XML 140 R12.htm IDEA: XBRL DOCUMENT v2.4.1.9
Investment Securities
 12 Months Ended
Dec. 31, 2014
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities

Net Investment Income
White Mountains’s net investment income is comprised primarily of interest income associated with White Mountains’s fixed maturity investments, dividend income from its equity investments and interest income from its short-term investments.
Pre-tax net investment income for 2014, 2013 and 2012 consisted of the following:
 
 
Year Ended December 31,
Millions
 
2014
 
2013
 
2012
Investment income:
 
 
 
 
 
 
Fixed maturity investments
 
$
98.9

 
$
100.5

 
$
132.0

Short-term investments
 
1.5

 
3.4

 
3.1

Common equity securities
 
21.0

 
20.5

 
22.2

Convertible fixed maturity and preferred investments
 
2.5

 
2.9

 
6.0

Other long-term investments
 
1.9

 
3.0

 
3.1

Interest on funds held under reinsurance treaties
 
(.2
)
 
.3

 
.6

Total investment income
 
125.6

 
130.6

 
167.0

Third-party investment expenses
 
(20.6
)
 
(19.7
)
 
(13.4
)
Net investment income, pre-tax
 
$
105.0

 
$
110.9

 
$
153.6



Net Realized and Unrealized Investment Gains and Losses
Net realized and unrealized investment gains and losses consisted of the following:
 
 
Year Ended December 31,
Millions
 
2014
 
2013
 
2012
Net realized investment gains, pre-tax
 
$
233.8

 
$
104.5

 
$
68.1

Net unrealized investment gains, pre-tax
 
50.1

 
57.2

 
50.1

Net realized and unrealized investment gains, pre-tax
 
283.9

 
161.7

 
118.2

Income tax expense attributable to net realized and
     unrealized investment gains
 
(69.7
)
 
(21.9
)
 
(26.8
)
Net realized and unrealized investment gains, after tax
 
$
214.2

 
$
139.8

 
$
91.4



Net realized investment gains (losses)
Net realized investment gains (losses) for 2014, 2013 and 2012 consisted of the following:
 
 
Year ended December 31, 2014
Millions
 
Net realized gains (losses)
 
Net
foreign
exchange
gains
(losses)
 
Total
changes in
fair value
reflected in
earnings
Fixed maturity investments
 
$
23.9

 
$
21.0

 
$
44.9

Short-term investments
 
—

 
2.9

 
2.9

Common equity securities
 
150.9

 
.9

 
151.8

Convertible fixed maturity and preferred investments
 
5.9

 
—

 
5.9

Other long-term investments
 
27.7

 
.3

 
28.0

Forward contracts
 
.3

 
—

 
.3

Net realized investment gains (losses), pre-tax
 
208.7

 
25.1

 
233.8

Income taxes attributable to realized
    investment gains (losses)
 
(39.7
)
 
(8.0
)
 
(47.7
)
Net realized investment gains (losses), after-tax
 
$
169.0

 
$
17.1

 
$
186.1

 
 
Year ended December 31, 2013
Millions
 
Net realized gains (losses)
 
Net
foreign
exchange
gains
(losses)
 
Total
changes in
fair value
reflected in
earnings
Fixed maturity investments
 
$
8.6

 
$
(15.0
)
 
$
(6.4
)
Short-term investments
 
.1

 
—

 
.1

Common equity securities
 
104.5

 
(3.7
)
 
100.8

Convertible fixed maturity and preferred investments
 
1.0

 
—

 
1.0

Other long-term investments
 
7.5

 
1.4

 
8.9

Forward contracts
 
.1

 
—

 
.1

Net realized investment gains (losses), pre-tax
 
121.8

 
(17.3
)
 
104.5

Income taxes attributable to realized
    investment gains (losses)
 
(30.0
)
 
5.5

 
(24.5
)
Net realized investment gains (losses), after-tax
 
$
91.8

 
$
(11.8
)
 
$
80.0

 
 
Year ended December 31, 2012
Millions
 
Net realized gains (losses)
 
Net
foreign
exchange
gains
(losses)
 
Total
changes in
fair value
reflected in
earnings
Fixed maturity investments
 
$
82.5

 
$
(2.5
)
 
$
80.0

Short-term investments
 
—

 
(4.3
)
 
(4.3
)
Common equity securities
 
1.3

 
—

 
1.3

Convertible fixed maturity and preferred investments
 
(8.2
)
 
(1.8
)
 
(10.0
)
Other long-term investments
 
1.4

 
—

 
1.4

Forward contracts
 
(.3
)
 
—

 
(.3
)
Net realized investment gains (losses), pre-tax
 
76.7

 
(8.6
)
 
68.1

Income taxes attributable to realized
    investment gains (losses)
 
(23.8
)
 
2.2

 
(21.6
)
Net realized investment gains (losses), after-tax
 
$
52.9

 
$
(6.4
)
 
$
46.5



Net unrealized investment gains (losses)
The following table summarizes net unrealized investment gains (losses) and changes in the carrying value of investments measured at fair value:
 
 
Year ended December 31, 2014
Millions
 
Net
unrealized
gains
(losses)
 
Net
foreign
exchange
gains
(losses)
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
30.9

 
$
111.7

 
$
142.6

Short-term investments
 
(.2
)
 
.1

 
(.1
)
Common equity securities
 
(83.0
)
 
(.1
)
 
(83.1
)
Convertible fixed maturity and preferred investments
 
(8.2
)
 
.4

 
(7.8
)
Other long-term investments
 
(5.7
)
 
4.2

 
(1.5
)
Net unrealized investment gains (losses), pre-tax
 
(66.2
)
 
116.3

 
50.1

Income taxes attributable to unrealized
    investment gains (losses)
 
6.0

 
(28.0
)
 
(22.0
)
Net unrealized investment gains (losses), after-tax
 
$
(60.2
)
 
$
88.3

 
$
28.1

 
 
Year ended December 31, 2013
Millions
 
Net
unrealized
gains
(losses)
 
Net
foreign
exchange
gains
(losses)
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
(93.9
)
 
$
15.3

 
$
(78.6
)
Short-term investments
 
.1

 
—

 
.1

Common equity securities
 
119.2

 
(.4
)
 
118.8

Convertible fixed maturity and preferred investments
 
3.2

 
—

 
3.2

Other long-term investments
 
10.3

 
3.4

 
13.7

Net unrealized investment gains (losses), pre-tax
 
38.9

 
18.3

 
57.2

Income taxes attributable to unrealized
    investment gains (losses)
 
8.2

 
(5.6
)
 
2.6

Net unrealized investment gains (losses), after-tax
 
$
47.1

 
$
12.7

 
$
59.8

 
 
Year ended December 31, 2012
Millions
 
Net
unrealized
gains
(losses)
 
Net
foreign
exchange
gains
(losses)
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
18.5

 
$
(45.9
)
 
$
(27.4
)
Short-term investments
 
—

 
.1

 
.1

Common equity securities
 
65.9

 
(.1
)
 
65.8

Convertible fixed maturity and preferred investments
 
1.1

 
—

 
1.1

Other long-term investments
 
13.2

 
(2.7
)
 
10.5

Net unrealized investment gains (losses), pre-tax
 
98.7

 
(48.6
)
 
50.1

Income taxes attributable to unrealized
    investment gains (losses)
 
(17.9
)
 
12.7

 
(5.2
)
Net unrealized investment gains (losses), after-tax
 
$
80.8

 
$
(35.9
)
 
$
44.9



White Mountains recognized gross realized investment gains of $270.0 million, $221.4 million and $162.2 million and gross realized investment losses of $36.2 million, $116.9 million and $94.1 million on sales of investment securities during 2014, 2013 and 2012.
The following table summarizes the amount of total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the years ended December 31, 2014, 2013 and 2012.
 
 
Year Ended December 31,
Millions
 
2014
 
2013
 
2012
Fixed maturity investments
 
$
1.2

 
$
(2.3
)
 
$
7.7

Common equity securities
 
5.9

 
.9

 
3.0

Convertible fixed maturity and preferred investments
 
.7

 
—

 
—

Other long-term investments
 
(4.1
)
 
11.2

 
7.0

Total net unrealized investment gains (losses), pre-tax - Level 3 investments
 
$
3.7

 
$
9.8

 
$
17.7



The components of White Mountains’s net realized and unrealized investment gains (losses), after-tax, as recorded on the statements of operations and comprehensive income were as follows:
 
 
Year Ended December 31,
Millions
 
2014
 
2013
 
2012
Net change in pre-tax unrealized gains (losses) on investments in
   unconsolidated affiliates
 
$
81.2

 
$
(106.4
)
 
$
62.8

Income taxes
 
(5.9
)
 
8.3

 
(5.1
)
Net change in unrealized gains (losses) on investments in
   unconsolidated affiliates, after tax
 
75.3

 
(98.1
)
 
57.7

Net realized and unrealized foreign currency (losses) gains on
   investments through OCI
 
(274.3
)
 
11.3

 
95.5

Total investment (losses) gains through accumulated other
   comprehensive income
 
(199.0
)
 
(86.8
)
 
153.2

Net realized and unrealized investment gains, after-tax
 
214.2

 
139.8

 
91.4

Total investment gains recorded during the period, after-tax
 
$
15.2

 
$
53.0

 
$
244.6


Investment Holdings
The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’s fixed maturity investments as of December 31, 2014 and 2013, were as follows:
 
 
December 31, 2014
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
US Government and agency obligations
 
$
184.7

 
$
.1

 
$
(.3
)
 
$
3.6

 
$
188.1

Debt securities issued by corporations
 
2,221.3

 
45.2

 
(5.1
)
 
49.8

 
2,311.2

Municipal obligations
 
82.0

 
1.4

 
(.2
)
 
—

 
83.2

Mortgage-backed and asset-backed securities
 
1,811.1

 
7.6

 
(3.5
)
 
25.7

 
1,840.9

Foreign government, agency and provincial
   obligations
 
274.6

 
4.2

 
(1.0
)
 
(2.7
)
 
275.1

Preferred stocks
 
79.6

 
6.1

 
—

 
.1

 
85.8

Total fixed maturity investments
 
$
4,653.3

 
$
64.6

 
$
(10.1
)
 
$
76.5

 
$
4,784.3



 
 
December 31, 2013
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
losses
 
Carrying
value
US Government and agency obligations
 
$
365.5

 
$
.5

 
$
(1.0
)
 
$
(2.5
)
 
$
362.5

Debt securities issued by corporations
 
2,330.7

 
44.0

 
(13.2
)
 
(14.3
)
 
2,347.2

Municipal obligations
 
18.3

 
—

 
(.4
)
 
—

 
17.9

Mortgage-backed and asset-backed securities
 
2,027.3

 
2.4

 
(9.9
)
 
(5.3
)
 
2,014.5

Foreign government, agency and provincial
   obligations
 
444.2

 
3.7

 
(3.2
)
 
(4.8
)
 
439.9

Preferred stocks
 
79.9

 
5.1

 
—

 
(.2
)
 
84.8

Total fixed maturity investments including
   assets held for sale
 
$
5,265.9

 
$
55.7

 
$
(27.7
)
 
$
(27.1
)
 
$
5,266.8

Fixed maturity investments reclassified to
   assets held for sale (1)
 
 
 
 
 
 
 
 
 
(236.3
)
Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
5,030.5

(1) 
Assets held for sale related to discontinued operations. See Note 22.

The weighted average duration of White Mountains’s fixed income portfolio as of December 31, 2014 was approximately 2.0 years, including short-term investments, and approximately 2.3 years excluding short-term investments.
The cost or amortized cost and carrying value of White Mountains’s fixed maturity and convertible fixed maturity investments as of December 31, 2014 is presented below by contractual maturity. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
 
 
December 31, 2014
Millions
 
Cost or
amortized cost
 
Carrying
value
Due in one year or less
 
$
331.2

 
$
337.5

Due after one year through five years
 
1,968.3

 
2,032.3

Due after five years through ten years
 
434.4

 
453.9

Due after ten years
 
40.2

 
46.1

Mortgage-backed and asset-backed securities
 
1,811.1

 
1,840.9

Preferred stocks
 
79.6

 
85.8

Total
 
$
4,664.8

 
$
4,796.5



The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’s common equity securities, convertible fixed maturity and preferred investments and other long-term investments as of December 31, 2014 and 2013 were as follows:
 
 
December 31, 2014
Millions
 
Cost or
amortized cost
 
Gross unrealized
gains
 
Gross unrealized
losses
 
Net foreign
currency losses
 
Carrying
value
Common equity securities
 
$
633.6

 
$
175.1

 
$
(5.2
)
 
$
(1.9
)
 
$
801.6

Convertible fixed maturity and preferred investments
 
$
19.1

 
$
.9

 
$
(.2
)
 
$
.7

 
$
20.5

Other long-term investments
 
$
344.5

 
$
73.0

 
$
(10.9
)
 
$
1.6

 
$
408.2

 
 
December 31, 2013
Millions
 
Cost or
amortized cost
 
Gross unrealized
gains
 
Gross unrealized
losses
 
Net foreign
currency losses
 
Carrying
value
Common equity securities
 
$
890.2

 
$
271.0

 
$
(3.6
)
 
$
(.8
)
 
$
1,156.8

Convertible fixed maturity and preferred investments
 
$
71.7

 
$
9.9

 
$
(.9
)
 
$
(.2
)
 
$
80.5

Other long-term investments
 
$
238.3

 
$
79.6

 
$
(26.6
)
 
$
(2.4
)
 
$
288.9



Proceeds from the sales and maturities of investments, excluding short-term investments, totaled $6,238.1 million, $4,924.8 million and $6,997.5 million for the years ended December 31, 2014, 2013 and 2012.

Investments Held on Deposit or as Collateral
As of December 31, 2014 and 2013, investments of $171.5 million and $170.4 million, respectively, were held in trusts required to be maintained in relation to various reinsurance agreements. White Mountains’s consolidated insurance and reinsurance operations are required to maintain deposits with certain insurance regulatory agencies in order to maintain their insurance licenses. The fair value of such deposits which are included within total investments totaled $130.3 million and $290.7 million as of December 31, 2014 and 2013.
As of December 31, 2014 and 2013, OneBeacon held unrestricted collateral from its customers, which is included in cash and invested assets, relating to its surety business of $81.0 million and $63.3 million. The obligation to return these funds is included in funds held under insurance and reinsurance contracts in the consolidated balance sheets.
As of December 31, 2014 and 2013, White Mountains held $9.5 million and $23.2 million of restricted collateral in the form of fixed maturities and $4.3 million and $2.0 million of restricted collateral in the form of short-term investments associated with variable annuity reinsurance and interest rate cap agreements. See Note 9.

Fair value measurements as of December 31, 2014
White Mountains used quoted market prices or other observable inputs to determine fair value for the 93% of its investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, common equities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs consist of fixed maturity investments including corporate debt, state and other governmental debt, convertible fixed maturity securities and mortgage and asset-backed securities. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains’s investments in hedge funds and private equity funds, as well as investments in certain debt securities where quoted market prices are unavailable. White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services used by White Mountains have indicated that if no observable inputs are available for a security, they will not provide a price. In those circumstances, White Mountains estimates the fair value using industry standard pricing models and observable inputs such as benchmark interest rates, market comparables, broker quotes, issuer spreads, bids, offers, credit rating, prepayment speeds and other relevant inputs. White Mountains performs procedures to validate the market prices obtained from the outside pricing sources. Such procedures, which cover substantially all of its fixed maturity investments include, but are not limited to, evaluation of model pricing methodologies and review of the pricing services’ quality control processes and procedures on at least an annual basis, comparison of market prices to prices obtained from different independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices, and review of assumptions utilized by the pricing service for selected measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1.0 million from the expected price based on these procedures are considered outliers. In circumstances where the results of White Mountains’s review process do not appear to support the market price provided by the pricing services, White Mountains challenges the price. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question. The fair values of such securities are considered to be Level 3 measurements.
White Mountains’s investments in debt securities are generally valued using matrix and other pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds.  Income on mortgage-backed and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized or accreted prospectively over the remaining economic life.
White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of each hedge fund and private equity fund and periodically discussing each fund’s pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. Accordingly, the fair value of White Mountains’s investments in hedge funds and private equity funds has been classified as Level 3 measurements. The fair value of White Mountains’s investments in hedge funds and private equity funds has been determined using net asset value.
In addition to the investments described above, White Mountains has $38.0 million and $86.3 million of investment-related liabilities recorded at fair value and included in other liabilities as of December 31, 2014 and 2013.  These liabilities relate to securities that have been sold short by limited partnerships in which White Mountains has investments and is required to consolidate under GAAP.  All of the liabilities included have a Level 1 designation.
Fair Value Measurements by Level
The following tables summarize White Mountains’s fair value measurements for investments as of December 31, 2014 and 2013 by level. The fair value measurements for derivative assets associated with White Mountains’s variable annuity business are presented in Note 9.
 
 
December 31, 2014
Millions
 
Fair value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Fixed maturity investments:
 
 
 
 
 
 
 
 
U.S. Government and agency obligations
 
$
188.1

 
$
134.1

 
$
54.0

 
$
—

Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Consumer
 
777.6

 
—

 
777.6

 
—

Financials
 
456.6

 
—

 
456.6

 
—

Industrial
 
285.0

 
—

 
285.0

 
—

Communications
 
237.5

 
—

 
237.5

 
—

Utilities
 
169.8

 
—

 
169.8

 
—

Energy
 
181.8

 
—

 
181.8

 
—

Basic Materials
 
108.6

 
—

 
103.0

 
5.6

Technology
 
87.9

 
—

 
87.9

 
—

Other
 
6.4

 
—

 
6.4

 
—

Total debt securities issued by corporations:
 
2,311.2

 
—

 
2,305.6

 
5.6

 
 
 
 
 
 
 
 
 
Mortgage-backed and asset-backed securities
 
1,840.9

 
—

 
1,840.9

 
—

Foreign government, agency and provincial obligations
 
275.1

 
21.3

 
253.8

 
—

Preferred stocks
 
85.8

 
—

 
14.7

 
71.1

Municipal obligations
 
83.2

 
—

 
83.2

 
—

Total fixed maturity investments
 
4,784.3

 
155.4

 
4,552.2

 
76.7

 
 
 
 
 
 
 
 
 
Short-term investments
 
871.7

 
868.8

 
2.9

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
233.9

 
193.7

 
—

 
40.2

Consumer
 
238.4

 
238.3

 
.1

 
—

Industrial
 
91.7

 
91.7

 
—

 
—

Energy
 
32.7

 
32.7

 
—

 
—

Technology
 
36.6

 
36.6

 
—

 
—

Communications
 
45.1

 
45.1

 
—

 
—

Basic materials
 
21.5

 
21.5

 
—

 
—

Utilities
 
9.5

 
9.4

 
.1

 
—

Other
 
92.2

 
18.9

 
73.3

 
—

Total common equity securities
 
801.6

 
687.9

 
73.5

 
40.2

Convertible fixed maturity and preferred investments
 
20.5

 
—

 
12.3

 
8.2

Other long-term investments (1)
 
385.0

 
—

 
—

 
385.0

Total investments (1)
 
$
6,863.1

 
$
1,712.1

 
$
4,640.9

 
$
510.1


(1) 
Excludes carrying value of $23.2 associated with other long-term investment limited partnerships accounted for using the equity method.
 
 
December 31, 2013
Millions
 
Fair value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
362.5

 
$
295.8

 
$
66.7

 
$
—

Debt securities issued by corporations:
 
 

 
 

 
 

 
 

Consumer
 
754.4

 
—

 
754.4

 
—

Communications
 
265.0

 
—

 
265.0

 
—

Financials
 
434.4

 
—

 
434.4

 
—

Industrial
 
281.1

 
—

 
281.1

 
—

Basic Materials
 
149.1

 
—

 
149.1

 
—

Utilities
 
173.6

 
—

 
173.6

 
—

Energy
 
159.7

 
—

 
159.7

 
—

Technology
 
91.2

 
—

 
91.2

 
—

Other
 
38.7

 
—

 
38.7

 
—

Total debt securities issued by corporations:
 
2,347.2

 
—

 
2,347.2

 
—

 
 
 
 
 
 
 
 
 
Mortgage-backed and asset-backed securities
 
2,014.5

 
—

 
1,992.5

 
22.0

Foreign government, agency and provincial obligations
 
439.9

 
44.5

 
395.4

 
—

Preferred stocks
 
84.8

 
—

 
13.8

 
71.0

Municipal obligations
 
17.9

 
—

 
17.9

 
—

Total fixed maturity investments(1)
 
5,266.8

 
340.3

 
4,833.5

 
93.0

 
 
 
 
 
 
 
 
 
Short-term investments
 
635.9

 
621.5

 
14.4

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
360.4

 
314.3

 
—

 
46.1

Consumer
 
308.2

 
308.2

 
—

 
—

Basic materials
 
53.4

 
53.4

 
—

 
—

Energy
 
78.6

 
78.6

 
—

 
—

Utilities
 
34.3

 
34.3

 
—

 
—

Technology
 
60.6

 
60.6

 
—

 
—

Industrial
 
105.4

 
105.4

 
—

 
—

Communications
 
57.1

 
57.1

 
—

 
—

Other
 
98.8

 
24.5

 
74.3

 
—

Total common equity securities
 
1,156.8

 
1,036.4

 
74.3

 
46.1

Convertible fixed maturity and preferred investments
 
80.5

 
—

 
74.4

 
6.1

Other long-term investments (2)
 
262.4

 
—

 
—

 
262.4

Total investments
 
$
7,402.4

 
$
1,998.2

 
$
4,996.6

 
$
407.6

(1) 
Carrying value includes $236.3 that is classified as assets held for sale relating to discontinued operations.
(2) 
Excludes carrying value of $26.6 associated with other long-term investment limited partnerships accounted for using the equity method and $(.1) related to foreign currency forward contracts.


Debt securities issued by corporations
The following table summarizes the ratings of the corporate debt securities held in White Mountains’s investment portfolio as of December 31, 2014 and 2013:
 
 
Fair Value at
 
 
December 31,
Millions
 
2014
 
2013
AAA
 
$
—

 
$
—

AA
 
236.9

 
228.8

A
 
957.8

 
1,039.5

BBB
 
1,105.9

 
1,075.5

BB
 
—

 
—

Other
 
10.6

 
3.4

Debt securities issued by corporations(1)
 
$
2,311.2

 
$
2,347.2

(1) 
Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor’s and 2) Moody’s.

Mortgage-backed, Asset-backed Securities
White Mountains purchases commercial and residential mortgage-backed securities with the goal of maximizing risk adjusted returns in the context of a diversified portfolio. White Mountains’s investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities as of December 31, 2014. White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics).
White Mountains categorizes mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’s review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. White Mountains’s non-agency residential mortgage-backed portfolio is generally moderate-term and structurally senior. White Mountains does not own any collateralized loan obligations. White Mountains does not own any collateralized debt obligations, with the exception of $45.1 million of non-agency residential mortgage resecuritization tranches, each a senior tranche in its own right and each collateralized by a single earlier vintage Super Senior or Senior non-agency residential mortgage backed security.
 
 
December 31, 2014
 
December 31, 2013
Millions
 
Fair Value
 
Level 2
 
Level 3
 
Fair Value
 
Level 2
 
Level 3
Mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

 
 

 
 

GNMA
 
$
411.2

 
$
411.2

 
$
—

 
$
512.3

 
$
512.3

 
$
—

FNMA
 
36.6

 
36.6

 
—

 
81.2

 
81.2

 
—

FHLMC
 
49.6

 
49.6

 
—

 
91.3

 
91.3

 
—

Total Agency(1)
 
497.4

 
497.4

 
—

 
684.8

 
684.8

 
—

Non-agency:
 
 

 
 

 
 

 
 

 
 

 
 

Residential
 
131.2

 
131.2

 
—

 
125.7

 
125.7

 
—

Commercial
 
236.9

 
236.9

 
—

 
282.3

 
282.3

 
—

Total Non-agency
 
368.1

 
368.1

 
—

 
408.0

 
408.0

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage-backed securities
 
865.5

 
865.5

 
—

 
1,092.8

 
1,092.8

 
—

Asset-backed securities:
 
 

 
 
 
 
 
 

 
 
 
 
Credit card receivables
 
522.2

 
522.2

 
—

 
311.4

 
289.4

 
22.0

Vehicle receivables
 
289.4

 
289.4

 
—

 
365.0

 
365.0

 
—

Other
 
163.8

 
163.8

 
—

 
245.3

 
245.3

 
—

Total asset-backed securities
 
975.4

 
975.4

 
—

 
921.7

 
899.7

 
22.0

Total mortgage and asset-backed securities
 
$
1,840.9

 
$
1,840.9

 
$
—

 
$
2,014.5

 
$
1,992.5

 
$
22.0

(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).



Non-agency Mortgage-backed Securities
The security issuance years of White Mountains’s investments in non-agency RMBS and non-agency CMBS securities as of December 31, 2014 are as follows:
 
 
 
 
 
 
Security Issuance Year
 
 
 
 
 
 
Millions
 
Fair Value
 
2004
 
2005
 
2006
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Non-agency RMBS
 
$
131.2

 
$
14.2

 
$
14.7

 
$
9.9

 
$
—

 
$
16.5

 
$
—

 
$
14.7

 
$
21.4

 
$
—

 
$
29.7

 
$
10.1

Non-agency CMBS
 
236.9

 
—

 
—

 
8.5

 
—

 
—

 
—

 
11.7

 
—

 
20.7

 
79.9

 
116.1

Total
 
$
368.1

 
$
14.2

 
$
14.7

 
$
18.4

 
$
—

 
$
16.5

 
$
—

 
$
26.4

 
$
21.4

 
$
20.7

 
$
109.6

 
$
126.2



Non-agency Residential Mortgage-backed Securities
The classification of the underlying collateral quality and the tranche levels of White Mountains’s non-agency RMBS securities are as follows as of December 31, 2014:
Millions
 
Fair Value
 
Super Senior(1)
 
Senior(2)
 
Subordinate(3)
Prime
 
$
119.4

 
$
71.6

 
$
47.8

 
$
—

Non-prime
 
9.3

 
—

 
9.3

 
—

Sub-prime
 
2.5

 
2.5

 
—

 
—

Total
 
$
131.2

 
$
74.1

 
$
57.1

 
$
—

(1) 
At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch Ratings (“Fitch”) and were senior to other “AAA” or “Aaa” bonds.
(2) 
At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) 
At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 

Non-agency Commercial Mortgage-backed Securities
White Mountains’s non-agency commercial mortgage-backed portfolio (“CMBS”) is generally short-term and structurally subordinate, with more than 25 points of subordination on average for both fixed rate CMBS and floating rate CMBS as of December 31, 2014.  In general, subordination represents the percentage principal loss on the underlying collateral that would be absorbed by other securities lower in the capital structure before the more senior security incurs a loss.  As of December 31, 2014, on average less than 1% of the underlying loans were reported as non-performing for all non-agency CMBS held by White Mountains.
The amount of fixed and floating rate securities and their tranche levels of White Mountains’s non-agency CMBS securities are as follows as of December 31, 2014:
Millions
 
Fair Value
 
Super Senior(1)
 
Senior(2)
 
Subordinate(3)
Fixed rate CMBS
 
$
116.2

 
$
13.1

 
$
61.6

 
$
41.5

Floating rate CMBS
 
120.7

 
—

 
—

 
120.7

Total
 
$
236.9

 
$
13.1

 
$
61.6

 
$
162.2


(1) 
At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to other “AAA” or “Aaa” bonds.
(2) 
At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) 
At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 

Other Long-term Investments
Other long-term investments consist of the following as of December 31, 2014 and 2013:
 
 
Fair Value at
Millions
 
December 31, 2014
 
December 31, 2013
Hedge funds and private equity funds(1)
 
$
242.9

 
$
239.0

Limited liability companies and private equity securities(1)
 
69.7

 
20.3

OBIC Surplus Notes(1)
 
65.1

 
—

Other(1)
 
7.3

 
3.1

Forward contracts (see Note 9)
 
—

 
(.1
)
Total other-long term investments(2)
 
$
385.0


$
262.3

(1) See Fair Value Measurements by Level table.
(2) Excludes carrying value of $23.2 and $26.6 associated with other long-term investment limited partnerships accounted for using the equity method.

Hedge Funds and Private Equity Funds
White Mountains holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments has been estimated using the net asset value of the funds. As of December 31, 2014, White Mountains held investments in 12 hedge funds and 32 private equity funds.  The largest investment in a single fund was $22.0 million as of December 31, 2014 and $18.3 million as of December 31, 2013. The following table summarizes investments in hedge funds and private equity interests by investment objective and sector as of December 31, 2014 and 2013:
 
 
December 31, 2014
 
December 31, 2013
Millions
 
Fair Value
 
Unfunded
Commitments
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short equity
 
$
43.9

 
$
—

 
$
62.6

 
$
—

Long/short credit & distressed
 
21.4

 
—

 
22.8

 
—

Long/short equity REIT
 
20.3

 
—

 
18.3

 
—

Long/short equity activist
 
6.2

 
—

 
16.8

 
—

Long bank loan
 
.2

 
—

 
.2

 
—

Long diversified strategies
 
—

 
—

 
.1

 
—

Total hedge funds
 
92.0

 
—

 
120.8

 
—

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Energy infrastructure & services
 
59.6

 
11.0

 
45.9

 
13.1

Multi-sector
 
24.2

 
5.3

 
23.8

 
6.5

Manufacturing/Industrial
 
23.2

 
7.3

 
11.2

 
15.5

Private equity secondaries
 
8.5

 
3.1

 
9.5

 
3.1

Real estate
 
3.6

 
3.3

 
8.2

 
3.3

Aerospace/Defense/Government
 
20.7

 
5.1

 
5.8

 
19.2

Healthcare
 
6.1

 
2.8

 
5.6

 
2.8

International multi-sector, Europe
 
1.5

 
2.3

 
3.9

 
2.8

Insurance
 
2.1

 
41.2

 
2.3

 
41.3

Venture capital
 
1.4

 
.3

 
1.6

 
.3

Distressed residential real estate
 
—

 
—

 
.4

 
—

International multi-sector, Asia
 
—

 
—

 
—

 
2.7

Total private equity funds
 
150.9

 
81.7

 
118.2

 
110.6

Total hedge and private equity funds included
   in other long-term investments
 
$
242.9

 
$
81.7

 
$
239.0

 
$
110.6


In June 2014, White Mountains committed $21.0 million to fund a 50/50 joint venture with DavidShield Group(“DavidShield”) for the development, marketing and distribution of PassportCard travel insurance. The transaction is expected to close in the first quarter of 2015, subject to regulatory approvals.
Redemption of investments in certain hedge funds is 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 December 31, 2014 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
 
 
Notice Period
Millions
Redemption frequency
 
30-59 days
notice
 
60-89 days
notice
 
90-119 days
notice
 
120+ days
notice
 
Total
Monthly
 
$
4.3

 
$
—

 
$
—

 
$
—

 
$
4.3

Quarterly
 
31.8

 
21.4

 
—

 
7.8

 
61

Semi-annual
 
—

 
22.1

 
—

 
—

 
22.1

Annual
 
—

 
—

 
4.4

 
.2

 
4.6

Total
 
$
36.1

 
$
43.5

 
$
4.4

 
$
8.0

 
$
92.0


Certain of the hedge fund and private equity fund investments in which White Mountains is invested 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. As of December 31, 2014, distributions of $2.1 million were outstanding from these investments. The actual amount of the final distribution remittances remain subject to market fluctuations. The date at which such remittances will be received is not determinable as of December 31, 2014.
White Mountains has also submitted redemption requests for certain of its investments in active hedge funds.  As of December 31, 2014, redemptions of $6.7 million are outstanding that would be subject to market fluctuations. The date at which such redemptions will be received is not determinable as of December 31, 2014. Redemptions are recorded as receivables when the investment is no longer subject to market fluctuations.
Investments in private equity funds are generally subject to a “lock-up” period 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 investments. 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.
As of December 31, 2014, investments in private equity funds were subject to lock-up periods as follows:
Millions
 
1-3 years
 
3 – 5 years
 
5 – 10 years
 
>10 years
 
Total
Private Equity Funds — expected lock-up period remaining
 
$
12.7

 
$
33.5

 
$
79.0

 
$
25.7

 
$
150.9


Rollforward of Fair Value Measurements by Level
White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities, convertibles and other long-term investments as of December 31, 2014 and 2013 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.
The following tables summarize the changes in White Mountains’s fair value measurements by level for the years ended December 31, 2014 and 2013:
 
 
 
 
 
 
Level 3 Investments
 
 
 
Millions
 
Level 1
Investments
 
Level 2
Investments
 
Fixed
maturity investments
 
Common
equity
securities
 
Convertible Fixed Maturity and Preferred Investments
 
Other long-term
investments
 
Total
 
Balance at January 1, 2014
 
$
1,376.7

 
$
4,982.2

 
$
93.0

 
$
46.1

 
$
6.1

 
$
262.4

(1) 
$
6,766.5

(1)(2)(3) 
Total realized and unrealized gains
 
88.1

 
163.4

 
2.2

 
6.2

 
.6

 
26.0

 
286.5

(4) 
Foreign currency losses in OCI
 
(24.8
)
 
(222.8
)
 
(1.0
)
 
—

 
—

 
(5.0
)
 
(253.6
)
  
Amortization/Accretion
 
(.6
)
 
(43.6
)
 
.1

 
—

 
—

 
—

 
(44.1
)
 
Purchases
 
1,599.2

 
3,772.4

 
71.7

 
5.0

 
1.5

 
152.3

 
5,602.1

 
Sales
 
(2,197.1
)
 
(4,122.6
)
 
—

 
(17.1
)
 
—

 
(50.7
)
 
(6,387.5
)
 
Net change in investments
   related to purchases and
   sales of consolidated
   affiliates
 
(2.7
)
 
24.2

 
—

 
—

 
—

 
—

 
21.5

 
Exchange
 
4.7

 
(13.0
)
 
8.3

 
—

 
—

 
—

 
—

 
Transfers in
 
—

 
97.8

 
—

 
—

 
—

 
—

 
97.8

  
Transfers out
 
(.2
)
 
—

 
(97.6
)
 
—

 
—

 
—

 
(97.8
)
  
Balance at
   December 31, 2014
 
$
843.3

 
$
4,638.0

 
$
76.7

 
$
40.2

 
$
8.2

 
$
385.0

(1) 
$
5,991.4

(1)(2)(3) 
(1) 
Excludes carrying value of $23.2 and $26.6 as of December 31, 2014 and January 1, 2014 associated with other long-term investments accounted for using the equity method.
(2) 
Carrying value includes $236.3 as of January 1, 2014 that is classified as assets held for sale relating to discontinued operations.
(3) 
Excludes carrying value of $871.7 and $635.9 as of December 31, 2014 and January 1, 2014 classified as short-term investments.
(4)  
Excludes $4.3 of realized and unrealized losses associated with the Prospector Funds consolidation of investment-related liabilities and $2.8 of realized and unrealized gains associated with short-term investments.
 
 
 
 
 
 
Level 3 Investments
 
Millions
 
Level 1
Investments
 
Level 2
Investments
 
Fixed
maturity investments
 
Common
equity
securities
 
Convertible Fixed Maturity and Preferred Investments
 
Other long-term
investments
 
Total
 
Balance at January 1, 2013
 
$
1,355.1

 
$
5,206.1

 
$
92.9

 
$
37.3

 
$
—

 
$
259.3

(1) 
$
6,950.7

(1)(2)(3) 
Total realized and unrealized gains (losses)
 
221.9

 
(56.9
)
 
(2.7
)
 
1.0

 
—

 
18.7

  
182.0

 
Foreign currency (losses) gains in OCI
 
(.3
)
 
12.5

 
.3

 
—

 
—

 
(0.9
)
  
11.6

 
Amortization/Accretion
 
(1.0
)
 
(51.2
)
 
—

 
—

 
—

 
—

  
(52.2
)
 
Purchases
 
862.1

 
3,689.6

 
37.9

 
8.8

 
—

 
37.1

  
4,635.5

 
Sales
 
(1,078.9
)
 
(3,842.8
)
 
(6.3
)
 
—

 
—

 
(51.8
)
 
(4,979.8
)
 
Net change in investments
related to purchases and
sales of consolidated
affiliates
 
16.0

 
2.7

 
—

 
—

 
—

 
—

 
18.7

 
Transfers in
 
1.8

 
119.4

 
90.3

 
—

 
6.1

 
—

  
217.6

 
Transfers out
 
—

 
(97.2
)
 
(119.4
)
 
(1.0
)
 
—

 
—

  
(217.6
)
 
Balance at
   December 31, 2013
 
$
1,376.7

 
$
4,982.2

 
$
93.0

 
$
46.1

 
$
6.1

 
$
262.4

(1) 
$
6,766.5

(1)(2)(3) 
(1) 
Excludes carrying value of $26.6 and $35.0 as of December 31, 2013 and January 1, 2013 associated with other long-term investment limited partnerships accounted for using the equity method and $(.1) as of December 31, 2013 related to foreign currency forward contracts.
(2) 
Carrying value includes $236.3 and $338.1 as of December 31, 2013 and January 1, 2013 that is classified as assets held for sale relating to AutoOne discontinued operations.
(3) 
Excludes carrying value of $635.9 and $630.6 as of December 31, 2013 and January 1, 2013 classified as short-term investments.
(4)  
Excludes $20.6 of realized and unrealized losses associated with the Prospector Funds consolidation of investment-related liabilities and $.2 of realized and unrealized gains associated with short-term investments.

Fair Value Measurements — transfers between levels
During 2014, six fixed maturity securities classified as Level 3 measurements in the prior period were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available as of December 31, 2014.  These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $(97.6) million for the period ended December 31, 2014. During the third quarter of 2014, one convertible fixed maturity investment that was classified within level two was exchanged for common shares and a corporate debt security of the same entity. As of December 31, 2014, the common shares are classified within Level 1 since a quoted market price was available. As of December 31, 2014, the corporate debt security is classified within Level 3 since the fair value based upon observable market inputs has been adjusted to reflect a liquidity discount.
During 2013, three fixed maturity securities classified as Level 3 measurements in the prior period were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available as of December 31, 2013. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $119.4 million for the period ended December 31, 2013. Included in these transfers is one asset-backed fixed maturity security classified within Level 2 as of June 30, 2013 that was recategorized to Level 3 as of September 30, 2013. The security represents “Transfers out” of Level 2 and “Transfer in” to Level 3 of $90.3 million as of September 30, 2013. As of September 30, 2013, the estimated fair value for this security determined using the industry standard pricing models was $1.3 million less than the estimated fair value based upon quoted prices provided by a third party pricing vendor. As of December 31, 2013, reliable quoted market prices provided by a third party pricing vendor were available for the security and the security was transferred back to Level 2.
Significant Unobservable Inputs
The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3 other than hedge funds and private equities as December 31, 2014 and December 31, 2013. The fair value of investments in hedge funds and private equity funds, which are classified within Level 3, are estimated using the net asset value of the funds.

($ in Millions)
 
 
 
 
 
December 31, 2014
 
December 31, 2013
Description
 
Rating(2)
 
Valuation
Technique(s)
 
Fair 
Value
 
Unobservable Input
 
Fair 
Value
 
Unobservable Input
Preferred Stock(1)
 
NR
 
Discounted cash flow
 
$71.1
 
Discount yield
-
7.1%
 
$71.0
 
Discount yield
-
7.4%
Private equity security(1)
 
NR
 
Multiple of GAAP book value
 
$40.2
 
Book value multiple
-
1.10
 
$35.6
 
Book value multiple
-
1.00
Private equity security(1)
 
NR
 
Share price of recent transaction
 
$20.1
 
Share price
-
$1.06
 
$10.5
 
Share price
-
$1.10
Private equity security(1)
 
NR
 
Share price of recent transaction
 
$10.4
 
Share price
-
$290.96
 
N/A
 
N/A
 
N/A
Private equity security(1)
 
NR
 
Share price of recent transaction
 
$15.8
 
Share price
-
$0.13
 
N/A
 
N/A
 
N/A
Convertible preferred security(1)
 
NR
 
Share price of recent transaction
 
$4.5
 
Share price
-
$0.71
 
$3.0
 
Share price
-
$0.71
Convertible preferred security(1)
 
NR
 
Multiple of EBITDA
 
$3.8
 
EBITDA multiple
-
6.00
 
$3.1
 
EBITDA multiple
-
6.00
Debt security issued by corporation(1)
 
NR
 
Discounted cash flow
 
$5.6
 
Illiquidity discount(3)
-
10%
 
N/A
 
N/A
 
N/A
Asset-backed securities(1)
 
AA+
 
Broker pricing
 
N/A
 
Broker quote
 
 
 
$22.0
 
Broker quote
 
 
Seller priority surplus note
 
NR
 
Discounted cash flow
 
$44.0
 
Discount rate (4)
-
9.3%
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
Timing of interest
payments(6)
-
5 years
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
Timing of interest
payments(6)
-
10 years
 
N/A
 
N/A
 
N/A
Pari passu surplus
note
 
NR
 
Discounted cash flow
 
$21.1
 
Discount rate(5)
-
13.5%
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
Timing of interest
payments(6)
-
5 years
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
Timing of interest
payments(6)
-
10 years
 
N/A
 
N/A
 
N/A

(1) 
As of December 31, 2014 each asset type consists of one security.
(2) 
Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor’s and 2) Moody’s.
(3) 
Judgmentally determined based on the Company’s limited trading ability of the issuer.
(4) 
Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the seller priority note is roughly equivalent to that of a conventional debt security with a credit rating of ‘B’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(5) 
Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the pari passu note is roughly equivalent to that of a conventional debt security with a credit rating of ‘CCC’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(6) 
For estimated value purposes, the assumption has been made that interest payouts begin in year five and that principal repayments being on a graduated basis in year ten for the seller priority notes and year fifteen for the pari passu note.