Discontinued Operations

6 Months Ended

Jun. 30, 2017

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Discontinued Operations

Held for Sale and Discontinued Operations

OneBeacon

On May 2, 2017, OneBeacon entered into a definitive agreement to be acquired by Intact Financial Corporation in an all-cash transaction for $18.10 per share, or roughly 1.65x tangible book value. White Mountains owns 75.7% of OneBeacon’s outstanding common shares, representing 96.9% of the voting power as on June 30, 2017. On July 18, 2017, White Mountains voted its shares of OneBeacon Ltd. in favor of the OneBeacon Transaction. White Mountains expects to receive gross proceeds of $1.3 billion from the OneBeacon Transaction, which is expected to close in the third or fourth quarter of 2017 and is subject to regulatory approval and other customary closing conditions. The results of OneBeacon have been presented as discontinued operations in the statement of operations and comprehensive income for all periods and OneBeacon’s assets and liabilities have been presented as held for sale as of June 30, 2017 and December 31, 2016. See Note 2 — “Significant Transactions”.

Star & Shield

On March 7, 2017, White Mountains completed its sale of Star & Shield and its investment in SSIE surplus notes to K2 Insurances LLC. White Mountains did not recognize any gain or loss on the sale. Through December 31, 2016, Star & Shield’s assets and liabilities are reported as held for sale within White Mountains's GAAP financial statements. See Note 2 — “Significant Transactions”.

Tranzact

On July 21, 2016, White Mountains completed the sale of Tranzact to Clayton, Dubilier & Rice, LLC and received net proceeds of $221.3 million at closing. On October 5, 2016, White Mountains received additional proceeds of $1.2 million following the release of the post-closing purchase price adjustment escrow.

During 2016, White Mountains recorded a $51.9 million gain from the sale of Tranzact in discontinued operations, which included a $30.2 million tax expense for the reversal of a tax valuation allowance that is offset by a tax benefit recorded in continuing operations.

In the first quarter of 2017, White Mountains recorded a $1.0 million reduction to the gain from sale of Tranzact in discontinued operations as a result of 2016 tax payments.

During 2016, White Mountains recognized a $21.4 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 was recorded to gain from sale of Tranzact in discontinued operations and a $8.8 million tax benefit was recorded to net income from discontinued operations.

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. Net loss from discontinued operations related to

Tranzact was $2.5 million and $0.5 million for the three and six months ended June 30, 2016. See Note 2 — “Significant Transactions”.

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. During 2016, White Mountains recorded $363.2 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.

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 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 three months and six ended June 30, 2016, $0.4 million and $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 loss from discontinued operations. For the three and six months ended June 30, 2016, White Mountains recorded $361.1 million and $360.2 million of total income from discontinued operations and $108.1 million and $145.3 million of other comprehensive income from Sirius Group.

During the second quarter of 2017, White Mountains recorded a $0.6 million reduction to the gain from sale of Sirius Group as a result of a change to the valuation of the accrued incentive compensation payable to Sirius Group employees. See Note 2 — “Significant Transactions”.

Discontinued Operations

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Discontinued Operations

Summary of Reclassified Balances and Related Items

Net Assets Held for Sale

The following table summarizes the assets and liabilities associated with business classified as held for sale. At June 30, 2017, amounts presented relate to OneBeacon. At December 31, 2016, amounts presented relate to OneBeacon, Star & Shield and SSIE.

Millions	June 30, 2017		December 31, 2016
Assets held for sale
Fixed maturity investments, at fair value	$	2,288.6	$	2,175.7
Short-term investments, at amortized cost (which approximates fair value)	55.5		112.3
Common equity securities, at fair value	205.5		188.7
Other long-term investments	134.1		150.5
Total investments	2,683.7		2,627.2
Cash	71.3		70.5
Reinsurance recoverable on unpaid and paid losses	198.0		179.8
Insurance and reinsurance premiums receivable	245.4		229.8
Deferred acquisition costs	106.9		96.3
Deferred tax asset	130.1		126.7
Ceded unearned insurance and reinsurance premiums	56.6		44.2
Accounts receivable on unsettled investment sales	5.8		1.4
Goodwill and other intangible assets	.6		1.2
Other assets	198.0		222.4
Total assets held for sale	$	3,696.4	$	3,599.5
Liabilities held for sale
Loss and loss adjustment expense reserves	$	1,411.2	$	1,370.6
Unearned insurance and reinsurance premiums	595.2		576.3
Debt	273.3		273.2
Accrued incentive compensation	39.5		44.3
Funds held under reinsurance treaties	210.2		153.0
Accounts payable on unsettled investment purchases	9.3		—
Other liabilities	140.1		151.9
Total liabilities held for sale	2,678.8		2,569.3
Net assets held for sale	$	1,017.6	$	1,030.2

Net Income (Loss) from Discontinued Operations

The following table summarizes the results of operations, including related income taxes, associated with the business classified as discontinued operations. For the three and six months ended June 30, 2017, the amounts presented relate to OneBeacon and Sirius Group. For the three and six months ended June 30, 2016, the amounts presented relate to OneBeacon, Sirius Group and Tranzact. The results of discontinued operations from Sirius Group and Tranzact up to the closing date of the transaction inured to White Mountains. Given the fixed price nature of the OneBeacon Transaction, OneBeacon’s results were economically transferred to the buyer at signing.

	Three Months Ended									Three Months Ended
	June 30, 2017									June 30, 2016
Millions	OneBeacon			Sirius Group			Total			OneBeacon		Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	277.4		$	—		$	277.4		$	271.4	$	37.7		$	—		$	309.1
Net investment income	14.5			—			14.5			12.1		2.2			—			14.3
Net realized and unrealized gains	12.3			—			12.3			24.7		7.3			—			32.0
Other revenue	2.1			—			2.1			.8		4.7			47.0			52.5
Total revenues	306.3			—			306.3			309.0		51.9			47.0			407.9
Expenses
Loss and loss adjustment expenses	188.6			—			188.6			179.7		41.2			—			220.9
Insurance and reinsurance acquisition expenses	48.4			—			48.4			48.7		10.6			—			59.3
Other underwriting expenses	59.6			—			59.6			50.9		4.2			—			55.1
General and administrative expenses	8.8			—			8.8			3.5		2.3			47.1			52.9
Interest expense	3.3			—			3.3			3.2		1.3			1.3			5.8
Total expenses	308.7			—			308.7			286.0		59.6			48.4			394.0
Pre-tax (loss) income	(2.4		)	—			(2.4		)	23.0		(7.7		)	(1.4		)	13.9
Income tax benefit (expense)	5.8			—			5.8			2.0		2.2			(1.1		)	3.1
Net income (loss) from discontinued operations	3.4			—			3.4			25.0		(5.5		)	(2.5		)	17.0
Net (loss) gain from sale of discontinued    operations	—			(.6		)	(.6		)	—		366.6			—			366.6
Total (loss) income from discontinued    operations	3.4			(.6		)	2.8			25.0		361.1			(2.5		)	383.6
Change in foreign currency translation and other    from discontinued operations	.2			—			.2			.2		(5.2		)	—			(5.0		)
Change in foreign currency translation and other    from sale of Sirius Group	—			—			—			—		113.3			—			113.3
Comprehensive (loss) income from discontinued    operations	$	3.6		$	(.6	)	$	3.0		$	25.2	$	469.2		$	(2.5	)	$	491.9

	Six Months Ended											Six Months Ended
	June 30, 2017											June 30, 2016
Millions	OneBeacon		Sirius Group			Other Disc Ops			Total			OneBeacon		Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	539.2	$	—		$	—		$	539.2		$	550.0	$	240.1		$	—		$	790.1
Net investment income	26.7		—			—			26.7			26.5		14.4			—			40.9
Net realized and unrealized gains (losses)	27.3		—			—			27.3			41.3		(1.5		)	—			39.8
Other revenue	5.5		—			—			5.5			1.7		.6			104.8			107.1
Total revenues	598.7		—			—			598.7			619.5		253.6			104.8			977.9
Expenses
Loss and loss adjustment expenses	339.2		—			—			339.2			338.5		154.9			—			493.4
Insurance and reinsurance    acquisition expenses	93.7		—			—			93.7			99.7		59.0			—			158.7
Other underwriting expenses	111.3		—			—			111.3			106.2		30.9			—			137.1
General and administrative expenses	13.8		—			—			13.8			7.4		10.4			100.5			118.3
Interest expense	6.6		—			—			6.6			6.5		7.9			2.7			17.1
Total expenses	564.6		—			—			564.6			558.3		263.1			103.2			924.6
Pre-tax income (loss)	34.1		—			—			34.1			61.2		(9.5		)	1.6			53.3
Income tax benefit (expense)	1.6		—			—			1.6			10.1		3.1			(2.1		)	11.1
Net income (loss) from    discontinued operations	35.7		—			—			35.7			71.3		(6.4		)	(.5		)	64.4
(Loss) gain from sale of discontinued    operations	—		(.6		)	(1.0		)	(1.6		)	—		366.6			—			366.6
Total income (loss) from discontinued    operations	35.7		(.6		)	(1.0		)	34.1			71.3		360.2			(.5		)	431.0
Change in foreign currency translation and    other from discontinued operations	.3		—			—			.3			.2		32.0			—			32.2
Change in foreign currency translation and    other from sale of Sirius Group	—		—			—			—			—		113.3			—			113.3
Comprehensive (loss) income from    discontinued operations	$	36.0	$	(.6	)	$	(1.0	)	$	34.4		$	71.5	$	505.5		$	(.5	)	$	576.5

Net Change in Cash from Discontinued Operations

The following summarizes the net change in cash, including income tax payment to national governments and interest paid associated with the business classified as discontinued operations:

	Six Months Ended
	June 30,
(Millions)	2017			2016
Net cash provided from (used for) operations	$	87.3		$	(61.2	)
Net cash (used for) provided from investing activities	(43.6		)	276.8
Net cash used for financing activities	(42.0		)	(43.1		)
Net change in cash during the period	1.7			172.5
Cash balances at beginning of period	70.5			245.4
Net change in cash held for sale, excluding discontinued operations	(.9		)	(.6		)
Cash sold as part of sale of consolidated subsidiaries	—			343.1
Cash balances at end of period	$	71.3		$	74.2
Supplemental cash flows information:
Interest paid	$	(6.3	)	$	(1.4	)
Net income tax payment to national governments	$	—		$	(18.3	)

Earnings Per Share

White Mountains calculates earnings per share using the two-class method, which allocates earnings between common and unvested restricted common shares. Both classes of shares participate equally in earnings on a per share basis. Basic earnings per share amounts are based on the weighted average number of common shares outstanding adjusted for unvested restricted common shares. Diluted earnings per share amounts are also impacted by net effect of potentially dilutive common shares outstanding. The following table outlines the Company’s computation of earnings per share for discontinued operations for the three and six months endedJune 30, 2017 and 2016:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s    common shareholders	$	2.8		$	383.6		$	34.1		$	431.0
Allocation of income for participating unvested restricted common shares(1)	—			(5.0		)	(.4		)	(4.9		)
Net income attributable to White Mountains’s common shareholders	$	2.8		$	378.6		$	33.7		$	426.1
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	4,572.1			5,096.1			4,568.4			5,317.8
Average unvested restricted common shares(3)	(57.2		)	(66.5		)	(54.9		)	(60.2		)
Basic earnings per share denominator	4,514.9			5,029.6			4,513.5			5,257.6
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period(4)	4,572.1			5,107.0			4,568.4			5,324.0
Average unvested restricted common shares(3)	(57.2		)	(66.5		)	(54.9		)	(60.2		)
Diluted earnings per share denominator(4)	4,514.9			5,040.5			4,513.5			5,263.8
Basic earnings per share (in dollars):	$	.61		$	75.27		$	7.47		$	81.04
Diluted earnings per share (in dollars):	$	.61		$	75.11		$	7.47		$	80.96

⁽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 six months endedJune 30, 2017 and 2016.

⁽³⁾ Restricted common shares outstanding vest either in equal annual installments or upon a stated date. See Note 13 — “Employee Share-Based Compensation Plans”.

⁽⁴⁾ The diluted earnings per share denominator for the three and six months ended June 30, 2016 includes the impact of 120,000 common shares issuable upon exercise of the non-qualified options outstanding, which resulted in 10,863 and 6,194 incremental shares outstanding over the period.

Fair Value of Financial Instruments

The OBH Senior Notes are recorded as debt at face value less unamortized original issue discount. The following table summarizes the fair value and carrying value of this financial instrument as of June 30, 2017 and December 31, 2016:

	June 30, 2017				December 31, 2016
Millions	Fair Value		Carrying Value		Fair Value		Carrying Value
OBH Senior Notes	$	282.4	$	273.3	$	274.2	$	273.2

The fair value estimate for the OBH Senior Notes has been determined using quoted market prices. The OBH Senior Notes are considered a Level 2 measurement.

OneBeacon Surplus Notes

In the fourth quarter of 2014, in conjunction with OneBeacon’s sale of its runoff business to an affiliate of Armour Group Holdings Limited (the “OneBeacon Runoff Transaction”), OneBeacon provided financing in the form of surplus notes (the “OneBeacon Surplus Notes”) with a par value of $101.0 million which had a fair value of $70.5 million and $71.9 million as of June 30, 2017 and December 31, 2016. The OneBeacon Surplus Notes, issued by one of the transferred entities, Bedivere Insurance Company (the “Issuer”) were in the form of both seller priority and pari passu notes.

Subsequent to closing, the OneBeacon Surplus Notes are included in OneBeacon’s investment portfolio, classified within other long-term investments. The internal valuation model used to estimate the fair value of the OneBeacon Surplus Notes is based on discounted expected cash flows using information as of the measurement date.

Below is a table illustrating the valuation adjustments taken to arrive at estimated fair value of the OneBeacon Surplus Notes as of June 30, 2017 and December 31, 2016:

	Type of Surplus Note						Total as of June 30, 2017			Total as of December 31, 2016
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)	7.9			2.1			10.0			5.1
Regulatory approval(2)	2.7			(13.7		)	(11.0		)	(15.6		)
Liquidity adjustment (3)	(19.6		)	(9.9		)	(29.5		)	(18.6		)
Total adjustments	(9.0		)	(21.5		)	(30.5		)	(29.1		)
Fair value (4)	$	48.9		$	21.6		$	70.5		$	71.9

⁽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 under the National Association of Insurance Commissioners’ risk-based capital standards for property and casualty companies. The favorable year-to-date change in impact is due principally to the narrowing of non-investment grade credit spreads as well as the time value of money benefit from moving three months closer to modeled cash receipts.

⁽²⁾  Represents anticipated delay in securing regulatory approvals of interest and principal payments to reflect graduated changes in Issuer's statutory surplus. The monetary impact of the anticipated delay is measured based on credit spreads of public securities with roughly equivalent percentages of discounted payments missed. The favorable year-to-date change in impact is driven primarily by the narrowing of non-investment grade credit spreads, which causes negative valuation impact from the anticipated delay in securing regulatory approval to be lower.

⁽³⁾ Represents impact of liquidity spread to account for OneBeacon's sole ownership of the notes, lack of a trading market, and unique nature of the ongoing regulatory approval process. The unfavorable year-to-date change in impact is due largely to an increase in the assumed liquidity spread to 400 basis points at June 30, 2017 from 250 basis points at December 31, 2016.

⁽⁴⁾ The decrease in the fair value of the surplus notes during the six months ended June 30, 2017 was driven primarily by an increase in the assumed liquidity spread, partially offset by the narrowing of non-investment grade credit spreads as well as the time value of money benefit generated by moving three months closer to modeled cash receipts.