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 months ended March 31, 2017 and 2016 for performance shares granted under the WTM Incentive Plan:



	Three Months Ended March 31,
	2017					2016
Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	80,353		$	42.4		93,654		$	57.7
Shares paid or expired⁽¹⁾	(30,167	)	(20.8		)	—		—
New grants	16,460		—			16,215		—
Forfeitures and cancellations⁽²⁾	(9,841	)	(5.7		)	(1,186	)	(.6		)
Expense recognized	—		8.1			—		14.2
End of period⁽³⁾	56,805		$	24.0		108,683		$	71.3

⁽¹⁾WTM performance share payments in 2017 for the 2014-2016 performance cycle, which were paid in March 2017, ranged from 34% to 76% of target. WTM performance share payments in 2016 for the 2013-2015 performance cycle ranged from 140% to 142% of target.

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

⁽³⁾Outstanding performance share awards as of March 31, 2017 and 2016 exclude 2,195 and 10,826 performance share awards granted to employees of Sirius Group.

For performance shares earned in the 2014-2016 performance cycle, all performance shares earned were settled in cash. For the performance shares earned in the 2013-2015 performance cycle, the Company issued 5,000 common shares and settled the remainder in cash. If all the outstanding WTM performance shares had vested on March 31, 2017, the total additional compensation cost to be recognized would have been $30.5 million, based on accrual factors at March 31, 2017 (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 March 31, 2017 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2017 – 2019	16,460		$	1.2
2016 – 2018	19,415		7.3
2015 – 2017	21,795		15.8
Sub-total	57,670		24.3
Assumed forfeitures	(865	)	(.3		)
March 31, 2017	56,805		$	24.0

Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding restricted share awards for the three months ended March 31, 2017 and 2016:



	Three Months Ended March 31,
	2017					2016
Millions, except share amounts	Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	70,620		$	19.7		70,675		$	15.7
Issued	16,735		15.8			21,215		16.8
Vested	(22,015	)	—			(24,620	)	—
Forfeited	(5,200	)	(2.8		)	(800	)	(.3		)
Expense recognized	—		(3.6		)	—		(3.0		)
End of period⁽¹⁾	60,140		$	29.1		66,470		$	29.2

⁽¹⁾Restricted share awards outstanding as of March 31, 2017 and 2016 include 5,235 and 2,195 restricted shares issued to employees of Sirius Group, which was accounted for as discontinued operations.

During the three months ended March 31, 2017, White Mountains issued 16,735 restricted shares that vest on January 1, 2020. During the first three months of 2016, White Mountains issued 21,215 restricted shares that vest on January 1, 2019. The unrecognized compensation cost at March 31, 2017 is expected to be recognized ratably over the remaining vesting periods.

Stock Options

Non-Qualified Options

As March 31, 2017, the 125,000 Non-Qualified options issued to the Company’s former Chairman and CEO have been exercised. During the first quarter of 2017, 40,000 Non-Qualified Options, with an intrinsic value of $4.4 million, were exercised in exchange for 5,142 common shares with an equal total market value. During 2016, 5,000 Non-Qualified Options, with an intrinsic value of $0.4 million, were exercised at $742 per common share and 80,000 Non-Qualified Options, with an intrinsic value of $8.4 million, were exercised in exchange for 9,930 common shares with an equal total market value. Intrinsic value represents the difference between the market price of the Company’s common shares at the date of exercise less the fixed strike price of $742 per common share. The Non-Qualified Options were fully amortized as of 2011.

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. No OneBeacon performance shares were issued for the 2017-2019 cycle.

The following table summarizes performance share activity for the three months ended March 31, 2017 and 2016 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:



	Three Months Ended March 31,
	2017				2016
Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense		Target Performance Shares Outstanding		Accrued Expense
Beginning of period	452,519		$	1.6	449,435		$	1.4
Shares paid or expired⁽¹⁾	(142,710	)	—		(167,300	)	(.7		)
New grants	—		—		163,150		—
Assumed forfeitures and cancellations⁽²⁾	(13	)	—		(4,079	)	—
Expense recognized	—		.3		—		.4
End of period	309,796		$	1.9	441,206		$	1.1

⁽¹⁾ There were no payments made in 2017 for the 2014-2016 performance cycle; those performance shares did not meet the threshold performance goals and expired. OneBeacon performance share payments in 2016 for the 2013-2015 performance cycle were at 24.3% of target.

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

If the outstanding OneBeacon performance shares had been vested on March 31, 2017, the total additional compensation cost to be recognized would have been $1.8 million, based on accrual factors at March 31, 2017 (common share price, accumulated dividends and payout assumptions).

The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at March 31, 2017 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding	Accrued Expense
Performance cycle:
2016 – 2018	163,150	$	1.1
2015 – 2017	146,646	.8
Sub-total	309,796	1.9
Assumed forfeitures	—	—
March 31, 2017	309,796	$	1.9

OneBeacon Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding OneBeacon restricted stock awards for the three months ended March 31, 2017 and 2016:



	Three Months Ended March 31,
	2017					2016
Millions, except share amounts	Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	395,872		$	2.1		382,722		$	2.5
Issued	461,160		7.4			170,650		2.3
Vested	(157,500	)	—			(157,500	)	—
Forfeited	—		—			—		—
Expense recognized	—		(.9		)	—		(.5		)
End of period	699,532		$	8.6		395,872		$	4.3

On February 28, 2017, OneBeacon issued 461,160 restricted shares, of which 235,000 are scheduled to cliff vest on August 28, 2018, 115,450 are scheduled to cliff vest on January 1, 2020, and 110,710 are scheduled to vest in two equal installments on February 24, 2018 and February 24, 2019.

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

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 March 31, 2017, unrecognized compensation expense of $8.6 million related to restricted stock awards is expected to be recognized over the remaining vesting periods.

OneBeacon Restricted Stock Units

During the first three months of 2017, the OneBeacon Compensation Committee awarded to certain employees 240,160 restricted stock units (“RSUs”) that are schedule to vest on December 31, 2019, contingent upon the approval of the OneBeacon 2017 Long-Term Incentive Plan at the 2017 Annual General Meeting to be held May 24, 2017, all of which were outstanding as of March 31, 2017.

During the first three months of 2016, the OneBeacon Compensation Committee awarded to certain employees 222,449 RSUs that are scheduled to vest on December 31, 2018, of which, net of forfeiture assumptions, 208,499 were outstanding as of March 31, 2017.

At vesting the RSUs will be paid out in cash or shares at the discretion of the OneBeacon Compensation Committee. For the three months ended March 31, 2017 and 2016, the expense associated with the RSUs was $0.6 million and $0.4 million. If all of the outstanding RSUs had been vested on March 31, 2017, the total additional compensation cost to be recognized would have been $7.0 million, based on current accrual factors (common share price and accumulated dividends) as of March 31, 2017.