Discontinued Operations

9 Months Ended

Sep. 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 September 28, 2017, Intact Financial Corporation completed its previously announced acquisition of OneBeacon in an all-cash transaction for $18.10 per share. White Mountains received total proceeds of $1.3 billion and recorded a gain of $554.6 million, net of transaction costs. Net income (loss) from discontinued operations related to OneBeacon was $20.5 million and $(15.2) million though the closing date of the nine and three months ended and September 30, 2017. Net income from discontinued operations related to OneBeacon was $93.8 million and $22.5 million for the nine and three months ended September 30, 2016.

Star & Shield

On March 7, 2017, White Mountains completed the 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.

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.

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, prior to the tax benefit described below, was $2.1 million and $2.6 million for the three and nine months ended September 30, 2016.

During the third quarter of 2016, 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 was recorded to gain from sale of Tranzact in discontinued operations and a $16.1 million tax benefit was recorded to net income from discontinued operations.

In the nine months ended September 30, 2017, White Mountains recorded a $1.0 million reduction to the gain from sale of Tranzact in discontinued operations as a result of 2016 state tax payments.

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. White Mountains recorded $(4.0) million and $356.2 million of total income from discontinued operations for the three and nine months ended September 30, 2016 and $145.3 million of other comprehensive income for the nine months ended September 30, 2016.

During the third quarter of 2017, White Mountains recorded a $0.8 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.

Discontinued Operations

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

Discontinued Operations

Net Assets Held for Sale

The following table summarizes the assets and liabilities associated with businesses classified as held for sale. Amounts presented relate to OneBeacon, Star & Shield and SSIE.

Millions	December 31, 2016
Assets held for sale
Fixed maturity investments, at fair value	$	2,175.7
Short-term investments, at amortized cost (which approximates fair value)	112.3
Common equity securities, at fair value	188.7
Other long-term investments	150.5
Total investments	2,627.2
Cash	70.5
Reinsurance recoverable on unpaid and paid losses	179.8
Insurance and reinsurance premiums receivable	229.8
Deferred acquisition costs	96.3
Deferred tax asset	126.7
Ceded unearned insurance and reinsurance premiums	44.2
Accounts receivable on unsettled investment sales	1.4
Goodwill and other intangible assets	1.2
Accrued investment income	11.3
Other assets	211.1
Total assets held for sale	$	3,599.5
Liabilities held for sale
Loss and loss adjustment expense reserves	$	1,370.6
Unearned insurance and reinsurance premiums	576.3
Debt	273.2
Accrued incentive compensation	44.3
Funds held under reinsurance treaties	153.0
Other liabilities	151.9
Total liabilities held for sale	2,569.3
Net assets held for sale	$	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 nine months endedSeptember 30, 2017, the amounts presented relate to OneBeacon and Sirius Group. For the three and nine months endedSeptember 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
	September 30, 2017									September 30, 2016
Millions	OneBeacon			Sirius Group			Total			OneBeacon			Sirius Group			Tranzact			Total
Revenues
Earned insurance premiums	$	268.4		$	—		$	268.4		$	277.9		$	—		$	—		$	277.9
Net investment income	13.0			—			13.0			11.8			—			—			11.8
Net realized and unrealized gains	11.5			—			11.5			15.5			—			—			15.5
Other revenue	2.2			—			2.2			1.8			—			14.8			16.6
Total revenues	295.1			—			295.1			307.0			—			14.8			321.8
Expenses
Loss and loss adjustment expenses	206.8			—			206.8			162.8			—			—			162.8
Insurance and reinsurance acquisition expenses	51.9			—			51.9			55.1			—			—			55.1
Other underwriting expenses	44.9			—			44.9			49.4			—			—			49.4
General and administrative expenses	7.4			—			7.4			3.5			—			16.2			19.7
Interest expense	3.4			—			3.4			3.3			—			.5			3.8
Total expenses	314.4			—			314.4			274.1			—			16.7			290.8
Pre-tax (loss) income	(19.3		)	—			(19.3		)	32.9			—			(1.9		)	31.0
Income tax benefit (expense)	4.1			—			4.1			(10.4		)	—			15.9			5.5
Net (loss) income from discontinued operations	(15.2		)	—			(15.2		)	22.5			—			14.0			36.5
Net gain (loss) from sale of discontinued    operations	554.5			(.2		)	554.3			—			(4.0		)	51.9			47.9
Total income (loss) from discontinued    operations	539.3			(.2		)	539.1			22.5			(4.0		)	65.9			84.4
Change in foreign currency translation and other    from discontinued operations	.1			—			.1			(.3		)	—			—			(.3		)
Recognition of benefit plan assets and obligations from the sale of OneBeacon, net of tax	2.9			—			2.9			—			—			—			—
Comprehensive income (loss)    from discontinued operations	$	542.3		$	(.2	)	$	542.1		$	22.2		$	(4.0	)	$	65.9		$	84.1

	Nine Months Ended										Nine Months Ended
	September 30, 2017										September 30, 2016
Millions	OneBeacon		Sirius Group			Tranzact			Total		OneBeacon			Sirius Group			Tranzact			Total
Revenues
Earned insurance premiums	$	807.6	$	—		$	—		$	807.6	$	827.9		$	240.1		$	—		$	1,068.0
Net investment income	39.7		—			—			39.7		38.3			14.4			—			52.7
Net realized and unrealized gains    (losses)	38.8		—			—			38.8		56.8			(1.5		)	—			55.3
Other revenue	7.7		—			—			7.7		3.5			.6			119.6			123.7
Total revenues	893.8		—			—			893.8		926.5			253.6			119.6			1,299.7
Expenses
Loss and loss adjustment expenses	546.0		—			—			546.0		501.3			154.9			—			656.2
Insurance and reinsurance    acquisition expenses	145.6		—			—			145.6		154.8			59.0			—			213.8
Other underwriting expenses	156.2		—			—			156.2		155.6			30.9			—			186.5
General and administrative expenses	21.2		—			—			21.2		10.9			10.4			116.7			138.0
Interest expense	10.0		—			—			10.0		9.8			7.9			3.2			20.9
Total expenses	879.0		—			—			879.0		832.4			263.1			119.9			1,215.4
Pre-tax income (loss)	14.8		—			—			14.8		94.1			(9.5		)	(.3		)	84.3
Income tax benefit (expense)	5.7		—			—			5.7		(.3		)	3.1			13.8			16.6
Net income (loss) from    discontinued operations	20.5		—			—			20.5		93.8			(6.4		)	13.5			100.9
Net gain (loss) from sale of    discontinued operations	554.5		(.8		)	(1.0		)	552.7		—			362.6			51.9			414.5
Total income (loss) from discontinued    operations	575.0		(.8		)	(1.0		)	573.2		93.8			356.2			65.4			515.4
Change in foreign currency translation    and other from discontinued    operations	.3		—			—			.3		.5			32.0			—			32.5
Recognition of foreign currency    translation and other from sale of    Sirius Group, net of tax	—		—			—			—		—			113.3						113.3
Recognition of benefit plan assets    and obligations from the sale of    OneBeacon, net of tax	2.9		—			—			2.9		—			—			—			—
Comprehensive income (loss)    from discontinued operations	$	578.2	$	(.8	)	$	(1.0	)	$	576.4	$	94.3		$	501.5		$	65.4		$	661.2

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:

	Nine Months Ended
	September 30,
Millions	2017			2016
Net cash provided from operations	$	157.0		$	38.1
Net cash provided from investing activities	3.0			269.7
Net cash used for financing activities	(61.9		)	(72.7		)
Net change in cash during the period	98.1			235.1
Cash balances at beginning of period	70.5			245.4
Net change in cash held for sale, excluding discontinued operations	(.9		)	2.6
Cash sold as part of sale of consolidated subsidiaries	167.7			345.8
Cash balances at end of period	$	—		$	137.3
Supplemental cash flows information:
Interest paid	$	—		$	(7.7	)
Net income tax payment to national governments	$	—		$	(18.3	)

Earnings Per Share from Discontinued Operations

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 nine months endedSeptember 30, 2017 and 2016:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s common shareholders	$	562.1		$	90.8		$	604.7		$	440.7
Less: total income from continuing operations, net of tax	(23.0		)	(6.4		)	(31.5		)	74.7
Net income (loss) from discontinued operations attributable to White Mountains’s common shareholders	$	539.1		$	84.4		$	573.2		$	515.4
Allocation of earnings to participating restricted common shares (1)	(6.7		)	(1.2		)	(7.0		)	(6.3		)
Basic and diluted earnings per share numerators	$	532.4		$	83.2		$	566.2		$	509.1
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	4,297.2			4,867.4			4,477.0			5,166.6
Average unvested restricted common shares (3)	(53.7		)	(68.1		)	(54.5		)	(62.9		)
Basic earnings per share denominator	4,243.5			4,799.3			4,422.5			5,103.7
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period (4)	4,297.2			4,879.4			4,477.0			5,174.8
Average unvested restricted common shares (3)	(53.7		)	(68.1		)	(54.5		)	(62.9		)
Diluted earnings per share denominator(4)	4,243.5			4,811.3			4,422.5			5,111.9
Basic earnings per share (in dollars) - discontinued operations:	$	125.45		$	17.34		$	128.03		$	99.75
Diluted earnings per share (in dollars) - discontinued operations:	$	125.45		$	17.30		$	128.03		$	99.60

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

Fair Value of Financial Instruments in Liabilities Held for Sale

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 December 31, 2016:

	December 31, 2016
Millions	Fair Value		Carrying Value
OBH Senior Notes	$	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 Assets Held for Sale

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 $71.9 million as of 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 December 31, 2016:

Millions	Total as of December 31, 2016
Par Value	$	101.0
Fair value adjustments to reflect:
Current market rates on public debt and contract-based repayments (1)	5.1
Regulatory approval(2)	(15.6		)
Liquidity adjustment (3)	(18.6		)
Total adjustments	(29.1		)
Fair value	$	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.