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.

In April 2014, the board of managers of the Qualified Plan's plan sponsor, a wholly-owned indirect subsidiary of OneBeacon, voted to terminate the Qualified Plan as of June 30, 2014. The plan sponsor applied for a determination letter from the Internal Revenue Service (“IRS”) with respect to the Qualified Plan's tax qualified status at termination and received a favorable determination letter from the IRS on July 23, 2015. OneBeacon anticipates the majority of plan assets to be distributed within 12 months of the receipt of the favorable determination letter by way of annuity contract purchases and/or lump sum payments to plan participants. As part of the normal remeasurement process as of December 31, 2015, OneBeacon considered the significant progress made throughout the year on the termination and determined that using assumptions consisting of the termination value were appropriate for that Qualified Plan as the likelihood is remote that the execution of the plan termination will be blocked by third parties and that the plan will return from termination. Therefore, as of December 31, 2015, OneBeacon has estimated the projected benefit obligation of the Qualified Plan on a termination valuation basis based on the combination of the estimated cost of annuity contract purchases plus lump sum payments, which are anticipated to be made in the first quarter of 2016. OneBeacon notes that the purchase of annuities, which is currently in final stages of the bidding process, is subject to availability of such contracts, with a creditworthy insurance company, at negotiated market terms deemed acceptable to the plan Sponsor. OneBeacon does not expect the impact of the final termination to be material on the OneBeacon’s financial position.

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, 2015 and 2014:



	Pension Benefits December 31,
Millions	2015			2014
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	119.7		$	102.9
Service cost	.9			.6
Interest cost	4.6			4.7
Settlement loss ⁽¹⁾	(1.8		)	—
Special termination benefits expense	—			.3
Assumption changes	(3.5		)	17.5
Actuarial loss	.9			1.1
Benefits and expenses paid with plan assets	(13.7		)	(5.2		)
Benefits paid directly by OneBeacon	(2.2		)	(2.2		)
Remeasurement due to plan termination ⁽²⁾	4.6			—
Projected benefit obligation at end of year	$	109.5		$	119.7
Change in plan assets:
Fair value of plan assets at beginning of year	$	146.0		$	142.8
Actual return on plan assets	7.5			8.4
Benefits and expenses paid	(13.7		)	(5.2		)
Fair value of plan assets at end of year	$	139.8		$	146.0
Funded status at end of year	$	30.3		$	26.3

⁽¹⁾During the fourth quarter of 2015, OneBeacon triggered settlement accounting for the Qualified Plan as the total lump sum payments exceeded the service plus interest costs, resulting in a $1.8 adverse effect on accumulated other comprehensive income.

⁽²⁾ As noted in the paragraph preceding this table, the projected benefit obligation was valued on a plan termination basis as of December 31, 2015.

The funded status of the consolidated pension plans as of December 31, 2015 was $30.3 million, which represents an over-funding of $55.8 million related to the Qualified Plan and an under-funding of $25.5 million related to the Non-qualified Plan. The Non-qualified Plan, which is unfunded, does not hold any assets. OneBeacon has set aside $18.6 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 but are included in other assets in the consolidated balance sheet.

OneBeacon currently anticipates transferring some or all of the excess invested assets of the Qualified Plan into a

qualified replacement plan subsequent to the plan termination. OneBeacon has also applied for a private letter ruling from the

IRS related to the wind-down of potential post-termination obligations of the Qualified Plan. Amounts recognized in the financial statements as of December 31, 2015 and 2014 consist of:



	December 31,
Millions	2015			2014
Net assets of the Qualified Plan recorded in other assets	$	55.8		$	53.4
Net liabilities of the Non-qualified Plan recorded in other liabilities	(25.5		)	(27.1		)
Net amount accrued in the financial statements	$	30.3		$	26.3

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



	December 31,
Millions	2015		2014
Projected benefit obligation	$	25.5	$	27.1
Accumulated benefit obligation	$	25.5	$	27.1
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	2015			2014
Projected benefit obligation	$	84.0	⁽¹⁾	$	92.6
Accumulated benefit obligation	$	84.0	⁽¹⁾	$	92.6
Fair value of plan net assets	$	139.8		$	146.0

⁽¹⁾ Measured on a plan termination basis

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, 2015 and 2014 were as follows:



	December 31,
Millions	2015			2014
Accumulated other comprehensive (loss) income beginning balance	$	(8.0	)	$	10.5
Increase (decrease) in accumulated other comprehensive income (loss):
Amortization of net actuarial gains recognized during the year	1.3			.3
Net actuarial losses occurring during the year ⁽¹⁾	(1.3		)	(18.8		)
Accumulated other comprehensive loss ending balance	$	(8.0	)	$	(8.0	)


⁽¹⁾	Net actuarial gains (losses) resulted from investment returns and demographic experience different than assumed. The 2015 amount reflects the valuation of the Qualified Plan on a termination basis.

The amount in accumulated other comprehensive loss, on a pre-tax basis, that has not yet been recognized as a component of net periodic benefit cost for the year ended December 31, 2015 is attributable to net losses. During 2016, OneBeacon expects $1.1 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, 2015, 2014 and 2013 were as follows:



	Year Ended December 31,
Millions	2015			2014			2013
Service cost	$	.9		$	.6		$	.8
Interest cost	4.6			4.7			4.2
Expected return on plan assets	(8.7		)	(8.5		)	(7.1		)
Amortization of unrecognized loss	1.3			.3			.9
Net periodic pension income before settlements, curtailments and special termination benefits	(1.9		)	(2.9		)	(1.2		)
Special termination benefits expense⁽¹⁾	—			.3			.3
Total net periodic benefit income	$	(1.9	)	$	(2.6	)	$	(.9	)


⁽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 3.22% and 3.91% as of December 31, 2015 and 2014. The weighted average assumptions used to determine net periodic benefit cost included a 3.91% discount rate and 6.00% expected long-term rate of return on plan assets for the year ended December 31, 2015. 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.

OneBeacon’s discount rate assumptions used to account for the Plans reflect the rates at which the benefit obligations could be effectively settled. The December 31, 2015 discount rate used to determine benefit obligations also reflects the

Qualified Plan valued on a plan termination basis. 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, 2014 to develop expected rates of return for 2015 and 2014 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 Qualified Plan's assets are managed internally by OneBeacon. Given the anticipated Plan termination and considering the expected payments to purchase annuities or for lump sum distributions, the invested assets were reallocated during 2015 to consist substantially of U.S. Treasury securities.

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. U.S. Treasury securities and 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 analysis. 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, 2015 and 2014 by asset category were as follows:



	December 31, 2015								December 31, 2014
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	$	132.4	$	132.4	$	—	$	—	$	24.2	$	—	$	24.2	$	—
Common equity securities	—		—		—		—		101.0		101.0		—		—
Convertible fixed maturity investments	—		—		—		—		12.8		—		12.8		—
Cash and short-term investments	7.0		7.0		—		—		5.2		4.8		.4		—
Total	$	139.4	$	139.4	$	—	$	—	$	143.2	$	105.8	$	37.4	$	—

There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2015 and 2014.

The Qualified Plan’s asset allocations as of December 31, 2015 and 2014, by asset category were as follows:



	Plan Assets at December 31,
Asset Category	2015		2014
Fixed maturity investments	95.0	%	16.9	%
Common equity securities	—		70.6
Convertible fixed maturity investments	—		8.9
Cash and short-term investments	5.0		3.6
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. However as a result of the Qualified Plan termination, substantially all assets as of December 31, 2015 are invested in United States Treasury securities which significantly limits the exposure to these risks.

Cash Flows

OneBeacon does not expect to make a contribution to its Qualified Plan in 2016. As noted above, the termination will result in significant cash payments for the purchase of annuity and lump sum payments. OneBeacon anticipates contributing $2.1 million to the Non-qualified Plan in 2016, 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
2016	$	86.8
2017	2.1
2018	2.1
2019	2.0
2020	2.0
2021-2025	8.9

⁽¹⁾ Primarily reflects the anticipated payout related to annuity purchases and lump sum payments resulting from the termination of the Qualified Plan

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 $3.0 million, $2.7 million and $2.3 million in 2015, 2014 and 2013.

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 ($118,500 for 2015). 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 ($265,000 for 2015) and contingent upon OneBeacon’s performance. White Mountains recorded $5.7 million, $4.4 million and $6.3 million in compensation expense to pay benefits and allocate common shares to participant’s accounts for the years ended 2015, 2014 and 2013.

OneBeacon had a post-employment benefit liability, which primarily relates to disability and health benefits available to former employees, of $4.1 million and $4.8 million as of December 31, 2015 and 2014.

OneBeacon also had a post-employment benefit liability related to death benefits to beneficiaries of former executives of $12.5 million and $12.9 million as of December 31, 2015 and 2014. OneBeacon has set aside funds to satisfy its obligation in a Rabbi Trust of $33.9 million and $33.2 million as of December 31, 2015 and 2014.