Employee Share-Based Incentive Compensation Plans

White Mountains’s Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees and service providers of White Mountains. White Mountains’s share-based compensation incentive awards consist of performance shares, restricted shares and stock options.

Share-Based Compensation Based on White Mountains Common Shares

WTM Performance Shares

Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Awards generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, and are valued based on the market value of common shares at the time awards are paid. The following table summarizes performance share activity for the three and nine months ended September 30, 2016 and 2015 for performance shares granted under the WTM Incentive Plan:



	Three Months Ended September 30,										Nine Months Ended September 30,
	2016					2015					2016					2015
Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	73,297		$	32.5		106,572		$	28.8		93,654		$	57.7		111,257		$	44.4
Shares paid or expired⁽¹⁾						(8,958	)	(5.5		)	(36,294	)	(41.0		)	(42,959	)	(30.4		)
New grants⁽²⁾	6,400		—					—			22,615		—			29,195		—
Forfeitures and cancellations⁽³⁾	(160	)	(.1		)	(3,960	)	(.8		)	(438	)	.2			(3,839	)	(.3		)
Expense recognized	—		5.0			—		30.0			—		20.5			—		38.8
End of period⁽⁴⁾	79,537		$	37.4		93,654		$	52.5		79,537		$	37.4		93,654		$	52.5

⁽¹⁾WTM performance share payments in 2016 for the 2013-2015 performance cycle, which were paid in April 2016, ranged from 140% to 142% of target. WTM performance share payments in 2015 for the 2012-2014 performance cycle ranged from 88% to 131.5% of target.

⁽²⁾In the third quarter of 2016 White Mountains granted 3,000 WTM performance shares for the 2015-2017 performance cycle and 3,400 WTM performance shares for the 2016-2018 performance cycle.

⁽³⁾Amounts include changes in assumed forfeitures, as required under GAAP.

⁽⁴⁾Outstanding performance share awards as of September 30, 2016 and 2015 both exclude 7,315 and 10,825 performance share awards granted to employees of Sirius Group.

For performance shares earned in the 2013-2015 performance cycle, the Company issued 5,000 common shares and settled the remainder in cash. For the 2012-2014 performance cycle, all performance shares earned were settled in cash. If all the outstanding WTM performance shares had vested on September 30, 2016, the total additional compensation cost to be recognized would have been $26.9 million, based on accrual factors at September 30, 2016 (common share price and payout assumptions).

Performance Shares granted under the WTM Incentive Plan

The following table summarizes performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at September 30, 2016 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2016 – 2018	19,615		$	3.4
2015 – 2017	31,795		15.1
2014 – 2016	30,167		19.9
Sub-total	81,577		38.4
Assumed forfeitures	(2,040	)	(1.0		)
Total at September 30, 2016	79,537		$	37.4

Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months ended September 30, 2016 and 2015:



	Three Months Ended September 30,									Nine Months Ended September 30,
	2016				2015					2016					2015
Millions, except share amounts	Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	66,470	$	24.2		71,875		$	23.2		70,675		$	15.7		83,314		$	14.3
Issued	4,150	3.4								25,365		19.7			23,640		15.7
Vested	—	—			(1,200	)	—			(24,620	)	—			(36,279	)	—
Forfeited	—	—			—		—			(800	)	.2			—		—
Expense recognized ⁽¹⁾	—	(3.8		)	—		(3.7		)	—		(11.8		)	—		(10.5		)
End of period ⁽²⁾	70,620	$	23.8		70,675		$	19.5		70,620		$	23.8		70,675		$	19.5

⁽¹⁾ In connection with the sale of Sirius Group in the second quarter of 2016, White Mountains recognized $1.4 from accelerating the amortization of the issue date fair value for shares issued to Sirius Group employees, who no longer have a service obligation to the Company.

⁽²⁾ Restricted share awards outstanding as of September 30, 2016 and 2015 include 2,512 and 3,572 restricted shares issued to employees of Sirius Group, which was accounted for as discontinued operations.

During the three and nine months ended September 30, 2016, White Mountains issued 4,150 and 25,365 restricted shares that vest on January 1, 2019. During the first nine months of 2015, White Mountains issued 23,640 restricted shares that vest on January 1, 2018. The unrecognized compensation cost at September 30, 2016 is expected to be recognized ratably over the remaining vesting periods.

Stock Options

Non-Qualified Options

As September 30, 2016 and December 31, 2015, the Company’s Chairman and CEO held 120,000 and 125,000 Non-Qualified Options, which are exercisable at a fixed price of $742 per common share and expire on January 20, 2017. The potential in-the-money value of the Non-Qualified Options in excess of $100 million is limited to 50% of the excess amount. The Non-Qualified Options were fully amortized as of the first quarter in 2011.

On May 5, 2016, the Company’s Chairman and CEO exercised 5,000 Non-Qualified Options at $742 per common share.

Share-Based Compensation Based on OneBeacon Ltd. Common Shares

The OneBeacon Long-Term Incentive Plan (the “OneBeacon Incentive Plan”) provides for grants to key employees of OneBeacon various types of share-based and non share-based incentive awards. OneBeacon’s share-based incentive awards include OneBeacon performance shares and restricted shares.

OneBeacon Performance Shares

OneBeacon performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. OneBeacon performance share awards generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, and are valued based on the market value of OneBeacon Ltd. common shares at the time awards are paid. The following table summarizes performance share activity for the three and nine months ended September 30, 2016 and 2015 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:



	Three Months Ended September 30,							Nine Months Ended September 30,
	2016			2015				2016					2015
Millions, except share amounts	Target Performance Shares Outstanding	Accrued Expense		Target Performance Shares Outstanding	Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	441,206	$	1.0	462,147	$	2.4		449,435		$	1.4		517,470		$	3.4
Shares paid or expired⁽¹⁾	—	—		—	—			(167,300	)	(.7		)	(181,290	)	(1.5		)
New grants	—	—		—	—			163,150		—			154,887		—
Assumed forfeitures and cancellations⁽²⁾	—	—		—	—			(4,079	)	—			(28,920	)	—
Expense recognized	—	.3		—	(.3		)	—		.6			—		.2
End of period	441,206	$	1.3	462,147	$	2.1		441,206		$	1.3		462,147		$	2.1

⁽¹⁾ OneBeacon performance share payments in 2016 for the 2013-2015 performance cycle were at 24.3% of target. OneBeacon performance share payments in 2015 for the 2012-2014 performance cycle were at 45.7% of target.

⁽²⁾ Amounts include changes in assumed forfeitures, as required under GAAP.

If the outstanding OneBeacon performance shares had been vested on September 30, 2016, the total additional compensation cost to be recognized would have been $2.3 million, based on accrual factors at September 30, 2016 (common share price, accumulated dividends and payout assumptions).

The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at September 30, 2016 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2016 – 2018	163,150		$	.6
2015 – 2017	146,659		.7
2014 – 2016	142,710		—
Sub-total	452,519		1.3
Assumed forfeitures	(11,313	)	—
Total at September 30, 2016	441,206		$	1.3

OneBeacon Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding OneBeacon restricted stock awards for the three and nine months ended September 30, 2016 and 2015:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016					2015
Millions, except share amounts	Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	395,872	$	3.5		390,950	$	3.5		382,722		$	2.5		612,500		$	3.5
Issued	—	—			—	—			170,650		2.3			75,950		1.1
Vested	—	—			—	—			(157,500	)	—			(296,000	)	—
Forfeited	—	—			—	—			—		—			(1,500	)	—
Expense recognized	—	(.7		)	—	(.5		)	—		(2.0		)	—		(1.6		)
End of period	395,872	$	2.8		390,950	$	3.0		395,872		$	2.8		390,950		$	3.0

On February 24, 2016, OneBeacon issued 170,650 shares of restricted stock, of which 92,500 restricted shares vest on February 24, 2018 and 78,150 vest on January 1, 2019. On February 24, 2015, OneBeacon issued 75,950 restricted shares, which vest on January 1, 2018.

On May 25, 2011, OneBeacon issued 630,000 restricted shares to its CEO that vest in four equal annual installments. The first installment vested on February 22, 2014. Concurrently with the grant of the restricted shares, 35,000 OneBeacon performance shares issued to OneBeacon’s CEO for the 2011-2013 performance share cycle were forfeited and performance share awards to OneBeacon’s CEO for the subsequent five years were reduced by 35,000 shares.

As of September 30, 2016, unrecognized compensation expense of $2.8 million related to restricted stock awards is expected to be recognized over the remaining vesting periods.

OneBeacon Restricted Stock Units

During the first nine months of 2016, the OneBeacon Compensation Committee awarded to certain employees 233,461 restricted stock units (“RSUs”) that are scheduled to vest on December 31, 2018, of which, net of forfeiture assumptions, 219,112 were outstanding as of September 30, 2016. During the first nine months of 2015, the OneBeacon Compensation Committee awarded to certain employees 215,698 RSUs that are scheduled to vest on December 31, 2017, of which, net of forfeiture assumptions, 177,409 were outstanding as of September 30, 2016. The RSUs will be paid out in cash or shares at the discretion of the OneBeacon Compensation Committee. For the three and nine months ended September 30, 2016, the expense associated with the RSUs was $0.5 million and $1.4 million. For the three and nine months ended September 30, 2015, the expense associated with the RSUs was $0.2 million and $0.6 million.