Retirement and Postretirement 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 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”). The Plans were frozen and curtailed in 2002 and, as a result, the projected benefit obligation is equal to the accumulated benefit obligation.

The benefits for the Plans are based primarily on years of service and employees’ compensation through December 31, 2002. OneBeacon’s funding policy is consistent with the funding requirements of U.S. federal laws and regulations.

The following tables set forth the obligations and funded status, assumptions, plan assets and cash flows associated with the Plans as of December 31, 2014 and 2013:



	Pension Benefits December 31,
Millions	2014			2013
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	102.9		$	119.5
Service cost	.6			.8
Interest cost	4.7			4.2
Special termination benefits expense	.3			.3
Assumption changes	17.5			(13.0		)
Actuarial loss (gain)	1.1			(.5		)
Benefits and expenses paid with plan assets	(5.2		)	(6.2		)
Benefits paid directly by OneBeacon	(2.2		)	(2.2		)
Projected benefit obligation at end of year	$	119.7		$	102.9
Change in plan assets:
Fair value of plan assets at beginning of year	$	142.8		$	124.7
Actual return on plan assets	8.4			24.3
Benefits and expenses paid	(5.2		)	(6.2		)
Fair value of plan assets at end of year	$	146.0		$	142.8
Funded status at end of year	$	26.3		$	39.9

The funded status of the consolidated pension plans as of December 31, 2014 was $26.3 million, which represents an over-funding of $53.4 million related to the Qualified Plan and an under-funding of $27.1 million related to the Non-qualified Plan. The Non-qualified Plan, which is unfunded, does not hold any assets. OneBeacon has set aside $18.2 million in an irrevocable rabbi trust for the benefit of Non-qualified Plan participants. Assets held in the rabbi trust are not reflected in the funded status of the consolidated pension plans as presented.

Amounts recognized in the financial statements as of December 31, 2014 and 2013 consist of:



	December 31,
Millions	2014			2013
Net assets of the Qualified Plan recorded in other assets	$	53.4		$	64.1
Net liabilities of the Non-qualified Plan recorded in other liabilities	(27.1		)	(24.2		)
Net amount accrued in the financial statements	$	26.3		$	39.9

Information for the Non-qualified Plan, which had accumulated benefit obligations in excess of plan assets, was as follows:



	December 31,
Millions	2014		2013
Projected benefit obligation	$	27.1	$	24.2
Accumulated benefit obligation	$	27.1	$	24.2
Fair value of plan assets	$	—	$	—

Information for the Qualified Plan, which had accumulated benefit obligations less than plan assets, was as follows:



	December 31,
Millions	2014		2013
Projected benefit obligation	$	92.6	$	78.7
Accumulated benefit obligation	$	92.6	$	78.7
Fair value of plan net assets	$	146.0	$	142.8

The amounts recognized in accumulated other comprehensive income (loss) on a pre-tax basis and before non-controlling interest for the years ended December 31, 2014 and 2013 were as follows:



	December 31,
Millions	2014			2013
Accumulated other comprehensive income (loss) beginning balance	$	10.5		$	(21.2	)
Increase (decrease) in accumulated other comprehensive income (loss):
Amortization of net actuarial losses recognized during the year	.3			.9
Net actuarial (losses) gains occurring during the year⁽¹⁾	(18.8		)	30.8
Accumulated other comprehensive (loss) income ending balance	$	(8.0	)	$	10.5


⁽¹⁾	Net actuarial gains (losses) resulted from investment returns and demographic experience different than assumed, as well as changes in assumptions in estimating the projected benefit obligation in the years ended December 31, 2014 and 2013.

During 2015, OneBeacon expects $1.2 million will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost. The components of net periodic benefit (income) cost for the years ended December 31, 2014, 2013 and 2012 were as follows:



	Year Ended December 31,
Millions	2014			2013			2012
Service cost	$	.6		$	.8		$	.7
Interest cost	4.7			4.2			4.7
Expected return on plan assets	(8.5		)	(7.1		)	(6.9		)
Amortization of unrecognized loss	.3			.9			.8
Net periodic pension income before settlements, curtailments and special termination benefits	(2.9		)	(1.2		)	(.7		)
Settlement loss	—			—			.6
Special termination benefits expense⁽¹⁾	.3			.3			.6
Total net periodic (income) benefit cost	$	(2.6	)	$	(.9	)	$	.5


⁽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.

Assumptions

The weighted average discount rate assumptions used to determine benefit obligations was 3.91% and 4.66% as of December 31, 2014 and 2013. The weighted average assumptions used to determine net periodic benefit cost included a 4.66% discount rate and 6.00% expected long-term rate of return on plan assets for the year ended December 31, 2014. The weighted average assumptions used to determine net periodic benefit cost included a 3.64% discount rate and 5.75% expected long-term rate of return on plan assets for the year ended December 31, 2013.

OneBeacon’s discount rate assumptions used to account for the Plans reflect the rates at which the benefit obligations could be effectively settled. In addition to consideration of published yields for high quality long-term corporate bonds, U.S. Treasuries and insurance company annuity contract pricings, consideration was given to cash flow matching analyses.

OneBeacon performed an analysis of expected long-term rates of return based on the allocation of its Qualified Plan assets as of December 31, 2013 and 2012 to develop expected rates of return for 2014 and 2013 for each significant asset class or economic indicator. A range of returns was developed based both on forecasts and on broad market historical benchmarks for expected return, correlation, and volatility for each asset class.

Plan Assets

The majority of the Qualified Plans’ invested assets are managed by Prospector Partners, LLC (“Prospector”), a related party (see Note 20). The investment policy places an emphasis on preserving invested assets through a diversified portfolio of high-quality income producing investments and equity investments.

The investment management process integrates the risks and returns available in the investment markets with the risks and returns available to the Qualified Plan in establishing the proper allocation of invested assets. The asset classes may include fixed maturity, equity, convertible fixed maturity investments, and cash and short-term investments.

The factors examined in establishing the appropriate investment mix include the outlook for risk and return in the various investment markets and sectors and the long-term need for capital growth.

The Qualified Plan’s investments are stated at fair value. Many factors are considered in arriving at fair market value. In general, fixed maturity investments such as corporate bonds and government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. Shares of common and preferred stock are valued at quoted market prices when available. Convertible fixed maturity investments are valued based on quoted market prices, analysis of listed markets and use of sensitivity analyses. Registered investment companies are valued at the net asset value as reported by the fund at year-end.

The fair value of the Qualified Plan’s assets and their related inputs as of December 31, 2014 and 2013 by asset category were as follows:



	December 31, 2014								December 31, 2013
Millions	Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Fixed maturity investments	$	24.2	$	—	$	24.2	$	—	$	—	$	—	$	—	$	—
Common equity securities	101.0		101.0		—		—		103.3		103.3		—		—
Convertible fixed maturity investments	12.8		—		12.8		—		29.9		—		29.9		—
Cash and short-term investments	5.2		4.8		.4		—		8.9		8.8		.1		—
Total	$	143.2	$	105.8	$	37.4	$	—	$	142.1	$	112.1	$	30.0	$	—

There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2014 and 2013.

The Qualified Plan’s asset allocations as of December 31, 2014 and 2013, by asset category were as follows:



	Plan Assets at December 31,
Asset Category	2014		2013
Fixed maturity investments	16.9	%	—	%
Common equity securities	70.6		72.7
Convertible fixed maturity investments	8.9		21.1
Cash and short-term investments	3.6		6.2
Total	100.0	%	100.0	%

As described above, the Qualified Plan’s investment securities are exposed to various risks such as interest rate, market, and credit risks. Market prices of common equity securities, in general, are subject to fluctuations which would cause the amount to be realized upon sale or exercise of the instruments to differ significantly from the current reported value. The fluctuations may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments, general market conditions and supply and demand imbalances for a particular security. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of fixed maturity and convertible fixed maturity investments, respectively. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

Cash Flows

OneBeacon does not expect to make a contribution to its Qualified Plan in 2015. OneBeacon anticipates contributing $2.2 million to the Non-qualified Plan in 2015, for which OneBeacon has assets held in a rabbi trust.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



Millions	Expected Benefit Payments
2015	$	4.9
2016	5.3
2017	5.6
2018	5.9
2019	6.1
2020-2024	34.4

Other Benefit Plans

OneBeacon sponsors a defined contribution plan, the OneBeacon 401(k) Savings and Employee Stock Ownership Plan (“KSOP”), covering the majority of its employees. The contributory plan provides qualifying employees with matching contributions of 50% up to the first six percent of salary (subject to U.S. federal limits on allowable contributions in a given year). Total expense for matching contributions to the plan was $2.7 million, $2.3 million and $2.8 million in 2014, 2013 and 2012.

The employee stock ownership component of the KSOP provides all of its participants with an annual base contribution in common shares equal to 3% of their salary, up to the applicable Social Security wage base ($117,000 for 2014). Additionally, those participants not otherwise eligible to receive certain other OneBeacon benefits can earn a variable contribution of up to 6% of their salary, subject to the applicable IRS annual covered compensation limits ($260,000 for 2014) and contingent upon OneBeacon’s performance. White Mountains recorded $4.4 million, $6.3 million and $4.8 million in compensation expense to pay benefits and allocate common shares to participant’s accounts for the years ended 2014, 2013 and 2012.

OneBeacon had a post-employment benefit liability, which primarily relates to disability coverage for former employees, of $4.8 million and $5.8 million as of December 31, 2014 and 2013.

Sirius Group sponsors an employee savings plan (defined contribution plan) covering the majority of its U.S. employees. The contributory plan provides qualifying employees with matching contributions of 100% up to the first 2% and 50% of the next 4% of salary (subject to U.S. federal limits on allowable contributions in a given year). Total expense for matching contributions to the plan was $0.7 million, $0.6 million and $0.6 million in 2014, 2013 and 2012. Additionally, all participants in the plan can earn a variable contribution of up to 7% of their salary, subject to the applicable IRS annual covered compensation limits ($260,000 for 2014) and contingent upon Sirius Group’s performance. Total expense for variable contributions to the plan was $0.5 million, $0.7 million and $0.4 million in 2014, 2013 and 2012.

Sirius Group funds other governmental pension plans and other employee savings plans in various countries for its global employees. As of December 31, 2014 and 2013, the projected benefit obligation of Sirius Group’s other governmental pension plans was $14.1 million and $13.1 million, and the funded status was $(1.8) million and $(1.0) million. The expense for those plans totaled $10.3 million, $9.7 million and $7.5 million in 2014, 2013 and 2012.