Discontinued Operations

3 Months Ended

Mar. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

Sirius Group

On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI for approximately $2.6 billion. $161.8 million of this amount was used to purchase certain assets to be retained by White Mountains out of Sirius Group, including shares of OneBeacon. The amount paid at closing was based on an estimate of Sirius Group’s closing date tangible common shareholder’s equity. The purchase price will be adjusted upon determination of Sirius Group’s actual closing date tangible common shareholder’s equity.

As of March 31, 2016, Sirius Group’s results are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements. Assets held for sale does not include White Mountains’s investment in OneBeacon and certain other investments that are in the Sirius Group legal entities as of March 31, 2016. As of March 31, 2016 and December 31, 2015, the value of these investments, net of related tax effects, is $161.8 million and $686.2 million, of which $528.6 million as of December 31, 2015 is related to Symetra. Net income (loss) from discontinued operations does not include White Mountains’s net investment income and realized and unrealized investment gains and losses associated with these investments. For the three months ended March 31, 2016, $4.1 million of net investment income and realized and unrealized investment gains and losses, net of related tax effects, that are included in the Sirius Group legal entities have been excluded from net income (loss) from discontinued operations. For the three months ended March 31, 2015, $0.3 million of net investment income and realized and unrealized investment gains and losses, net of related tax effects, that had been previously included in the Sirius Group legal entities have been excluded from net income (loss) from discontinued operations.

OneBeacon Runoff

The loss from discontinued operations, net of tax, of $0.1 million for the three months ended March 31, 2015, was the result of post-closing expenses incurred in connection with the Runoff Business, which was completed in December of 2014.

Esurance

For the three months ended March 31, 2015, White Mountains recorded a net gain from the sale of discontinued operations of $8.0 million, which primarily related to an installment payment from Allstate for the favorable development on loss reserves. (See Note 18 - “Contingencies”).

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:

Millions	March 31, 2016		December 31, 2015
Assets held for sale
Fixed maturity investments, at fair value	$	2,758.3	$	2,374.0
Short-term	534.5		352.0
Common equities	214.3		174.4
Other	61.3		72.2
Total investments	3,568.4		2,972.6
Cash	134.8		143.9
Reinsurance recoverable on unpaid losses	286.2		283.1
Reinsurance recoverable on paid losses	11.1		10.2
Insurance premiums receivable	483.3		323.6
Deferred acquisition costs	91.6		74.6
Deferred tax asset	291.2		303.1
Ceded unearned insurance and reinsurance premiums	134.7		87.7
Accounts receivable on unsettled investment sales	9.8		29.0
Goodwill and intangible assets	10.2		10.2
Other assets	194.2		169.0
Total assets held for sale	$	5,215.5	$	4,407.0
Liabilities held for sale
Loss and loss adjustment expense reserves	$	1,649.5	$	1,644.4
Unearned insurance premiums	501.3		342.2
Debt	403.6		403.5
Deferred tax liability	278.5		263.6
Accrued incentive compensation	43.1		63.2
Ceded reinsurance payable	132.4		67.1
Funds held under reinsurance treaties	57.0		52.9
Accounts payable on unsettled investment purchases	5.4		—
Other liabilities	50.3		47.1
Total liabilities held for sale	3,121.1		2,884.0
Net assets held for sale	$	2,094.4	$	1,523.0

Net Income 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 up to but not including the closing date of the transaction inures to White Mountains.

	Three Months Ended								Three Months Ended
	March 31, 2016								March 31, 2015
Millions	Sirius Group			Other Disc Ops		Total			Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	202.4		$	—	$	202.4		$	205.0		$	—		$	205.0
Net investment income	12.2			—		12.2			9.0			—			9.0
Net realized and unrealized (losses) gains	(8.8		)	—		(8.8		)	78.4			—			78.4
Other revenue	(4.1		)	—		(4.1		)	(27.4		)	—			(27.4		)
Total revenues	201.7			—		201.7			265.0			—			265.0
Expenses
Loss and loss adjustment expenses	113.7			—		113.7			97.5			—			97.5
Insurance and reinsurance acquisition expenses	48.4			—		48.4			42.6			—			42.6
Other underwriting expenses	26.7			—		26.7			25.5			—			25.5
General and administrative expenses	8.1			—		8.1			6.3			—			6.3
Interest expense	6.6			—		6.6			6.8			—			6.8
Total expenses	203.5			—		203.5			178.7			—			178.7
Pre-tax (loss) income	(1.8		)	—		(1.8		)	86.3			—			86.3
Income tax benefit (expense)	.9			—		.9			(20.4		)	—			(20.4		)
Net (loss) income from discontinued operations	(.9		)	—		(.9		)	65.9			—			65.9
Net losses from sales of discontinued operations - OneBeacon	—			—		—			—			(.1		)	(.1		)
Net gain from sales of discontinued operations - Esurance	—			—		—			—			8.0			8.0
Total (loss) income from discontinued operations	$	(.9	)	$	—	$	(.9	)	$	65.9		$	7.9		$	73.8
Change in foreign currency translation and other    from discontinued operations	$	37.2		$	—	$	37.2		$	(87.6	)	$	—		$	(87.6	)
Comprehensive income (loss) from discontinued operations	$	36.3		$	—	$	36.3		$	(21.7	)	$	7.9		$	(13.8	)

Net Change in Cash from Discontinued Operations

The following summarizes the net change in cash, including income tax (payment to) refund from national governments and interest paid associated with the business classified as discontinued operations:

	Three Months Ended
	March 31,
(Millions)	2016			2015
Net cash provided from operations	$	(50.7	)	$	(14.3	)
Net cash provided from investing activities	35.0			36.0
Net cash used for financing activities	2.4			1.8
Effect of exchange rate changes on cash	4.2			(8.5		)
Net change in cash during the period	(9.1		)	15.0
Cash balances at beginning of period	143.9			111.5
Cash balances at end of period	$	134.8		$	126.5
Supplemental cash flows information:
Interest paid	$	—		$	(12.8	)
Net income tax payment to national governments	$	(36.4	)	$	(7.0	)

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 three months endedMarch 31, 2016 and 2015:

	Three Months Ended
	March 31,
	2016			2015
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s common shareholders	$	(.9	)	$	73.8
Allocation of income for participating unvested restricted common shares(1)	—			(.7		)
Net income attributable to White Mountains’s common shareholders,    net of restricted common share amounts (2)	$	(.9	)	$	73.1
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	5,539.6			5,978.4
Average unvested restricted common shares(3)	(54.0		)	(58.8		)
Basic earnings per share denominator	5,485.6			5,919.6
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period	5,540.5			5,978.4
Average unvested restricted common shares(3)	(54.0		)	(58.8		)
Average outstanding dilutive options to acquire common shares(4)	—			—
Diluted earnings per share denominator	5,486.5			5,919.6
Basic and diluted earnings per share (in dollars):	$	(.17	)	$	12.33

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

⁽²⁾ Net earnings attributable to White Mountains’s common shareholders, net of restricted share amounts, is equal to undistributed earnings for the three months endedMarch 31, 2016 and 2015.

⁽³⁾ Restricted common shares outstanding vest either in equal annual installments or upon a stated date. (See Note 15 - “Employee Share-Based Compensation Plans”).

⁽⁴⁾ The diluted earnings per share denominator for the three months endedMarch 31, 2016 includes the impact of 125,000 common shares issuable upon exercise of the non-qualified options outstanding, which results in 882 incremental shares outstanding over the period. The incremental shares had an effect on diluted earning per share of less than $0.01 per share. The diluted earnings per share denominator for the three months ended March 31, 2015 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.

Fair Value of Financial Instruments

The SIG Senior Notes are recorded as debt at face value less unamortized original issue discount, and the SIG Preference Shares are recorded as non-controlling interest at face value.

The following table summarizes the fair value and carrying value of these financial instruments as of March 31, 2016 and December 31, 2015:

	March 31, 2016				December 31, 2015
Millions	Fair Value		Carrying Value		Fair Value		Carrying Value
SIG Senior Notes	$	409.0	$	399.9	$	410.0	$	399.8
SIG Preference Shares	247.5		250.0		255.0		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

In May 2007, Sirius International Group, Ltd. (“SIG”), an intermediate holding company of Sirius Group, 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% and (ii) 3-month LIBOR plus 320 basis points. In July 2013, SIG executed the 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 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 basis points 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 within other revenue. 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 at March 31, 2016.

The following tables summarize the changes in the fair value of the Interest Rate Cap for the three months endedMarch 31, 2016 and 2015:

	Three Months Ended
	March 31,
Millions	2016			2015
Beginning of period	$	1.9		$	4.1
Net realized and unrealized losses	(.8		)	(1.0		)
End of period	$	1.1		$	3.1

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:

	March 31, 2016
Millions	Collateral Balances Held		Standard & Poor’s  Rating(1)
Barclays Bank Plc	$	.7	A-
Nordea Bank Finland Plc	.4		AA-
Total	$	1.1

⁽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).