Discontinued Operations

12 Months Ended

Dec. 31, 2015

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Derivatives

Derivatives

Discontinued Operations

Discontinued Operations

Sirius Group

On July 24, 2015, White Mountains entered into an agreement to sell Sirius Group to CM International Holding PTE Ltd., the Singapore-based investment arm of CMI. The transaction is expected to close in the first quarter of 2016 and is subject to regulatory approvals and other customary closing conditions.

The results of operations for Sirius Group have been classified as discontinued operations in the statement of operations and comprehensive income and the assets and liabilities of Sirius Group have been presented in the balance sheet as held for sale. Prior year amounts have been reclassified to conform to the current period’s presentation.

The amounts reflected within discontinued operations differ from amounts previously presented within the Sirius Group segment. The segment results of operations for Sirius Group reported in previous periods included investment income and realized and unrealized investment gains and losses from certain investments that are to be retained by White Mountains after the completion of the sale. For the years ended December 31, 2015, 2014 and 2013, $225.0 million, of which $218.5 million is related to Symetra, $4.0 million and $1.0 million of net investment income and realized and unrealized investment gains and losses that had been previously included in the Sirius Group legal entities have been excluded from net income (loss) from discontinued operations.

OneBeacon Runoff

In December 2014, OneBeacon completed the Runoff Transaction. The results of operations for the Runoff Business have been classified as discontinued operations and are presented, net of related income taxes, in the statement of operations and comprehensive income. The amounts classified as discontinued operations exclude investing and financing activities that are conducted on an overall consolidated level and, accordingly, there were no separately identifiable investments associated with the Runoff Business.

As part of closing the Runoff Transaction on December 23, 2014, OneBeacon provided financing in the form of surplus notes with a par value of $101.0 million issued by OneBeacon Insurance Company (“OBIC”), one of the entities that were transferred from OneBeacon to Armour as part of the transaction (the “Surplus Notes”). At closing, the Surplus Notes had a fair value of $64.9 million, based on a discounted cash flow model, resulting in a total valuation adjustment of $36.1 million pre-tax ($23.5 million after-tax) included in loss from sale of discontinued operations. Subsequent to closing, the Surplus Notes are included in OneBeacon’s investment portfolio, categorized within other long-term investments. (See Note 5 - “Investment Securities” for further disclosures regarding the Surplus Notes).

Under the contractual terms of both the seller priority and pari passu notes, scheduled interest payments accrue at 6.0% until the scheduled maturity date of March 15, 2020 and at a floating interest rate thereafter, should any principal remain outstanding. As required by the PID, interest on the notes does not compound. The notes restrict the Issuer’s ability to make distributions to holders of its equity interest. All such distributions are prohibited while the seller priority note is outstanding, and while the pari passu note is outstanding, distributions are permitted only if the Issuer concurrently repays a pro rata amount of any outstanding principal on the pari passu note.

Pursuant to the notes, the Issuer shall seek to redeem the notes annually each March 15 at a requested redemption amount such that the Issuer’s total adjusted capital following the proposed redemption payment would equal 200% of the Issuer’s “authorized control level RBC”, as such term is defined by the insurance laws of the Commonwealth of Pennsylvania and as prescribed by the PID. All redemptions or repayments of principal and payments of interest on the notes are subject to approval by the PID.

Below is a table illustrating the valuation adjustments taken to arrive at the estimated fair value of the OneBeacon Surplus Notes as of December 23, 2014:

	Type of Surplus Note
Millions	Seller Priority			Pari Passu			Total
Par Value	$	57.9		$	43.1		$	101.0
Fair value adjustments to reflect:
Current market rates on public debt and contract-based repayments(1)	1.6			(8.4		)	(6.8		)
Regulatory approval(2)	(4.6		)	(8.0		)	(12.6		)
Liquidity adjustment (3)	(11.0		)	(5.7		)	(16.7		)
Total adjustments	(14.0		)	(22.1		)	(36.1		)
Fair value	$	43.9		$	21.0		$	64.9

⁽¹⁾  Represents the value of the OneBeacon Surplus Notes, at current market yields on publicly traded debt, and assuming issuer is allowed to make principal and interest payments when its financial capacity is available, as measured by statutory capital in excess of a 250% RBC score.

⁽²⁾  Represents anticipated delay in securing regulatory approvals of interest and principal payments to reflect graduated changes in Issuer’s statutory surplus. The monetary impact of the anticipated delay is measured based on credit spreads of public securities with roughly equivalent percentages of discounted payments missed.

⁽³⁾  Represents impact of liquidity spread to account for OneBeacon’s sole ownership of the surplus notes, lack of a trading market and ongoing regulatory approval risk.

Esurance

For the years ended December 31, 2015 and 2014, White Mountains recorded a gain in discontinued operations of $17.9 million and $3.2 million, which primarily related to a payments from Allstate for favorable development on loss reserves. For the year ended December 31, 2013, White Mountains recorded income from discontinued operations of $4.5 million. Since the closing of the transaction through December 31, 2015, White Mountains has received a net amount of $28.3 million from Allstate, primarily related to the favorable development on loss reserves. (See Note 21 - “Commitments and Contingencies”)

Fireman's Fund

During 2014, White Mountains recorded a gain in discontinued operations of $14.0 million from a payment received from Allianz, the purchaser of White Mountains's former subsidiary Fireman’s Fund Insurance Company (“FFIC”), related to the utilization of alternative minimum tax credits associated with the tax loss on the sale of FFIC in 1991.

Summary of Reclassified Balances and Related Items

Net Assets Held for Sale

The following summarizes the assets and liabilities associated with the business classified as held for sale, which all relate to Sirius Group with the exception of the building held by OneBeacon at December 31, 2014:

	December 31,
Millions	2015		2014
Assets held for sale
Fixed maturity investments, at fair value	$	2,374.0	$	2,362.3
Short term	352.0		494.9
Common Equities	174.4		189.9
Other	72.2		95.6
Total Investments	2,972.6		3,142.7
Cash	143.9		111.5
Reinsurance recoverable on unpaid losses	283.1		322.2
Reinsurance recoverable on paid losses	10.2		11.4
Insurance premiums receivable	323.6		306.6
Deferred acquisition costs	74.6		69.9
Deferred tax asset	303.1		341.5
Ceded unearned insurance and reinsurance premiums	87.7		76.2
Accounts receivable on unsettled investment sales	29.0		18.7
Intangible assets	10.2		15.2
Other assets	169.0		156.6
Other assets - OneBeacon building	—		58.1
Total assets held for sale	$	4,407.0	$	4,630.6
Liabilities held for sale
Loss and loss adjustment expense reserves	$	1,644.4	$	1,809.8
Unearned insurance premiums	342.2		338.6
Debt	403.5		403.5
Deferred tax liability	263.6		282.8
Accrued incentive compensation	63.2		76.5
Ceded reinsurance payable	67.1		71.5
Funds held under reinsurance treaties	52.9		57.9
Accounts payable on unsettled investment purchases	—		2.1
Other liabilities	47.1		62.6
Total liabilities held for sale	2,884.0		3,105.3
Net assets held for sale	$	1,523.0	$	1,525.3

Net Income (Loss) from Discontinued Operations

The following summarizes the results of operations, including related income taxes associated with the business classified as discontinued operations. The results of Sirius Group through the closing date of the transaction inures to White Mountains.

	Year Ended December 31, 2015
Millions	Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	847.0		$	—		$	847.0
Net investment income	40.7			—			40.7
Net realized and unrealized investment gains	15.1			—			15.1
Other revenue	(20.6		)	(.7		)	(21.3		)
Total revenues	882.2			(.7		)	881.5
Expenses
Loss and loss adjustment expenses	422.7			—			422.7
Insurance and reinsurance acquisition expenses	189.8			—			189.8
Other underwriting expenses	107.9			—			107.9
Interest expense on debt	26.6			—			26.6
General and administrative expenses	27.0			—			27.0
Total expenses	774.0			—			774.0
Pre-tax income (loss)	108.2			(.7		)	107.5
Income tax expense	(27.1		)	.2			(26.9		)
Net income (loss) from discontinued operations	81.1			(.5		)	80.6
Net gain from sales of discontinued operations - OneBeacon	—			.3			.3
Net gain from sales of discontinued operations - Esurance	—			17.9			17.9
Total income from discontinued operations	81.1			17.7			98.8
Change in foreign currency translation and    other from discontinued operations	(65.0		)	—			(65.0		)
Comprehensive income from discontinued operations	$	16.1		$	17.7		$	33.8

	Year Ended December 31, 2014
Millions	Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	873.9		$	.1		$	874.0
Net investment income	40.9			—			40.9
Net realized and unrealized investment gains	205.4			—			205.4
Other revenue	(62.4		)	—			(62.4		)
Total revenues	1,057.8			.1			1,057.9
Expenses
Loss and loss adjustment expenses	345.3			(.7		)	344.6
Insurance and reinsurance acquisition expenses	193.6			.1			193.7
Other underwriting expenses	129.7			3.5			133.2
Interest expense on debt	26.3			—			26.3
General and administrative expenses	30.5			—			30.5
Total expenses	725.4			2.9			728.3
Pre-tax income (loss)	332.4			(2.8		)	329.6
Income tax (expense) benefit	(70.4		)	1.0			(69.4		)
Net income (loss) from discontinued operations	262.0			(1.8		)	260.2
Net gain from sales of discontinued operations - FFIC	—			14.0			14.0
Net losses from sales of discontinued operations - OneBeacon	—			(18.8		)	(18.8		)
Net gain from sales of discontinued operations - Esurance	—			3.2			3.2
Total income from discontinued operations	262.0			(3.4		)	258.6
Change in foreign currency translation and    other from discontinued operations	(169.5		)	—			(169.5		)
Comprehensive income (loss) from discontinued operations	$	92.5		$	(3.4	)	$	89.1

	Year Ended December 31, 2013
Millions	Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	866.4		$	.8		$	867.2
Net investment income	46.7			—			46.7
Net realized and unrealized investment gains	27.8			—			27.8
Other revenue	16.8			10.8			27.6
Total revenues	957.7			11.6			969.3
Expenses
Loss and loss adjustment expenses	418.4			78.9			497.3
Insurance and reinsurance acquisition expenses	166.5			—			166.5
Other underwriting expenses	126.1			(.2		)	125.9
Interest expense on debt	26.3			—			26.3
General and administrative expenses	32.2			—			32.2
Total expenses	769.5			78.7			848.2
Pre-tax income (loss)	188.2			(67.1		)	121.1
Income tax (expense) benefit	(46.2		)	25.0			(21.2		)
Net income (loss) from discontinued operations	142.0			(42.1		)	99.9
Net gain from sales of discontinued operations	—			46.6			46.6
Total income from discontinued operations	142.0			4.5			146.5
Change in foreign currency translation and    other from discontinued operations	6.1			—			6.1
Comprehensive income from discontinued operations	$	148.1		$	4.5		$	152.6

Net Change in Cash from Discontinued Operations

The following summarizes the net change in cash associated with the businesses classified as discontinued operations:

	Year ended
	December 31,
Millions	2015			2014			2013
Net cash provided from (used for) operations	$	14.7		$	60.0		$	(61.5	)
Net cash provided from investing activities	31.3			35.8			148.7
Net cash used for financing activities	(9.1		)	(63.2		)	(87.5		)
Effect of exchange rate changes on cash	(4.5		)	(14.3		)	(.2		)
Net change in cash during the period	32.4			18.3			(.5		)
Cash balances at beginning of period	111.5			93.2			93.7
Cash balances at end of period	$	143.9		$	111.5		$	93.2

Earnings Per Share

Basic earnings per share amounts are based on the weighted average number of common shares outstanding including unvested restricted shares that are considered participating securities.  Diluted earnings per share amounts are based on the weighted average number of common shares including unvested restricted shares and the net effect of potentially dilutive common shares outstanding.  The following table outlines the computation of earnings per share for discontinued operations for the years ended December 31, 2015, 2014 and 2013:

	Year Ended December 31,
	2015			2014			2013
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s common shareholders	$	98.8		$	258.6		$	146.5
Allocation of income for participating unvested restricted common shares(1)	(1.1		)	(3.3		)	(2.2		)
Net income attributable to White Mountains’s common shareholders, net of    restricted common share amounts (2)	$	97.7		$	255.3		$	144.3
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	5,879.2			6,104.9			6,200.4
Average unvested restricted common shares (3)	(68.0		)	(78.9		)	(91.4		)
Basic earnings per share denominator	5,811.2			6,026.0			6,109.0
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period	5,879.2			6,104.9			6,200.4
Average unvested restricted common shares(3)	(68.0		)	(78.9		)	(91.4		)
Average outstanding dilutive options to acquire common shares(4)	—			—			—
Diluted earnings per share denominator	5,811.2			6,026.0			6,109.0
Basic and diluted earnings per share (in dollars):	$	16.80		$	42.36		$	23.63

⁽¹⁾  Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities.

⁽²⁾  Net income (loss) attributable to White Mountains’s common shareholders, net of restricted share amounts, is equal to undistributed earnings for the years ended December 31, 2015, 2014 and 2013.

⁽³⁾  Restricted common shares outstanding vest either in equal annual installments or upon a stated date (see Note 13 - “Employee Share-Based Incentive Compensation Plans”).

⁽⁴⁾  The diluted earnings (loss) per share denominator for the years ended December 31, 2015, 2014 and 2013 does not include the impact of 125,000 common shares issuable upon exercise of the non-qualified options outstanding as they are anti-dilutive to the calculation.

Sirius Group

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Discontinued Operations

Fair Value of Financial Instruments

The following table summarizes the fair value and carrying value of the Sirius Group financials instruments, the SIG Senior Notes and the SIG Preference Shares, as of December 31, 2015 and 2014:

	December 31, 2015				December 31, 2014
Millions	Fair Value		Carrying Value		Fair Value		Carrying Value
SIG Senior Notes	$	410.0	$	399.8	$	437.8	$	399.7
SIG Preference Shares	255.0		250.0		260.0		250.0

The fair value estimates for the SIG Senior Notes and the SIG Preference Shares have been determined based on indicative broker quotes and are considered to be Level 3 measurements.

Interest Rate Cap | Sirius Group

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Derivatives

Interest Rate Cap

In May 2007, SIG issued the SIG Preference Shares, with an initial fixed annual dividend rate of 7.506%. In June 2017, the fixed rate will move to a floating rate equal to the greater of (i) 7.506% or (ii) 3 month LIBOR plus 320 bps. In July 2013, SIG executed an interest rate cap for the period from June 2017 to June 2022 to protect against a significant increase in interest rates during that 5-year period (the “Interest Rate Cap”). The Interest Rate Cap economically fixes the annual dividend rate on the SIG Preference Shares from June 2017 to June 2022 at 8.30%. The cost of the Interest Rate Cap was an upfront premium of 395 bps of the $250.0 million notional value, or approximately $9.9 million for the full notional amount.

The Interest Rate Cap does not qualify for hedge accounting. It is recorded in other assets at fair value. Changes in fair value are recognized as unrealized gains or losses and are presented within other revenues. Collateral held is recorded within short-term investments with an equal amount recognized as a liability to return collateral. The fair value of the interest rate cap has been estimated using a single broker quote and accordingly, has been classified as a Level 3 measurement as of December 31, 2015.

The following table summarizes the change in the fair value of the Interest Rate Cap for the year ended December 31, 2015:

	December 31,
Millions	2015			2014
Beginning of period	$	4.1		$	11.1
Net realized and unrealized losses	(2.2		)	(7.0		)
End of period	$	1.9		$	4.1

White Mountains does not provide any collateral to the interest rate counterparties. Under the terms of the Interest Rate Cap, White Mountains holds collateral in respect of future amounts due. White Mountains’s liability to return that collateral is based on the amounts provided by the counterparties and investment earnings thereon. The following table summarizes the Interest Rate Cap collateral balances held by White Mountains and ratings by counterparty:

	December 31, 2015
Millions	Collateral Balances Held		Standard & Poor’s  Rating(1)
Barclays Bank Plc	$	1.3	A-
Nordea Bank Finland Plc	.6		AA-
Total	$	1.9

⁽¹⁾   Standard & Poor’s ratings as detailed above are: “A” (Strong, which is the sixth highest of twenty-one creditworthiness ratings) and “AA-” (Very Strong, which is the fourth highest of twenty-one creditworthiness ratings).