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Investment Securities (Tables)
 9 Months Ended
Sep. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Pre-tax net investment income
Pre-tax net investment income for the three and nine months ended September 30, 2016 and 2015 consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Millions
 
2016
 
2015
 
2016
 
2015
Investment income:
 
 
 
 
 
 
 
 
Fixed maturity investments
 
$
21.3

 
$
13.7

 
$
53.7

 
$
38.5

Short-term investments
 
.2

 
—

 
.8

 
.1

Common equity securities
 
1.3

 
1.4

 
3.4

 
5.7

Other long-term investments
 
.1

 
2.0

 
3.5

 
2.9

Total investment income
 
22.9

 
17.1

 
61.4

 
47.2

Third-party investment expenses
 
(.4
)
 
(.3
)
 
(1.8
)
 
(4.6
)
Net investment income, pre-tax
 
$
22.5

 
$
16.8

 
$
59.6

 
$
42.6
Schedule of Realized and Unrealized Gain (Loss) on Investments
Net realized and unrealized investment gains (losses) consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Millions
 
2016
 
2015
 
2016
 
2015
Net realized investment gains (losses), pre-tax
 
$
8.0

 
$
(7.4
)
 
$
267.5

 
$
49.7

Net unrealized investment gains (losses), pre-tax
 
18.4

 
(36.5
)
 
(183.5
)
 
(83.6
)
Net realized and unrealized investment gains (losses), pre-tax
 
26.4

 
(43.9
)
 
84.0

 
(33.9
)
Income tax (expense) benefit attributable to net realized and
     unrealized investment gains (losses)
 
(5.4
)
 
9.4

 
(23.8
)
 
6.9

Net realized and unrealized investment gains (losses), after tax
 
$
21.0

 
$
(34.5
)
 
$
60.2

 
$
(27.0
)
Realized Gain (Loss) on Investments
Net realized investment gains (losses) for the three and nine months ended September 30, 2016 and 2015 consisted of the following:
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30, 2016
 
September 30, 2015
Millions
 
Net
realized
gains (losses)
 
Net
foreign
currency gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
 
Net
realized
losses
 
Net
foreign
currency gains (losses)
 
Total net realized
losses reflected in
earnings
Fixed maturity investments
 
$
2.8

 
$
—

 
$
2.8

 
$
(.1
)
 
$
—

 
$
(.1
)
Short-term investments
 
.2

 
—

 
.2

 
—

 
—

 
—

Common equity securities
 
6.4

 
—

 
6.4

 
(5.9
)
 
—

 
(5.9
)
Other long-term investments
 
(1.4
)
 
—

 
(1.4
)
 
(1.4
)
 
—

 
(1.4
)
Net realized investment gains (losses), pre-tax
 
8.0

 
—

 
8.0

 
(7.4
)
 
—

 
(7.4
)
Income tax (expense) benefit
   attributable to net realized
   investment gains (losses)
 
(2.7
)
 
—

 
(2.7
)
 
1.5

 
—

 
1.5

Net realized investment
   gains (losses), after tax
 
$
5.3

 
$
—

 
$
5.3

 
$
(5.9
)
 
$
—

 
$
(5.9
)
 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
Millions
 
Net
realized
gains (losses)
 
Net
foreign
currency gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
 
Net
realized
gains
 
Net
foreign
currency gains
 
Total net realized
gains reflected in
earnings
Fixed maturity investments
 
$
3.5

 
$
—

 
$
3.5

 
$
2.0

 
$
—

 
$
2.0

Short-term investments
 
.4

 
—

 
.4

 
—

 
—

 
—

Common equity securities
 
267.7

 
—

 
267.7

 
41.6

 
.4

 
42.0

Other long-term investments
 
(4.1
)
 
—

 
(4.1
)
 
5.7

 
—

 
5.7

Net realized investment gains, pre-tax
 
267.5

 
—

 
267.5

 
49.3

 
.4

 
49.7

Income tax expense
   attributable to net realized
   investment gains
 
(46.0
)
 
—

 
(46.0
)
 
(15.7
)
 
—

 
(15.7
)
Net realized investment
   gains, after tax
 
$
221.5

 
$
—

 
$
221.5

 
$
33.6

 
$
.4

 
$
34.0
Schedule of unrealized gain (loss) on investments
The following table summarizes net unrealized investment gains (losses) and changes in the carrying value of investments measured at fair value:
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30, 2016
 
September 30, 2015
Millions
 
Net
unrealized
(losses) gains
 
Net
foreign
currency
gains
 
Total net unrealized
 (losses) gains
reflected in
earnings
 
Net
unrealized gains (losses)
 
Net
foreign
currency losses
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
(4.4
)
 
$
—

 
$
(4.4
)
 
$
3.3

 
$
—

 
$
3.3

Common equity securities
 
12.5

 
.2

 
12.7

 
(30.6
)
 
(.2
)
 
(30.8
)
Other long-term investments
 
10.0

 
.1

 
10.1

 
(9.0
)
 
—

 
(9.0
)
Net unrealized investment gains (losses), pre-tax
 
18.1

 
.3

 
18.4

 
(36.3
)
 
(.2
)
 
(36.5
)
Income tax (expense) benefit
attributable to net unrealized
investment gains (losses)
 
(2.7
)
 
—

 
(2.7
)
 
7.9

 
—

 
7.9

Net unrealized investment
gains (losses), after tax
 
$
15.4

 
$
.3

 
$
15.7

 
$
(28.4
)
 
$
(.2
)
 
$
(28.6
)
 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
Millions
 
Net
unrealized
gains (losses)
 
Net
foreign
currency
gains
 
Total net unrealized
gains (losses)
reflected in
earnings
 
Net
unrealized
gains (losses)
 
Net
foreign
currency losses
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
38.0

 
$
—

 
$
38.0

 
$
1.3

 
$
—

 
$
1.3

Common equity securities
 
(247.9
)
 
2.6

 
(245.3
)
 
(56.0
)
 
(2.5
)
 
(58.5
)
Other long-term investments
 
23.5

 
.3

 
23.8

 
(25.6
)
 
(.8
)
 
(26.4
)
Net unrealized investment (losses) gains, pre-tax
 
(186.4
)
 
2.9

 
(183.5
)
 
(80.3
)
 
(3.3
)
 
(83.6
)
Income tax benefit attributable to net unrealized investment (losses)
 
22.2

 
—

 
22.2

 
22.6

 
—

 
22.6

Net unrealized investment
(losses) gains, after tax
 
$
(164.2
)
 
$
2.9

 
$
(161.3
)
 
$
(57.7
)
 
$
(3.3
)
 
$
(61.0
)
Net unrealized investment gains (losses) for Level 3 investments
The following table summarizes the amount of total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the three and nine months ended September 30, 2016 and 2015:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Millions
 
2016
 
2015
 
2016
 
2015
Fixed maturity investments
 
$
.3

 
$
(1.0
)
 
$
1.6

 
$
(.9
)
Common equity securities
 
—

 
1.1

 
—

 
4.0

Other long-term investments
 
7.8

 
(6.8
)
 
20.7

 
(6.6
)
Total unrealized investment gains (losses), pre-tax - Level 3 investments
 
$
8.1

 
$
(6.7
)
 
$
22.3

 
$
(3.5
)
Investment holdings, equity securities, convertible fixed maturities and other long-term investments
The cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of White Mountains’s fixed maturity investments as of September 30, 2016 and December 31, 2015 were as follows: 
 
 
September 30, 2016
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
U.S. Government and agency obligations
 
$
96.6

 
$
.4

 
$
—

 
$
—

 
$
97.0

Debt securities issued by corporations
 
1,212.2

 
18.7

 
(1.5
)
 
—

 
1,229.4

Municipal obligations
 
306.3

 
6.2

 
(.2
)
 
—

 
312.3

Mortgage and asset-backed securities
 
2,406.6

 
9.6

 
(1.7
)
 
—

 
2,414.5

Foreign government, agency and provincial obligations
 
1.0

 
.2

 
—

 
—

 
1.2

Preferred stocks
 
78.3

 
7.1

 
—

 
—

 
85.4

   Total fixed maturity investments
 
$
4,101.0

 
$
42.2

 
$
(3.4
)
 
$
—

 
$
4,139.8

Less: fixed maturity investments reclassified to assets
    held for sale related to SSIE
 
 
 
 
 
 
 
 
 
8.3

Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
4,131.5


 
 
December 31, 2015
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
U.S. Government and agency obligations
 
$
160.4

 
$
—

 
$
(.4
)
 
$
—

 
$
160.0

Debt securities issued by corporations
 
1,001.0

 
4.3

 
(5.3
)
 
—

 
1,000.0

Municipal obligations
 
227.8

 
2.2

 
(1.2
)
 
—

 
228.8

Mortgage and asset-backed securities
 
1,170.6

 
2.0

 
(5.6
)
 
—

 
1,167.0

Foreign government, agency and provincial obligations
 
1.0

 
.2

 
—

 
—

 
1.2

Preferred stocks
 
78.3

 
4.4

 
—

 
—

 
82.7

Total fixed maturity investments
 
$
2,639.1

 
$
13.1

 
$
(12.5
)
 
$
—

 
$
2,639.7

Less: fixed maturity investments reclassified to assets
    held for sale related to SSIE
 
 
 
 
 
 
 
 
 
9.5

Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
2,630.2


The cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of White Mountains’s common equity securities and other long-term investments as of September 30, 2016 and December 31, 2015 were as follows:
 
 
September 30, 2016
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
(losses)
 
Carrying
value
Common equity securities
 
$
378.9

 
$
50.7

 
$
(4.6
)
 
$
—

 
$
425.0

Other long-term investments
 
$
317.1

 
$
42.7

 
$
(6.4
)
 
$
(2.0
)
 
$
351.4

 
 
December 31, 2015
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
(losses)
 
Carrying
value
Common equity securities
 
$
822.5

 
$
302.8

 
$
(11.4
)
 
$
—

 
$
1,113.9

Other long-term investments
 
$
304.5

 
$
32.0

 
$
(18.4
)
 
$
(2.3
)
 
$
315.8


Other Long-term Investments
Other long-term investments consist of the following as of September 30, 2016 and December 31, 2015:
 
 
Carrying Value at
Millions
 
September 30, 2016
 
December 31, 2015
Hedge funds and private equity funds, at fair value(1)
 
$
143.0

 
$
127.8

Private equity securities and limited liability companies, at fair value(1)
 
84.6

 
82.1

Surplus note investments, at fair value(1)
 
71.5

 
51.5

Private convertible preferred securities(1)
 
33.1

 
32.7

Tax advantaged federal affordable housing development fund(2)
 
12.8

 
14.7

Partnership investments accounted for under the equity method
 
3.2

 
3.8

Other
 
3.2

 
3.2

Total other-long term investments
 
$
351.4

 
$
315.8

(1) See Fair Value Measurements by Level table.
(2) Fund accounted for using the proportional amortization method.
Other long-term investments
The following table summarizes investments in hedge funds and private equity funds by investment objective and sector as of September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
Millions
 
Fair Value
 
Unfunded
Commitments
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short banks and financial
 
$
34.6

 
$
—

 
$
12.8

 
$
—

Long/short equity REIT
 
20.4

 
—

 
20.6

 
—

Other
 
3.4

 
—

 
3.6

 
—

Total hedge funds
 
58.4

 
—

 
37.0

 
—

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Manufacturing/Industrial
 
27.7

 
21.8

 
24.9

 
2.5

Aerospace/Defense/Government
 
23.1

 
21.8

 
19.8

 
30.3

Energy infrastructure & services
 
14.2

 
3.2

 
20.7

 
3.4

Multi-sector
 
10.4

 
2.0

 
14.8

 
2.1

Healthcare
 
3.8

 
.4

 
3.8

 
.4

Private equity secondaries
 
3.7

 
2.1

 
4.4

 
2.1

Insurance
 
.8

 
41.3

 
2.0

 
41.3

Direct lending/Mezzanine debt
 
.6

 
36.9

 
—

 
—

Real estate
 
.3

 
.1

 
.4

 
.1

Total private equity funds
 
84.6

 
129.6

 
90.8

 
82.2

Total hedge funds and private equity funds
    included in other long-term investments
 
$
143.0

 
$
129.6

 
$
127.8

 
$
82.2
Fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds
The following summarizes the September 30, 2016 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
 
 
Notice Period
Millions
Redemption frequency
 
30-59 days
notice
 
60-89 days
notice
 
90-119 days
notice
 
Total
Monthly
 
$
—

 
$
—

 
$
—

 
$
—

Quarterly
 
35.6

 
—

 
—

 
35.6

Semi-annual
 
—

 
20.4

 
—

 
20.4

Annual
 
—

 
—

 
2.4

 
2.4

Total
 
$
35.6

 
$
20.4

 
$
2.4

 
$
58.4
Fair Value of private equity funds subject to lock-up periods
As of September 30, 2016, investments in private equity funds were subject to lock-up periods as follows:
Millions
 
1-3 years
 
3 – 5 years
 
5 – 10 years
 
>10 years
 
Total
Private Equity Funds — expected lock-up period remaining
 
$23.5
 
$3.8
 
$56.3
 
$1.0
 
$84.6
Par Value to Fair Value Reconciliation of Surplus Notes
Below is a table illustrating the valuation adjustments taken to arrive at estimated fair value of the surplus notes as of September 30, 2016 and December 31, 2015:
 
 
Type of Surplus Note
 
Total as of September 30, 2016
 
Total as of December 31, 2015
Millions
 
Seller Priority
 
Pari Passu
 
Par Value
 
$
57.9

 
$
43.1

 
$
101.0

 
$
101.0

Fair value adjustments to reflect:
 
 
 
 
 
 
 
 
Current market rates on public debt and contract-based repayments(1)
 
5.2

 
(4.4
)
 
.8

 
(15.1
)
Regulatory approval (2)
 
(4.2
)
 
(11.7
)
 
(15.9
)
 
(24.2
)
Liquidity adjustment (3)
 
(9.9
)
 
(4.5
)
 
(14.4
)
 
(10.2
)
Total adjustments
 
(8.9
)
 
(20.6
)
 
(29.5
)
 
(49.5
)
Fair value (4)
 
$
49.0

 
$
22.5

 
$
71.5

 
$
51.5

(1) 
Represents the value of the surplus notes, at current market yields on comparable 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 timing of securing regulatory approvals for interest and principal payments to reflect graduated changes in Issuer’s statutory surplus. The monetary impact of the anticipated timing is measured based on credit spreads of publicly traded debt 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.
(4) The increase in the fair value of the surplus notes during the nine months ended September 30, 2016 was driven primarily by the narrowing of non-investment grade credit spreads as well as the time value of money benefit generated by moving nine months closer to modeled cash receipts, partially offset by the impact of an interest payment received in the first quarter of 2016.
Fair value measurements by level, investment securities
The following tables summarize White Mountains’s fair value measurements for investments as of September 30, 2016 and December 31, 2015 by level. The major security types were based on the legal form of the securities. White Mountains has disaggregated its fixed maturity investments based on the issuing entity type, which impacts credit quality, with debt securities issued by U.S. government entities carrying minimal credit risk, while the credit and other risks associated with other issuers, such as corporations, foreign governments, municipalities or entities issuing mortgage-backed or asset-backed securities vary depending on the nature of the issuing entity type. White Mountains further disaggregates debt securities issued by corporations and common equity securities by industry sector because investors often reference commonly used benchmarks and their subsectors to monitor risk and performance. Accordingly, White Mountains has further disaggregated these asset classes into subclasses based on the similar sectors and industry classifications it uses to evaluate investment risk and performance against commonly used benchmarks, such as the Bloomberg Barclays U.S. Intermediate Aggregate and S&P 500 indices.
 
 
September 30, 2016
Millions
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
97.0

 
$
87.5

 
$
9.5

 
$
—

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Consumer
 
340.5

 
—

 
340.5

 
—

Health Care
 
193.3

 
—

 
193.3

 
—

Financials
 
170.8

 
—

 
170.8

 
—

Industrial
 
132.2

 
—

 
132.2

 
—

Utilities
 
97.1

 
—

 
97.1

 
—

Communications
 
89.4

 
—

 
89.4

 
—

Technology
 
79.6

 
—

 
79.6

 
—

Materials
 
72.9

 
—

 
72.9

 
—

Energy
 
53.6

 
—

 
53.6

 
—

Total debt securities issued by corporations
 
1,229.4

 
—

 
1,229.4

 
—

 
 
 
 
 
 
 
 
 
Mortgage and asset-backed securities
 
2,414.5

 
—

 
2,378.5

 
36.0

Municipal obligations
 
312.3

 
—

 
312.3

 
—

Foreign government, agency and provincial obligations
 
1.2

 
.6

 
.6

 
—

Preferred stocks
 
85.4

 
—

 
13.8

 
71.6

Total fixed maturity investments(4)
 
4,139.8

 
88.1

 
3,944.1

 
107.6

 
 
 
 
 
 
 
 
 
Short-term investments(4)(5)
 
305.6

 
278.6

 
27.0

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Exchange traded funds (1)
 
113.2

 
90.5

 
22.7

 
—

Consumer
 
111.2

 
111.2

 
—

 
—

Communications
 
33.3

 
33.3

 
—

 
—

Health Care
 
33.2

 
33.2

 
—

 
—

Technology
 
28.1

 
28.1

 
—

 
—

Financials
 
11.4

 
11.4

 
—

 
—

Industrial
 
11.1

 
11.1

 
—

 
—

Energy
 
5.5

 
5.5

 
—

 
—

Other
 
78.0

 
—

 
78.0

 
—

Total common equity securities
 
425.0

 
324.3

 
100.7

 
—

 
 
 
 
 
 
 
 
 
Other long-term investments (2)(3) 
 
192.4

 
—

 
—

 
192.4

Total investments(4)
 
$
5,062.8

 
$
691.0

 
$
4,071.8

 
$
300.0

(1) ETFs traded on foreign exchanges are priced using the fund's published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(2) Excludes carrying value of $3.2 associated with other long-term investment limited partnerships accounted for using the equity method. Excludes carrying value of $12.8 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method.
(3) Excludes carrying value of $143.0 associated with hedge funds and private equity funds for which fair value is measured at net asset value using the practical expedient.
(4) Includes carrying value of $8.3 in fixed maturity investments and $0.1 in short-term investments that are classified as assets held for sale related to SSIE.
(5) Short-term investments are measured at amortized cost, which approximates fair value.






 
 
December 31, 2015
Millions
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
160.0

 
$
133.4

 
$
26.6

 
$
—

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 

 
 

 
 

Consumer
 
253.3

 
—

 
253.3

 
—

Financials
 
175.9

 
—

 
175.9

 
—

Health Care
 
151.3

 
—

 
151.3

 
—

Industrial
 
135.6

 
—

 
135.6

 
—

Energy
 
82.0

 
—

 
82.0

 
—

Utilities
 
61.5

 
—

 
61.5

 
—

Technology
 
60.0

 
—

 
60.0

 
—

Communications
 
49.2

 
—

 
49.2

 
—

Materials
 
31.2

 
—

 
31.2

 
—

Total debt securities issued by corporations
 
1,000.0

 
—

 
1,000.0

 
—

 
 
 
 
 
 
 
 
 
Mortgage and asset-backed securities
 
1,167.0

 
—

 
1,167.0

 
—

Municipal obligations
 
228.8

 
—

 
228.8

 
—

Foreign government, agency and provincial obligations
 
1.2

 
.6

 
.6

 
—

Preferred stocks
 
82.7

 
—

 
12.7

 
70.0

Total fixed maturity investments(4)
 
2,639.7

 
134.0

 
2,435.7

 
70.0

 
 
 
 
 
 
 
 
 
Short-term investments(4)(5)
 
211.3

 
211.3

 
—

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
653.2

 
653.2

 
—

 
—

Exchange traded funds(1)
 
183.3

 
162.0

 
21.3

 
—

Consumer
 
70.0

 
70.0

 
—

 
—

Communications
 
43.7

 
43.7

 
—

 
—

Health Care
 
35.7

 
35.7

 
—

 
—

Technology
 
27.0

 
27.0

 
—

 
—

Industrial
 
26.6

 
26.6

 
—

 
—

Other
 
74.4

 
—

 
74.4

 
—

Total common equity securities
 
1,113.9

 
1,018.2

 
95.7

 
—

 
 
 
 
 
 
 
 
 
Other long-term investments (2)(3)
 
169.5

 
—

 
—

 
169.5

Total investments(4)
 
$
4,134.4

 
$
1,363.5

 
$
2,531.4

 
$
239.5

(1) ETFs traded on foreign exchanges are priced using the fund's published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(2) Excludes carrying value of $3.8 associated with other long-term investment limited partnerships accounted for using the equity method. Excludes carrying value of $14.7 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method.
(3) Excludes carrying value of $127.8 associated with hedge funds and private equity funds for which fair value is measured at net asset value using the practical expedient.
(4) Includes carrying value of $9.5 in fixed maturity investments and $0.1 in short-term investments that are classified as assets held for sale related to SSIE.
Debt securities issued by corporations, credit ratings
The following table summarizes the ratings of debt securities issued by corporations held in White Mountains’s investment portfolio as of September 30, 2016 and December 31, 2015:
 
 
Fair Value at
Millions
 
September 30, 2016
 
December 31, 2015
AAA
 
$
—

 
$
—

AA
 
106.4

 
95.2

A
 
331.3

 
397.7

BBB
 
602.3

 
507.1

BB
 
173.0

 
—

B
 
16.4

 
—

Debt securities issued by corporations(1)
 
$
1,229.4

 
$
1,000.0

(1) Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor’s and 2) Moody’s.
Mortgage-backed, asset-backed securities
 
 
September 30, 2016
 
December 31, 2015
Millions
 
Fair Value
 
Level 2
 
Level 3
 
Fair Value
 
Level 2
 
Level 3
Mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

 
 

 
 

GNMA
 
$
301.1

 
$
301.1

 
$
—

 
$
265.5

 
$
265.5

 
$
—

FNMA
 
239.4

 
239.4

 
—

 
42.2

 
42.2

 
—

FHLMC
 
35.5

 
35.5

 
—

 
22.8

 
22.8

 
—

Total Agency(1)
 
576.0

 
576.0

 
—

 
330.5

 
330.5

 
—

Non-agency:
 
 

 
 

 
 

 
 

 
 

 
 

Residential
 
213.4

 
177.4

 
36.0

 
133.2

 
133.2

 
—

Commercial
 
113.7

 
113.7

 
—

 
140.4

 
140.4

 
—

Total Non-agency
 
327.1

 
291.1

 
36.0

 
273.6

 
273.6

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage-backed securities
 
903.1

 
867.1

 
36.0

 
604.1

 
604.1

 
—

Other asset-backed securities:
 
 

 
 
 
 
 
 

 
 
 
 
Credit card receivables
 
534.0

 
534.0

 
—

 
217.7

 
217.7

 
—

Vehicle receivables
 
721.8

 
721.8

 
—

 
269.7

 
269.7

 
—

Other
 
255.6

 
255.6

 
—

 
75.5

 
75.5

 
—

Total other asset-backed securities
 
1,511.4

 
1,511.4

 
—

 
562.9

 
562.9

 
—

Total mortgage and asset-backed securities
 
$
2,414.5

 
$
2,378.5

 
$
36.0

 
$
1,167.0

 
$
1,167.0

 
$
—

(1)  Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).
Schedule of security issuance years of investments in non-agency RMBS and non-agency CMBS securities
The security issuance years of White Mountains’s investments in non-agency RMBS and non-agency CMBS securities as of September 30, 2016 are as follows:
 
 
 
 
 
 
 
 
Security Issuance Year
 
 
 
 
 
 
Millions
 
Fair Value
 
2004
 
2005
 
2006
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
Non-agency
   RMBS
 
$
213.4

 
$
20.6

 
$
6.0

 
$
3.2

 
$
—

 
$
3.0

 
$
—

 
$
8.6

 
$
11.0

 
$
6.0

 
$
11.4

 
$
59.6

 
$
48.0

 
$
36.0

Non-agency
   CMBS
 
113.7

 
—

 
—

 
—

 
—

 
—

 
—

 
4.6

 
—

 
18.3

 
11.6

 
23.5

 
45.9

 
9.8

Total
 
$
327.1

 
$
20.6

 
$
6.0

 
$
3.2

 
$
—

 
$
3.0

 
$
—

 
$
13.2

 
$
11.0

 
$
24.3

 
$
23.0

 
$
83.1

 
$
93.9

 
$
45.8
Non-agency residential mortgage securities, collateral quality and tranche levels
The classification of the underlying collateral quality and the tranche levels of White Mountains’s non-agency RMBS securities are as follows as of September 30, 2016:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Prime
 
$
213.4

 
$
122.8

 
$
90.6

 
$
—

Non-prime
 
—

 
—

 
—

 
—

Sub-prime
 
—

 
—

 
—

 
—

Total
 
$
213.4

 
$
122.8

 
$
90.6

 
$
—

(1) At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to other “AAA” or “Aaa” bonds.
(2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 
Non-agency commercial mortgage securities, type of interest rate and tranche levels
The amount of fixed and floating rate securities and their tranche levels of White Mountains’s non-agency CMBS securities are as follows as of September 30, 2016:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Fixed rate CMBS
 
$
102.3

 
$
8.9

 
$
55.2

 
$
38.2

Floating rate CMBS
 
11.4

 
—

 
—

 
11.4

Total
 
$
113.7

 
$
8.9

 
$
55.2

 
$
49.6

(1)  At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch Ratings (“Fitch”) and were senior to other “AAA” or “Aaa” bonds.
(2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 
Rollforward of fair value investments by level
The following tables summarize the changes in White Mountains’s fair value measurements by level for the nine months ended September 30, 2016 and 2015:
 
 
 
Level 3 Investments
 
Millions
Level 1 investments
Level 2 
investments
Fixed
maturity investments
Common
equity
securities
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
 
Total
 
Balance at January 1, 2016
$
1,152.2

$
2,531.4

$
70.0

$
—

$
169.5

$
127.8

 
$
4,050.9

(1)(2)(4) 
Total realized and
   unrealized gains (losses)
20.0

42.7

1.6

—

20.7

(1.0
)
 
84.0

 
Amortization/Accretion
—

(13.2
)
—

—

—

—

 
(13.2
)
 
Purchases
1,577.5

2,989.4

120.8

—

2.2

33.0

 
4,722.9

 
Sales
(2,337.3
)
(1,587.5
)
(2.8
)
—

—

(16.8
)
 
(3,944.4
)
 
Transfers in
—

82.0

—

—

—

—

 
82.0

  
Transfers out
—

—

(82.0
)
—

—

—

 
(82.0
)
  
Balance at
September 30, 2016
$
412.4

$
4,044.8

$
107.6

$
—

$
192.4

$
143.0

 
$
4,900.2

(1)(2)(4) 
(1)  Excludes carrying value of $3.8 and $3.2 at January 1, 2016 and September 30, 2016 associated with other long-term investments accounted for using the equity method. Excludes carrying value of $14.7 and $12.8 at January 1, 2016 and September 30, 2016 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method.
(2)  Excludes carrying value of $211.3 and $305.6 at January 1, 2016 and September 30, 2016 associated with short-term investments, of which $0.1 and $0.1 is classified as held for sale at January 1, 2016 and September 30, 2016.
(3) Investments for which fair value is measured at net asset value using the practical expedient are no longer classified within the fair value hierarchy. (See Note 1 - “Summary of Significant Accounting Policies”).
(4)  Includes carrying value of $9.5 and $8.3 of fixed maturity investments at January 1, 2016 and September 30, 2016 that is classified as assets held for sale related to SSIE.

 
 
 
Level 3 Investments
 
 
 
Millions
Level 1 investments
Level 2 
investments
Fixed
maturity investments
Common
equity
securities
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(4)
Total
 
Balance at January 1, 2015
$
550.6

$
2,372.9

$
76.4

$
39.5

$
126.9

$
177.3

$
3,343.6

(1)(2)(5) 
Total realized and
   unrealized (losses) gains
(19.5
)
.6

(.9
)
7.7

(13.5
)
(7.1
)
(32.7
)
(3) 
Amortization/Accretion
—

(15.2
)
—

—

—

—

(15.2
)
 
Purchases
550.0

1,056.0

35.3

—

22.6

8.1

1,672.0

 
Sales
(618.2
)
(894.4
)
—

(9.4
)
(2.3
)
(16.6
)
(1,540.9
)
 
Effect of redemption of Prospector hedge funds
(43.5
)
—

—

(3.6
)
—

(14.3
)
(61.4
)
 
Transfers in
—

41.7

—

—

—

—

41.7

 
Transfers out
(1.2
)
—

(40.5
)
—

—

—

(41.7
)
 
Balance at
September 30, 2015
$
418.2

$
2,561.6

$
70.3

$
34.2

$
133.7

$
147.4

$
3,365.4

(1)(2)(5) 
(1) Excludes carrying value of $5.2 and $3.9 at January 1, 2015 and September 30, 2015 associated with other long-term investment limited partnerships accounted for using the equity method. Excludes carrying value of $16.8 and $15.2 at January 1, 2015 and September 30, 2015 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method.
(2) Excludes carrying value of $376.8 and $325.0 at January 1, 2015 and September 30, 2015 associated with short-term investments of which $1.9 and $0.6 is classified as held for sale at January 1, 2015 and September 30, 2015.
(3) Excludes $0.8 realized and unrealized losses associated with the Prospector Offshore Fund consolidation of investment-related liabilities.
(4) Investments for which fair value is measured at net asset value using the practical expedient are no longer classified within the fair value hierarchy. (See Note 1 - “Summary of Significant Accounting Policies”).
(5)  Includes carrying value of $10.1 and $9.7 of fixed maturity investments at January 1, 2015 and September 30, 2015 that is classified as assets held for sale related to SSIE.
Schedule of significant unobservable inputs used in estimating the fair value of investment securities
The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3 as of September 30, 2016 and December 31, 2015. The fair value of investments in hedge funds and private equity funds are generally estimated using the net asset value of the funds.

Description
 
September 30, 2016
$ in millions, except share price
 
Rating(2)
 
Valuation Technique(s)
 
Fair 
Value(3)
 
Unobservable Input
Preferred Stock(1)
 
NR
 
Discounted cash flow
 
$71.6
 
Discount yield
-
6.25%
Non-agency residential mortgage-backed securities (1)
 
AAA
 
Broker pricing
 
$36.0
 
Broker quote
 
 
Private equity security(1)
 
NR
 
Share price of most recent transaction
 
$21.0
 
Share price
-
$1.00
Private equity security(1)
 
NR
 
Share price of most recent transaction
 
$33.8
 
Share price
-
$1.03
Private equity security(1)
 
NR
 
Share price of most recent transaction
 
$3.2
 
Share price
-
$2.52
Convertible preferred security(1)
 
NR
 
Multiple of EBITDA
 
$6.1
 
EBITDA multiple
-
6.00
Convertible preferred security(1)
 
NR
 
Share price of most recent transaction
 
$27.0
 
Share price
-
$3.83
Private equity security(1)
 
NR
 
Option pricing method
 
$9.9
 
 
 
 
 
 
 
 
 
 
 
 
Time until expiration
-
4 years
 
 
 
 
 
 
Volatility/Standard deviation
-
60.0%
 
 
 
 
 
 
Risk free rate
-
1.15%
Surplus notes:
 
NR
 
 
 
 
 
 
    - Seller priority
 
 
 
Discounted cash flow
 
$49.0
 
Discount rate(4)
-
9.5%
 
 
 
 
 
 
Timing of interest payments(6)
-
5 years
 
 
 
 
 
 
Timing of principal payments(6)
-
10 years
    - Pari passu
 
 
 
Discounted cash flow
 
$22.5
 
Discount rate(5)
-
15.8%
 
 
 
 
 
 
Timing of interest payments(6)
-
5 years
 
 
 
 
 
 
Timing of principal payments(6)
-
15 years
(1) As of September 30, 2016, each asset type consists of one security.
(2) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's and 2) Moody’s.
(3) Includes the unrealized gains and losses associated with foreign currency; foreign currency effects based on observable inputs.
(4) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the seller priority note is roughly equivalent to that of a conventional debt security with a credit rating of ‘B’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(5) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the pari passu note is roughly equivalent to that of a conventional debt security with a credit rating of ‘CCC’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(6) OneBeacon has assumed for valuation purposes that subsequent interest payments will begin in year five (2020) and principal repayments begin on a graduated basis in year ten (2025) for the seller priority note and year fifteen (2030) for the pari passu note.




Description
 
December 31, 2015
$ in millions, except share price
 
Rating(2)
 
Valuation Technique(s)
 
Fair 
Value(3)
 
Unobservable Input
Preferred Stock(1)(7)
 
NR
 
Par value(7)
 
$70.0
 
Issuer’s intent to call
-
$70.0
Private equity security(1)
 
NR
 
Share price of most recent transaction
 
$21.0
 
Share price
-
$1.00
Private equity security(1)
 
NR
 
Share price of most recent transaction
 
$33.8
 
Share price
-
$1.03
Convertible preferred security(1)
 
NR
 
Multiple of EBITDA
 
$5.7
 
EBITDA multiple
-
6.00
Convertible preferred security(1)
 
NR
 
Share price of most recent transaction
 
$27.0
 
Share price
-
$3.83
Private equity security(1)
 
NR
 
Option pricing method
 
$9.6
 
 
 
 
 
 
 
 
 
 
 
 
Time until expiration
-
4 years
 
 
 
 
 
 
Volatility/Standard deviation
-
60.0%
 
 
 
 
 
 
Risk free rate
-
1.15%
Surplus notes:
 
NR
 
 
 
 
 
 
    - Seller priority
 
 
 
Discounted cash flow
 
$38.0
 
Discount rate(4)
-
13.0%
 
 
 
 
 
 
Timing of interest payments(6)
-
5 years
 
 
 
 
 
 
Timing of principal payments(6)
-
10 years
    - Pari passu
 
 
 
Discounted cash flow
 
$13.5
 
Discount rate(5)
-
22.4%
 
 
 
 
 
 
Timing of interest payments(6)
-
5 years
 
 
 
 
 
 
Timing of principal payments(6)
-
15 years

(1) As of December 31, 2015 each asset type consists of one security.
(2) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's and 2) Moody’s.
(3) Includes the unrealized gains and losses associated with foreign currency; foreign currency effects based on observable inputs.
(4) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the seller priority note is roughly equivalent to that of a conventional debt security with a credit rating of ‘B’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(5) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the pari passu note is roughly equivalent to that of a conventional debt security with a credit rating of ‘CCC’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note.
(6) OneBeacon has assumed for valuation purposes that subsequent interest payments will begin in year five (2020) and principal repayments begin on a graduated basis in year ten (2025) for the seller priority note and year fifteen (2030) for the pari passu note.
(7) Valuation based on the issuer’s intent as of December 31, 2015 to call the security in the near term.