Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2017

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations

The following table summarizes the undistributed net earnings (loss) from continuing operations for the three and nine months ended September 30, 2017 and 2016. See Note 15 — “Held for Sale and Discontinued Operations”.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Millions	2017		2016		2017			2016
Undistributed net earnings - continuing operations:
Net income (loss) attributable to White Mountains’s common shareholders,      net of restricted common share amounts	$	22.7	$	6.3	$	31.1		$	(73.9	)
Dividends declared net of restricted common share amounts (1)	—		—		(4.5		)	(5.9		)
Total undistributed net earnings (loss), net of restricted common      share amounts	$	22.7	$	6.3	$	26.6		$	(79.8	)

⁽¹⁾ Restricted shares issued by White Mountains receive dividends, and therefore, are considered participating securities.

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.

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 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.