Third-Party Reinsurance

In the normal course of business, White Mountains’s insurance subsidiaries seek to limit losses that may arise from catastrophes or other events by reinsuring with third-party reinsurers. White Mountains remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The effects of reinsurance on White Mountains’s insurance subsidiaries’ written and earned premiums and on losses and LAE were as follows (see Note 10 — “Municipal Bond Guarantee Insurance” for balances related to White Mountains financial guarantee business):



	Year ended December 31, 2016
Millions	OneBeacon			HG/BAM ⁽¹⁾		Other			Total
Written premiums:
Direct	$	1,193.3		$	38.6	$	13.3		$	1,245.2
Assumed	28.0			—		—			28.0
Gross written premiums	1,221.3			38.6		13.3			1,273.2
Ceded	(120.6		)	—		(6.8		)	(127.4		)
Net written premiums	$	1,100.7		$	38.6	$	6.5		$	1,145.8
Earned premiums:
Direct	$	1,177.0		$	5.9	$	15.2		$	1,198.1
Assumed	29.4			—		—			29.4
Gross earned premiums	1,206.4			5.9		15.2			1,227.5
Ceded	(105.8		)	—		(7.7		)	(113.5		)
Net earned premiums	$	1,100.6		5.9		$	7.5		$	1,114.0
Losses and LAE:
Direct	$	679.5		$	—	$	14.3		$	693.8
Assumed	21.2			—		—			21.2
Gross losses and LAE	700.7			—		14.3			715.0
Ceded	(44.7		)	—		(6.3		)	(51.0		)
Net losses and LAE	$	656.0		$	—	$	8.0		$	664.0

⁽¹⁾During 2016, BAM ceded $27.2 in written premiums and $21.0 in earned premiums to HG Global, which have been eliminated within the HG/BAM segment.



	Year ended December 31, 2015
Millions	OneBeacon				HG/BAM ⁽¹⁾		Other			Total
Written premiums:
Direct	$	1,279.9			$	25.9	$	19.9		$	1,325.7
Assumed	36.0				—		—			36.0
Gross written premiums	1,315.9				25.9		19.9			1,361.7
Ceded	(179.3		)	⁽²⁾	—		(9.8		)	(189.1		)
Net written premiums	$	1,136.6			$	25.9	$	10.1		$	1,172.6
Earned premiums:
Direct	$	1,298.0			$	3.3	$	20.7		$	1,322.0
Assumed	45.9				—		—			45.9
Gross earned premiums	1,343.9				3.3		20.7			1,367.9
Ceded	(167.7		)	⁽²⁾	—		(12.0		)	(179.7		)
Net earned premiums	$	1,176.2			3.3		$	8.7		$	1,188.2
Losses and LAE:
Direct	$	783.0			$	—	$	19.5		$	802.5
Assumed	55.7				—		—			55.7
Gross losses and LAE	838.7				—		19.5			858.2
Ceded	(138.0		)	⁽²⁾	—		(11.3		)	(149.3		)
Net losses and LAE	$	700.7			$	—	$	8.2		$	708.9

⁽¹⁾During 2015, BAM ceded $19.3 in written premiums and $16.0 in earned premiums to HG Global, which have been eliminated within the HG/BAM segment.

⁽²⁾During 2015, OneBeacon recorded ceded $33.3 in written premiums, $33.3 in earned premiums and $33.4 in loss and LAE as a result of the exit of the Crop Business due to the 100% quota share reinsurance agreement with AmTrust.



	Year ended December 31, 2014
Millions	OneBeacon			HG/BAM ⁽¹⁾		Other⁽²⁾			Total
Written premiums:
Direct	$	1,257.5		$	16.2	$	22.6		$	1,296.3
Assumed	65.9			—		—			65.9
Gross written premiums	1,323.4			16.2		22.6			1,362.2
Ceded	(106.5		)	—		(16.7		)	(123.2		)
Net written premiums	$	1,216.9		$	16.2	$	5.9		$	1,239.0
Earned premiums:
Direct	$	1,209.1		$	1.8	$	22.6		$	1,233.5
Assumed	70.9			—		—			70.9
Gross earned premiums	1,280.0			1.8		22.6			1,304.4
Ceded	(102.9		)	—		(16.5		)	(119.4		)
Net earned premiums	$	1,177.1		$	1.8	$	6.1		$	1,185.0
Losses and LAE:
Direct	$	778.7		$	—	$	24.1		$	802.8
Assumed	115.7			—		—			115.7
Gross losses and LAE	894.4			—		24.1			918.5
Ceded	(79.3		)	—		(15.2		)	(94.5		)
Net losses and LAE	$	815.1		$	—	$	8.9		$	824.0

⁽¹⁾During 2014, BAM ceded $12.3 in written premiums and $1.4 in earned premiums to HG Global, which have been eliminated within the HG/BAM segment.

⁽²⁾During 2014, SSIE ceded $16.0 in written premiums, $15.7 in earned premiums, and $16.9 in loss and LAE to OneBeacon, which have been eliminated in consolidation.

OneBeacon

The timing and size of catastrophe losses are unpredictable and the level of losses experienced in any year could be material to OneBeacon’s operating results and financial condition. Examples of catastrophes include losses caused by earthquakes, wildfires, hurricanes and other types of storms and terrorist acts. The extent of losses caused by a catastrophic event is a function of severity and the amount and type of insured exposure in the affected area. In the normal course of business, OneBeacon's insurance subsidiaries seek to limit losses that may arise from catastrophes or other events through individual risk selection, imposing deductibles and limits, limiting its concentration of insurance in catastrophe-prone areas, such as coastal regions, and reinsuring with third-party reinsurers.

OneBeacon uses models (primarily AIR Worldwide Touchstone version 4.1) to estimate potential losses from catastrophes. OneBeacon uses this model output in conjunction with other data to manage its exposure to catastrophe losses based on a probable maximum loss forecast to quantify its exposure to an extreme catastrophe event.

OneBeacon utilizes a general catastrophe reinsurance treaty with third-party reinsurers to manage its exposure to large catastrophe losses. Effective May 1, 2016, OneBeacon renewed its property catastrophe reinsurance program through April 30, 2017. The program provides coverage for OneBeacon’s property business as well as certain acts of terrorism. Under the program, the first $20.0 million of losses resulting from any single catastrophe are retained and 100% of the next $110.0 million of losses resulting from the catastrophe are reinsured. Any part of a catastrophe loss in excess of $130.0 million would be retained in full. In the event of a catastrophe, OneBeacon’s property catastrophe reinsurance program is reinstated for the remainder of the original contract term by paying a reinstatement premium that is based on the percentage of coverage reinstated and the original property catastrophe coverage premium.

OneBeacon’s current third party reinsurance programs provide varying degrees of coverage for terrorism events. The Company's overall terrorism exposure is impacted by the Terrorism Risk Insurance Program (the “Terrorism Act”), which is a federal program administered by the Department of the Treasury that provides for a shared system of public and private compensation for commercial property and casualty losses resulting from events that reach the threshold for losses ($140.0 million in 2017 and increasing $20.0 million in subsequent years until the threshold becomes $200.0 million in 2020) and are certified as an act of terrorism by the U.S. Secretary of the Treasury, in concurrence with the Secretary of Homeland Security and the Attorney General of the United States. The Terrorism Act limits the industry's aggregate liability for losses from certified terrorist acts by requiring the federal government to share a set amount of losses (83% in 2017 and decreasing 1% annually in subsequent years until it reaches a floor of 80% in 2020) once a company meets a specific retention or deductible as determined by its prior year's direct written premiums. It also limits the aggregate liability to be paid by the government and industry without further action by Congress to $100.0 billion. In exchange for this “backstop,” primary insurers are required to make coverage available to commercial insureds for losses from acts of terrorism as specified in the Terrorism Act. The following types of coverage are excluded from the program: commercial automobile, burglary and theft, surety, farmowners multi-peril and all professional liability coverage except directors and officers coverage.

All losses that result from a nuclear, biological, chemical or radiological terrorist attack are excluded from OneBeacon’s current third party reinsurance program. OneBeacon’s property catastrophe treaty also excludes acts of terrorism certified pursuant to the Terrorism Act and committed by an individual or individuals acting on behalf of any foreign person or foreign interest. OneBeacon's casualty clash treaty provides coverage for losses that result from certified and non-certified acts of terrorism, on an aggregated basis, subject to a maximum of one full treaty limit. OneBeacon's property per risk, casualty and workers compensation treaties each provide full coverage for certified acts of terrorism on behalf of a non-foreign person or interest, but are sublimited to one full treaty limit for certified acts of terrorism committed on behalf of any foreign person or foreign interest. OneBeacon’s healthcare treaty is sublimited to one full treaty limit of coverage for all acts of terrorism.

OneBeacon estimates its individual retention level for commercial policies subject to the Terrorism Act to be approximately $140.0 million in 2017. The federal government will pay 83% of covered terrorism losses that exceed OneBeacon’s or the industry’s retention levels in 2017, up to a total of $100.0 billion. As indicated above, OneBeacon’s 17% copay will increase annually beginning in 2017 by 1% until it reaches a limit of 20% in 2020.

In addition to the corporate catastrophe reinsurance protection, OneBeacon also purchases dedicated reinsurance protection for certain lines of business. The following table summarizes the reinsurance coverage currently in effect as of December 31, 2016:



$ in millions
Coverage	Contract Type	Renewal Date	First-Dollar Retention		Per Risk Limit Purchased		Maximum Retention
Corporate Property Catastrophe - Property and Inland Marine	Excess of Loss	5/1	$	20.0	$	110.0	$	20.0
Property Per Risk - Property and Inland Marine	Excess of Loss	5/1	3.0		100.0		3.0
Specialty Property - Excess and Surplus Property Catastrophe	Excess of Loss	5/1	6.0		34.0		6.0
Medical Excess - HMO/Provider Excess	Excess of Loss	1/1	5.0		Unlimited		5.0
Ocean and Inland Marine	Excess of Loss	4/1	2.5		57.5		7.0
Surety	Excess of Loss	10/1	5.0		45.0		5.0
Film Completion Bonds	Excess of Loss	6/1	2.0		38.0		2.0
Casualty Clash/Workers Compensation Catastrophe	Excess of Loss	6/1	6.0		34.0		6.0
Workers Compensation Catastrophe	Excess of Loss	6/1	40.0		20.0		6.0
Financial Institutions - Professional Liability	Quota Share	6/1	N/A		10.0		5.0
Combined Healthcare/Casualty 2nd Layer - Various lines	Excess of Loss	6/1	10.0 / 11.0		10.0		3.0
Casualty Per Policy - Various lines	Excess of Loss	6/1	3.0		8.0		3.0
Workers Compensation Per Occurrence	Excess of Loss	6/1	2.0		8.0		2.0
Healthcare Professional Liability	Excess of Loss	6/1	3.0		7.0		3.0

As of December 31, 2016, OneBeacon had $6.6 million and $172.9 million of reinsurance recoverables on paid and unpaid losses. As reinsurance contracts do not relieve OneBeacon of its obligation to its policyholders, collectability of balances due from reinsurers is important to OneBeacon’s financial strength. OneBeacon is selective with its reinsurers, placing reinsurance with only those reinsurers having a strong financial condition. OneBeacon monitors the financial strength of its reinsurers on an ongoing basis. Uncollectible amounts historically have not been significant.

The following table summarizes A.M. Best Company, Inc. (“A.M. Best”) ratings for OneBeacon’s reinsurers.



A.M. Best’s Rating⁽¹⁾
$ in millions	Balance at December 31, 2016		% of Total
A+ or better	$	73.9	41	%
A- to A	79.7		44	%
B, Not rated and other⁽²⁾	25.9		15	%
Total	$	179.5	100	%

⁽¹⁾A.M. Best’s ratings as detailed above are “A+ or better” (Superior), “A- to A” (Excellent) and “B” (Fair).

⁽²⁾ Includes reinsurance recoverable on unpaid losses of $18.3 million related to OBIC, an unrated entity sold to Armour as part of the sale of the Runoff Business.