggregate deductibles of $1.5 million for individual ocean marine large claims, $1.5 million for individual inland marine large claims and $5.0 million for catastrophe losses. OneBeacon retains 60% of the loss from $2.0 million up to $7.0 million. Catastrophe coverage is provided up to $60.0 million. Retained catastrophe losses are subject to the corporate catastrophe treaty. Individual risk losses from inland marine exceeding $20.0 million are subject to the corporate property per risk treaty. Reinstatement premiums are paid in full or in part depending on the layer and the occurrence if the coverage is attached.
OneBeacon also purchases reinsurance for its surety underwriting operating segment. Effective October 1, 2014, this treaty covers 100% of losses in excess of $5.0 million up to $40.0 million per bond and up to $80.0 million in aggregate.
Additionally, effective January 1, 2014, OneBeacon placed an HMO/Provider Excess reinsurance agreement providing unlimited coverage excess of $5.0 million per member in two layers with no aggregate coverage maximum.
Effective January 1, 2014, OneBeacon entered into reinsurance treaties to provide coverage for the 2014 crop year. OneBeacon purchased an aggregate stop loss on its MPCI portfolio, providing 48.5% of coverage in excess of a 101.5% loss ratio on premiums covered by the contract and a separate aggregate stop loss providing 80% of coverage in excess of a 100% loss ratio on its crop-hail portfolio.
Effective June 1, 2014, OneBeacon also purchased reinsurance on its film completion bond business in excess of $2.0 million up to $30.0 million in three layers, with a facultative treaty layer providing coverage up to $50.0 million as needed.
As of December 31, 2014, OneBeacon had $12.2 million and $161.6 million of reinsurance recoverables on paid and unpaid losses. As reinsurance contracts do not relieve OneBeacon of its obligation to its policyholders, collectability of balances due from reinsurers is important to OneBeacon’s financial strength. OneBeacon is selective with its reinsurers, placing reinsurance with only those reinsurers having a strong financial condition. OneBeacon monitors the financial strength of its reinsurers on an ongoing basis. Uncollectible amounts historically have not been significant.
The following table summarizes Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) ratings for OneBeacon’s reinsurers. The reinsurance balances associated with the Runoff Business are included in discontinued operations (see Note 22).
Standard & Poor’s Rating(1)
 
Balance at December 31, 2014
 
% of Total
AA
 
$
53.8

 
31
%
A
 
93.2

 
54
%
BBB+, Not rated and other (2)
 
26.8

 
15
%
Total
 
$
173.8

 
100
%
(1)  Standard & Poor’s ratings as detailed above are: “AA” (Very strong), “A” (Strong) and “BBB+” (Adequate).
(2) Includes $23.8 related to OBIC, an unrated entity sold to Armour as part of the Runoff Transaction.

Sirius Group
Sirius Group's reinsurance protection primarily consists of pro-rata and excess of loss protections to cover A&H, aviation, trade credit, and certain property exposures. Sirius Group's core proportional property reinsurance programs provide protection for parts of the non-proportional treaty accounts written in Europe, the Americas, Asia, the Middle East, and Australia.  These reinsurance protections are designed to increase underwriting capacity where appropriate, and to reduce exposure both to large catastrophe losses and to a frequency of smaller loss events.  At January 1, 2015, the protection provided by the proportional program for the United States has been enhanced with an additional quota share treaty covering non-proportional property catastrophe exposures, through which 20% of this business is ceded up to a per program limit of $15 million per cedant.
Sirius Group purchases excess of loss reinsurance protection for its facultative and direct property portfolios. The protection has been renewed at January 1, 2015 with the same structure as for 2014, with a $15.0 million in excess of a retention of $5.0 million for business written in Stockholm, Hamburg, London and Syndicate 1945. An additional $15.0 million of reinsurance protection in excess of the $20.0 million coverage is in place for the facultative and direct property portfolios written in Stockholm and Hamburg, as well as a further $2.5 million of second loss coverage in excess of a retention of $2.5 million. Sirius Group also has $5.0 million of protection in excess of a retention of $5.0 million for the London branch and Syndicate 1945 for facultative and direct U.S. catastrophe exposed business, which is in force through June 30, 2015.
Sirius Group has in place excess of loss retrocessional coverage for its non-U.S. and non-Japan earthquake-related exposures. This cover was renewed for one year at April 1, 2014, providing $40.0 million of reinsurance protection in excess of Sirius Group's retention of $35.0 million and a further $17.5 million of partially placed coverage in excess of $75.0 million.
In addition to the above, Sirius Group periodically purchases industry loss warranty (“ILW”) contracts to augment its overall retrocessional program.  The following ILW contracts are currently in force:
Scope
 
Limit
 
Trigger
 
Expiration Date
European wind & flood
 
$5 million
 
$7.5 billion
 
March 31, 2015
European wind & flood
 
$5 million
 
$5 billion
 
March 31, 2015
European all natural perils
 
$15 million
 
$15 billion
 
December 31, 2015 (second event aggregate excess cover)
European wind & earthquake
 
$7.5 million
 
$5-$7.5 billion
 
March 31, 2016
United States all natural peril
 
$5 million
 
$20 billion
 
June 30, 2015
United States, European, Japan wind & earthquake
 
$30 million
 
$5-$10 billion
 
December 31, 2015 (multiple layer covers)

Sirius Group's aviation reinsurance program is intended to reduce exposure to a frequency of small losses, a single large loss or a combination of both.  For the proportional and facultative aviation portfolios, reinsurance protection generally covers losses from events that cause a market loss in excess of $250.0 million up to a full policy limit of $2.0 billion. This program is in effect through November 2015. For the non-proportional aviation portfolio, reinsurance protection includes a 15% quota share treaty. In addition, the non-proportional portfolio is protected by ILWs with a limit of $29.5 million. The ILWs attach at industry loss levels between $350.0 million and $1.0 billion. 
For the marine yacht portfolio written by the London branch and Syndicate 1945, reinsurance coverage is in place for $14.75 million in excess of a retention of $250,000. Also, an energy & marine excess of loss coverage for Syndicate 1945 is in place for $16.0 million in excess of retention of $1.5 million, protecting both risk and catastrophe losses. These programs are in effect through April 30, 2015.
For accident and health, Sirius Group has excess of loss protection for 2015 covering personal accident and life of €10.0 million ($12.0 million based on the December 31, 2014 EUR to USD exchange rate) of protection in excess of a €5.0 million ($6.0 million based on the December 31, 2014 EUR to USD exchange rate) retention for the Stockholm, Hamburg, Liege and Singapore branches. In addition, the Sirius America’s direct insurance portfolio includes quota share reinsurance of various percentages and a per claim high excess of loss cover, which has no limit for losses in excess of $1.0 million.
For 2014, Sirius Group ceded 20% and 50% of its trade credit and bond business, respectively, under a quota share retrocession, which supported growth in this line.  The treaty was renewed for 2015 with a reduced cession of 10% for trade credit and 25% for the bond business.
For 2014, Sirius Group also ceded 30% of the direct contingency business written in the London branch and Syndicate 1945 on a proportional basis. The treaty was renewed at January 1, 2015. In addition, at January 1, 2015, a 20% variable quota share treaty cession was placed for risks exceeding $10.0 million.
Almost all of Sirius Group's excess of loss reinsurance protections, excluding ILWs which tend to cover only one loss event, include provisions that reinstate coverage at a cost of 100% or more of the original reinsurance premium.
As of December 31, 2014, Sirius Group had $11.4 million of reinsurance recoverables on paid losses and $322.2 million of reinsurance recoverables on unpaid losses that will become recoverable if claims are paid in accordance with current reserve estimates. Because retrocessional reinsurance contracts do not relieve Sirius Group of its obligation to its insureds, the collectability of balances due from Sirius Group's reinsurers is critical to its financial strength. Sirius Group monitors the financial strength and ratings of retrocessionaires on an ongoing basis.
The following table provides a listing of Sirius Group’s gross and net recoverable amounts by the reinsurer’s Standard & Poor’s rating and the percentage of total recoverables.
Rating(1)
 
Gross
 
Collateral
 
Net
 
% of Net Total
AA
 
$
114.6

 
$
1.6

 
$
113.0

 
34
%
A
 
138.8

 
7.1

 
131.7

 
42
%
BBB+
 
8.9

 
—

 
8.9

 
3
%
BBB or lower
 
9.6

 
—

 
9.6

 
3
%
Not rated
 
61.7

 
21.5

 
40.2

 
18
%
Total
 
$
333.6

 
$
30.2

 
$
303.4

 
100
%

(1) Standard & Poor’s ratings as detailed above are: “AAA” (Extremely strong), “AA” (Very strong), “A” (Strong), and “BBB+” and “BBB” (Adequate).