Discontinued Operations

9 Months Ended

Sep. 30, 2016

Discontinued Operations

Held for Sale and 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. In the second quarter of 2016, White Mountains recorded $366.6 million of gain from sale of Sirius Group in discontinued operations in the statement of operations and $113.3 million in other comprehensive income from discontinued operations. In the third quarter of 2016, White Mountains recorded a $4.0 million reduction to the gain from sale of Sirius Group in discontinued operations as a result of the final true-up of Sirius Group's closing date tangible common shareholder's equity.

For the nine months ended September 30, 2016, White Mountains recorded a $4.3 million net loss from discontinued operations from Sirius Group and $32.0 million of other comprehensive income.

Through April 18, 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 did not include White Mountains’s investment in OneBeacon and certain other investments that are in the Sirius Group legal entities. As of December 31, 2015, the value of these investments, net of related tax effects, was $686.2 million, of which $528.6 million 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 nine months ended September 30, 2016, $3.7 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 and nine months ended September 30, 2015, $0.8 million and $3.5 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. As part of the sale of Sirius Group, White Mountains purchased Ashmere, a subsidiary formerly owned by Sirius Group. Ashmere was under an agreement to be sold as of September 30, 2016 and the sale was completed on October 12, 2016. As of September 30, 2016, Ashmere's assets and liabilities are presented as held for sale.

Tranzact

On June 9, 2016, White Mountains announced that it had entered into a definitive agreement for the sale of Tranzact to an affiliate of Clayton, Dubilier & Rice, LLC. On July 21, 2016, White Mountains completed the sale of Tranzact and received net proceeds of $221.3 million. During the three and nine months ended September 30, 2016, White Mountains recorded $51.9 million of gain from the sale of Tranzact in discontinued operations in the statement of operations. (See Note 2 - “Significant Transactions”).

Through July 21, 2016, Tranzact's results of operations are reported as discontinued operations and assets and liabilities held for sale within White Mountains's GAAP financial statements. For the stub period ended July 21, 2016 and the nine months ended September 30, 2016, White Mountains recorded a net loss from discontinued operations of $2.1 million and $2.6 million from Tranzact. For the three and nine months ended September 30, 2015, White Mountains recorded a net loss from discontinued operations of $7.7 million and $14.2 million from Tranzact. At September 30, 2016, White Mountains also recorded a liability of $2.8 million for escrow funds associated with the sale payable to the non-controlling interests.

White Mountains recognized a $14.0 million tax benefit in continuing operations related to the reversal of a valuation allowance that resulted from the gain on the sale of Tranzact recognized within discontinued operations. This tax benefit was recorded in continuing operations with an offsetting amount of net tax expense recorded in discontinued operations; $30.2 million of tax expense related to the valuation allowance reversal was recorded to gain from sale of Tranzact in discontinued operations and a $16.1 million tax benefit related to the valuation allowance reversal was recorded to net income (loss) from discontinued operations.

Star & Shield

SSIE voluntarily ceased writing new policies effective July 1, 2016 and will voluntarily cease renewing policies at a future date, subject to regulatory approval.  On August 19, 2016, White Mountains reached an agreement to sell Star & Shield and its investment in SSIE surplus notes to National General Holdings Corp. As a result, White Mountains has presented Star & Shield's and SSIE's assets and liabilities as held for sale as of September 30, 2016 and December 31, 2015.

OneBeacon Runoff

For the nine months ended September 30, 2015, White Mountains recorded $0.3 million to the gain from sale of discontinued operations related to an adjustment on the estimated loss on sale, which included the final settlement of certain post-closing items. For the three and nine months ended September 30, 2015, the net loss from discontinued operations relating to the Runoff Business, net of tax, was $0.1 million and $0.4 million. The transaction to sell the Runoff Business was completed in December 2014.

Esurance

For the three and nine months ended September 30, 2015, White Mountains recorded a net gain from the sale of discontinued operations of $10.3 million and $17.9 million, which primarily related to an installment payment from Allstate for the favorable development on loss reserves. (See Note 18 - “Contingencies”).

Financials

Discontinued Operations

Summary of Reclassified Balances and Related Items

Net Assets Held for Sale

The following summarizes the assets and liabilities associated with business classified as held for sale. At December 31, 2015, amounts presented relate to Sirius Group, Tranzact, Star and Shield and SSIE. At September 30, 2016, the amounts presented relate to Star and Shield, SSIE and Ashmere, a subsidiary formerly owned by Sirius Group.

Millions	September 30, 2016			December 31, 2015
Assets held for sale
Fixed maturity investments, at fair value	$	13.4		$	2,383.5
Short-term investments, at amortized cost (which approximates fair value)	1.3			352.1
Common equity securities, at fair value	—			174.4
Other long-term investments	—			72.2
Total investments	14.7			2,982.2
Cash	3.8			150.1
Reinsurance recoverable on unpaid losses	.6			283.6
Reinsurance recoverable on paid losses	—			10.2
Insurance and reinsurance premiums receivable	2.0			326.6
Deferred acquisition costs	—			74.6
Deferred tax asset	—			303.1
Ceded unearned insurance and reinsurance premiums	—			87.7
Accounts receivable on unsettled investment sales	—			29.0
Goodwill and other intangible assets	5.2			330.5
Other assets	.7			212.8
Total assets held for sale	$	27.0		$	4,790.4
Liabilities held for sale
Loss and loss adjustment expense reserves	$	6.0		$	1,650.4
Unearned insurance and reinsurance premiums	1.6			344.3
Debt	—			506.4
Deferred tax liability	—			270.6
Accrued incentive compensation	—			64.2
Ceded reinsurance payable	(.5		)	67.7
Funds held under reinsurance treaties	—			52.9
Other liabilities	.7			90.9
Total liabilities held for sale	7.8			3,047.4
Net assets held for sale	$	19.2		$	1,743.0

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. For the three and nine months ended September 30, 2016, the amounts presented relate to Sirius Group and Tranzact. For the three and nine months ended September 30, 2015, the amounts presented relate to Sirius Group, Tranzact, Esurance, and the OneBeacon's runoff business. The results of discontinued operations from Sirius Group and Tranzact up to the closing date of the transaction inure to White Mountains.

	Three Months Ended									Three Months Ended
	September 30, 2016									September 30, 2015
Millions	Sirius Group			Other Disc Ops			Total			Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	—		$	—		$	—		$	202.8		$	—		$	202.8
Net investment income	—			—			—			10.5			—			10.5
Net realized and unrealized losses	—			—			—			(.9		)	—			(.9		)
Other revenue	—			14.8			14.8			1.8			38.5			40.3
Total revenues	—			14.8			14.8			214.2			38.5			252.7
Expenses
Loss and loss adjustment expenses	—			—			—			121.7			—			121.7
Insurance and reinsurance acquisition expenses	—			—			—			45.4			—			45.4
Other underwriting expenses	—			—			—			24.8			—			24.8
General and administrative expenses	—			16.2			16.2			9.4			45.3			54.7
Interest expense	—			.5			.5			6.6			1.0			7.6
Total expenses	—			16.7			16.7			207.9			46.3			254.2
Pre-tax (loss) income	—			(1.9		)	(1.9		)	6.3			(7.8		)	(1.5		)
Income tax expense (benefit)	—			15.9			15.9			(2.3		)	—			(2.3		)
Net income (loss) from discontinued operations	—			14.0			14.0			4.0			(7.8		)	(3.8		)
Net loss from sale of discontinued operations - Sirius	(4.0		)	—			(4.0		)	—			—			—
Net gain from sale of discontinued operations - Tranzact	—			51.9			51.9			—			—			—
Net gain from sale of discontinued operations - Esurance	—			—			—			—			10.3			10.3
Total (loss) income from discontinued operations	$	(4.0	)	$	65.9		$	61.9		$	4.0		$	2.5		$	6.5
Change in foreign currency translation and other    from discontinued operations	—			—			—			(18.5		)	—			(18.5		)
Comprehensive (loss) income from discontinued operations	$	(4.0	)	$	65.9		$	61.9		$	(14.5	)	$	2.5		$	(12.0	)

	Nine Months Ended									Nine Months Ended
	September 30, 2016									September 30, 2015
Millions	Sirius Group			Other Disc Ops			Total			Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	240.1		$	—		$	240.1		$	623.3		$	—		$	623.3
Net investment income	14.4			—			14.4			28.6			—			28.6
Net realized and unrealized (losses) gains	(1.5		)	—			(1.5		)	31.4			—			31.4
Other revenue	.6			119.6			120.2			(20.2		)	110.6			90.4
Total revenues	253.6			119.6			373.2			663.1			110.6			773.7
Expenses
Loss and loss adjustment expenses	154.9			—			154.9			311.3			—			311.3
Insurance and reinsurance acquisition expenses	59.0			—			59.0			135.5			—			135.5
Other underwriting expenses	30.9			—			30.9			78.0			—			78.0
General and administrative expenses	10.4			116.7			127.1			22.4			122.5			144.9
Interest expense	7.9			3.2			11.1			20.0			2.7			22.7
Total expenses	263.1			119.9			383.0			567.2			125.2			692.4
Pre-tax (loss) income	(9.5		)	(.3		)	(9.8		)	95.9			(14.6		)	81.3
Income tax benefit (expense)	3.1			13.8			16.9			(22.2		)	—			(22.2		)
Net (loss) income from discontinued operations	(6.4		)	13.5			7.1			73.7			(14.6		)	59.1
Net gain from sale of discontinued operations - Sirius	362.6			—			362.6			—			—			—
Net gain from sale of discontinued operations - Tranzact	—			51.9			51.9			—			—			—
Net gain from sale of discontinued operations - OneBeacon	—			—			—			—			.3			.3
Net gain from sale of discontinued operations - Esurance	—			—			—			—			17.9			17.9
Total income from discontinued operations	$	356.2		$	65.4		$	421.6		$	73.7		$	3.6		$	77.3
Change in foreign currency translation and other    from discontinued operations	32.0			—			32.0			(62.1		)	—			(62.1		)
Change in foreign currency translation and other    from sale of Sirius Group	113.3			—			113.3			—			—			—
Comprehensive income from discontinued operations	$	501.5		$	65.4		$	566.9		$	11.6		$	3.6		$	15.2

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:

	Nine Months Ended
	September 30,
(Millions)	2016			2015
Net cash (used for) provided from operations	$	(16.2	)	$	22.7
Net cash provided from investing activities	213.3			2.8
Net cash (used for) provided from financing activities	(.2		)	19.6
Effect of exchange rate changes on cash	—			(4.1		)
Net change in cash during the period	196.9			41.0
Cash balances at beginning of period	150.1			116.6
Net change in cash held for sale	2.6			—
Cash sold as part of sale of consolidated subsidiaries	345.8			—
Cash balances at end of period	$	3.8		$	157.6
Supplemental cash flows information:
Interest paid	$	(1.4	)	$	(28.1	)
Net income tax payment to national governments	$	(31.8	)	$	(30.3	)

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 and nine months endedSeptember 30, 2016 and 2015:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s common shareholders	$	61.9		$	6.5		$	421.6		$	77.3
Allocation of income for participating unvested restricted common shares(1)	(.9		)	(.1		)	(5.1		)	(.9		)
Net income attributable to White Mountains’s common shareholders,    net of restricted common share amounts (2)	$	61.0		$	6.4		$	416.5		$	76.4
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	4,867.4			5,890.1			5,166.6			5,951.1
Average unvested restricted common shares(3)	(68.1		)	(70.9		)	(62.9		)	(67.1		)
Basic earnings per share denominator	4,799.3			5,819.2			5,103.7			5,884.0
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period(4)	4,879.4			5,890.1			5,174.8			5,951.1
Average unvested restricted common shares(3)	(68.1		)	(70.9		)	(62.9		)	(67.1		)
Diluted earnings per share denominator(4)	4,811.3			5,819.2			5,111.9			5,884.0
Basic earnings per share (in dollars):	$	12.72		$	1.09		$	81.60		$	12.98
Diluted earnings per share (in dollars):	$	12.69		$	1.09		$	81.47		$	12.98

⁽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 and nine months endedSeptember 30, 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 and nine months endedSeptember 30, 2016 includes the impact of 120,000 common shares issuable upon exercise of the non-qualified options outstanding, which results in 11,943 and 8,208 incremental shares outstanding over the periods.