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 - “Municipal Bond Guarantee Insurance” for balances related to White Mountains financial guarantee business):



	Year ended December 31, 2015
Millions	OneBeacon				HG/BAM ⁽¹⁾		Other			Total
Written premiums:
Direct	$	1,279.9			$	25.9	$	19.9		$	1,325.7
Assumed	36.0				—		—			36.0
Gross written premiums	1,315.9				25.9		19.9			1,361.7
Ceded	(179.3		)	⁽²⁾	—		(9.8		)	(189.1		)
Net written premiums	$	1,136.6			$	25.9	$	10.1		$	1,172.6
Earned premiums:
Direct	$	1,298.0			$	3.3	$	20.7		$	1,322.0
Assumed	45.9				—		—			45.9
Gross earned premiums	1,343.9				3.3		20.7			1,367.9
Ceded	(167.7		)	⁽²⁾	—		(12.0		)	(179.7		)
Net earned premiums	$	1,176.2			3.3		$	8.7		$	1,188.2
Losses and LAE:
Direct	$	783.0			$	—	$	19.5		$	802.5
Assumed	55.7				—		—			55.7
Gross losses and LAE	838.7				—		19.5			858.2
Ceded	(138.0		)	⁽²⁾	—		(11.3		)	(149.3		)
Net losses and LAE	$	700.7			$	—	$	8.2		$	708.9

⁽¹⁾During 2015, BAM ceded $19.3 in written premiums and $16.0 in earned premiums to HG Global, which have been eliminated within the HG/BAM segment.

⁽²⁾ During 2015, OneBeacon recorded ceded $33.3 in written premiums, $33.3 in earned premiums and $33.4 in loss and loss adjustment expenses as a result of the exit of the Crop Business due to the 100% quota share reinsurance agreement with AmTrust.



	Year ended December 31, 2014
Millions	OneBeacon			HG/BAM ⁽¹⁾		Other ⁽²⁾			Total
Written premiums:
Direct	$	1,257.5		$	16.2	$	22.6		$	1,296.3
Assumed	65.9			—		—			65.9
Gross written premiums	1,323.4			16.2		22.6			1,362.2
Ceded	(106.5		)	—		(16.7		)	(123.2		)
Net written premiums	$	1,216.9		$	16.2	$	5.9		$	1,239.0
Earned premiums:
Direct	$	1,209.1		$	1.8	$	22.6		$	1,233.5
Assumed	70.9			—		—			70.9
Gross earned premiums	1,280.0			1.8		22.6			1,304.4
Ceded	(102.9		)	—		(16.5		)	(119.4		)
Net earned premiums	$	1,177.1		1.8		$	6.1		$	1,185.0
Losses and LAE:
Direct	$	778.7		$	—	$	24.1		$	802.8
Assumed	115.7			—		—			115.7
Gross losses and LAE	894.4			—		24.1			918.5
Ceded	(79.3		)	—		(15.2		)	(94.5		)
Net losses and LAE	$	815.1		$	—	$	8.9		$	824.0

⁽¹⁾During 2014, BAM ceded $12.3 in written premiums and $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, and $16.9 in loss and loss adjustment expenses to OneBeacon, which have been eliminated in consolidation.



	Year ended December 31, 2013
Millions	OneBeacon			HG/BAM ⁽¹⁾		Total
Written premiums:
Direct	$	1,103.1		$	13.6	$	1,116.7
Assumed	59.8			—		59.8
Gross written premiums	1,162.9			13.6		1,176.5
Ceded	(74.3		)	—		(74.3		)
Net written premiums	$	1,088.6		$	13.6	$	1,102.2
Earned premiums:
Direct	$	1,043.3		$	.5	$	1,043.8
Assumed	148.5			—		148.5
Gross earned premiums	1,191.8			.5		1,192.3
Ceded	(71.4		)	—		(71.4		)
Net earned premiums	$	1,120.4		$	.5	$	1,120.9
Losses and LAE:
Direct	$	584.9		$	—	$	584.9
Assumed	76.3			—		76.3
Gross losses and LAE	661.2			—		661.2
Ceded	(39.1		)	—		(39.1		)
Net losses and LAE	$	622.1		$	—	$	622.1

⁽¹⁾During 2013, BAM ceded $10.6 in written premiums ($10.2 in earned premiums) to HG Global, which have been eliminated within the HG/BAM segment.

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 3.0) 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 an extreme catastrophe event.

OneBeacon purchases a general catastrophe reinsurance treaty with unaffiliated reinsurers to manage its exposure to large catastrophe losses. Effective May 1, 2015, OneBeacon renewed its property catastrophe reinsurance program through April 30, 2016. 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 95% of the next $10.0 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 ($120.0 million in 2016 and increasing $20.0 million in subsequent years until the threshold becomes $200.0 million in 2020) and are certified as an act of terrorism by the U.S. Secretary of the Treasury, in concurrence with the Secretary of Homeland Security and the Attorney General of the United States. 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 (84% in 2016 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 2016. The federal government will pay 84% of covered terrorism losses that exceed OneBeacon’s or the industry’s retention levels in 2016, up to a total of $100.0 billion. As indicated above, OneBeacon’s 16% 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 Specialty Property underwriting unit purchases a dedicated property catastrophe program providing 100% coverage for $34.0 million of loss in excess of $6.0 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 $3.0 million, which represents a retention decrease from $5.0 million for 2014, 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 $3.0 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 $3.0 million up to $10.0 million. All other casualty business is covered in a separate treaty covering losses in excess of $3.0 million up to $11.0 million. 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, surety, 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 for workers compensation and for losses up to $40.0 million in excess of $10.0 million retention for casualty and surety losses.

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 $2.5 million per occurrence. The first layer of the marine treaty is $7.5 million in excess of $2.5 million, with an annual aggregate deductible of $5.0 million for catastrophe losses. 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 business. Effective October 1, 2015, this treaty covers 100% of losses in excess of $5.0 million up to $50.0 million per bond and up to $100.0 million in aggregate.

Additionally, effective January 1, 2015, 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 June 1, 2015, OneBeacon also purchased reinsurance on its film completion bond business in excess of $2.0 million up to $35.0 million in three layers, with a facultative treaty layer providing coverage up to $60.0 million as needed.

On July 31, 2015, OneBeacon reinsured 100% of its net retained losses for both its multi-peril crop insurance (“MPCI”) and crop-hail business by entering into a quota share reinsurance agreement with an insurance operating affiliate of AmTrust for the remaining net exposure to the 2015 Crop reinsurance year.

As of December 31, 2015, OneBeacon had $7.5 million and $186.0 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.



Standard & Poor’s Rating⁽¹⁾
$ in millions	Balance at December 31, 2015		% of Total
AA	$	41.7	22	%
A	126.2		65	%
BBB, Not rated and other⁽²⁾	25.6		13	%
Total	$	193.5	100	%

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

⁽²⁾ Includes $20.4 related to OBIC, an unrated entity sold to Armour as part of the Runoff Transaction.