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. For 2017 through the closing date of the transaction, net income from discontinued operations related to OneBeacon was $20.5 million. Net income from discontinued operations related to OneBeacon was $108.6 million and $38.2 million for the years ended December 31, 2016 and 2015.

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 an affiliate of 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. For the year ended December 31, 2016, White Mountains recorded $51.9 million of gain from the sale of Tranzact in discontinued operations in the statement of 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. For the year ended December 31, 2016 and 2015, White Mountains recorded net income (loss) from discontinued operations of $6.1 million and $(1.9) million from Tranzact. 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, including $30.2 million of tax expense recorded to gain from sale of Tranzact in discontinued operations and $8.8 million of tax benefit recorded to net income from discontinued operations.

During 2017, White Mountains recorded a $3.2 million increase to the gain from sale of Tranzact in discontinued operations as a result of state tax expense.

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. During 2017, White Mountains recorded a $0.7 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.

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 were held 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 income (loss) from discontinued operations does not include White Mountains’s net investment income and net realized and unrealized investment gains (losses) associated with these investments. For the years ended December 31, 2016 and 2015, $3.7 million and $205.0 million, of which $200.8 million is related to Symetra, of net investment income and net realized and unrealized investment gains (losses), net of related tax effects, that were included in the Sirius Group legal entities have been excluded from net income (loss) from discontinued operations. For the years ended December 31, 2016 and 2015, White Mountains recorded $(4.3) million and $81.1 million of net (loss) income from discontinued operations and $32.0 million and $(65.0) million of other comprehensive income (loss) from Sirius Group.

The transactions to purchase the investments in OneBeacon and the other investments held by Sirius Group prior to the closing are presented in the statement of cash flows as net settlement of investment cash flows with discontinued operations.

Esurance

For the year ended December 31, 2015, White Mountains recorded a gain from sale of Esurance Holdings, Inc. and its subsidiaries and Answer Financial Inc. and its subsidiaries (collectively, “Esurance”) in discontinued operations of $17.9 million, which primarily related to a payment from Allstate for favorable development on loss reserves. Since the closing of the transaction through December 31, 2016, White Mountains has received a net amount of $28.3 million from Allstate, primarily related to the favorable development on loss reserves. See Note 18 — “Commitments and Contingencies”.

Net Assets Held for Sale

The following table presents the assets and liabilities associated with business classified as held for sale as of December 31, 2016. Amounts presented relate to OneBeacon, Star & Shield and SSIE and the Company’s Guilford, Connecticut property. Assets held for sale as of December 31, 2017 consist solely of the Company’s Guilford, Connecticut property, which is recorded at the amount of its estimated fair value, net of estimated costs of disposal, of $3.3 million. The related writedown of $3.7 million has been recorded within other expenses.



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 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	218.0
Total assets held for sale	$	3,606.4
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	$	1,037.1

Net Income (Loss) from Discontinued Operations

The following tables present the results of operations, including related income taxes associated with the business classified as discontinued operations. For the year ended December 31, 2017 and 2016, the amounts presented relate to OneBeacon, Sirius Group and Tranzact. For the year ended December 31, 2015, the amounts presented relate to OneBeacon, Sirius Group, Tranzact and Esurance. The results of discontinued operations from Sirius Group and Tranzact up to the closing date of the transaction inure to White Mountains.



	Year Ended December 31, 2017
Millions	OneBeacon		Sirius Group			Tranzact		Total
Revenues
Earned insurance premiums	$	807.6	$	—		$	—	$	807.6
Net investment income	39.7		—			—		39.7
Net realized and unrealized investment gains	38.8		—			—		38.8
Other revenues	7.7		—			—		7.7
Total revenues	893.8		—			—		893.8
Expenses
Loss and loss adjustment expenses	546.0		—			—		546.0
Insurance and reinsurance acquisition expenses	145.6		—			—		145.6
Other underwriting expenses	156.2		—			—		156.2
General and administrative expenses	21.2		—			—		21.2
Interest expense	10.0							10.0
Total expenses	879.0		—			—		879.0
Pre-tax income	14.8		—			—		14.8
Income tax benefit	5.7		—			—		5.7
Net income from discontinued operations	20.5		—			—		20.5
Gain (loss) from sale of discontinued operations, net of tax	554.5		(.7		)	3.2		557.0
Total income (loss) from discontinued operations	575.0		(.7		)	3.2		577.5
Change in foreign currency translation and other comprehensive income from discontinued operations, net of tax	.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	$	578.2	$	(.7	)	$	3.2	$	580.7



	Year Ended December 31, 2016
Millions	OneBeacon		Sirius Group			Tranzact			Total
Revenues
Earned insurance premiums	$	1,100.6	$	240.1		$	—		$	1,340.7
Net investment income	50.6		14.4			—			65.0
Net realized and unrealized investment gains (losses)	37.7		(1.5		)	—			36.2
Other revenues	5.5		.6			119.6			125.7
Total revenues	1,194.4		253.6			119.6			1,567.6
Expenses
Loss and loss adjustment expenses	656.0		154.9			—			810.9
Insurance and reinsurance acquisition expenses	206.0		59.0			—			265.0
Other underwriting expenses	209.0		30.9			—			239.9
General and administrative expenses	14.2		10.4			116.7			141.3
Interest expense	13.1		7.9			3.2			24.2
Total expenses	1,098.3		263.1			119.9			1,481.3
Pre-tax income (loss)	96.1		(9.5		)	(.3		)	86.3
Income tax benefit	12.5		3.1			6.4			22.0
Net income (loss) from discontinued operations	108.6		(6.4		)	6.1			108.3
Gain from sale of discontinued operations, net of tax	—		363.2			51.9			415.1
Total income from discontinued operations	108.6		356.8			58.0			523.4
Change in foreign currency translation and other comprehensive income from discontinued operations, net of tax	1.0		32.0			—			33.0
Recognition of foreign currency translation from sale of Sirius Group, net of tax	—		113.3			—			113.3
Comprehensive income from discontinued operations	$	109.6	$	502.1		$	58.0		$	669.7



	Year Ended December 31, 2015
Millions	OneBeacon			Sirius Group			Other Disc Ops			Total
Revenues
Earned insurance premiums	$	1,176.2		$	847.0		$	—		$	2,023.2
Net investment income	45.9			40.7			—			86.6
Net realized and unrealized investment (losses) gains	(35.1		)	15.1			—			(20.0		)
Other (loss) revenues	(.6		)	(20.6		)	186.2			165.0
Total revenues	1,186.4			882.2			186.2			2,254.8
Expenses
Loss and loss adjustment expenses	700.7			422.7			—			1,123.4
Insurance and reinsurance acquisition expenses	213.8			189.8			—			403.6
Other underwriting expenses	218.2			107.9			—			326.1
Interest expense	15.4			26.6			4.0			46.0
General and administrative expenses	13.0			27.0			185.3			225.3
Total expenses	1,161.1			774.0			189.3			2,124.4
Pre-tax income (loss)	25.3			108.2			(3.1		)	130.4
Income tax benefit (expense)	12.9			(27.1		)	.7			(13.5		)
Net income (loss) from discontinued operations	38.2			81.1			(2.4		)	116.9
Gain from sale of OneBeacon runoff, net of tax	.3			—			—			.3
Gain from sale of Esurance, net of tax	—			—			17.9			17.9
Total income from discontinued operations	38.5			81.1			15.5			135.1
Change in foreign currency translation and other comprehensive income from discontinued operations, net of tax	—			(65.0		)	—			(65.0		)
Comprehensive income from discontinued operations	$	38.5		$	16.1		$	15.5		$	70.1

Net Change in Cash from Discontinued Operations

The following table presents the net change in cash associated with the businesses classified as discontinued operations:



	Year ended December 31,
Millions	2017			2016			2015
Net cash provided from operations	$	157.0		$	23.6		$	248.4
Net cash provided from (used for) investing activities	3.0			241.4			(100.5		)
Net cash used for financing activities	(61.9		)	(93.8		)	(100.7		)
Effect of exchange rate changes on cash	—			—			(4.5		)
Net change in cash during the period	98.1			171.2			42.7
Cash balances at beginning of period	70.5			245.4			203.8
Net change in cash held for sale	(.9		)	(.3		)	(1.1		)
Cash sold as part of sale of consolidated subsidiaries	(167.7		)	(345.8		)	—
Cash balances at end of period	$	—		$	70.5		$	245.4

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 dividends and 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 the net effect of potentially dilutive common shares outstanding.

The following table presents the Company’s computation of earnings per share for discontinued operations for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017			2016			2015
Basic and diluted earnings per share numerators (in millions):
Net income attributable to White Mountains’s common shareholders	$	627.2		$	401.8		$	295.2
Less: total income (loss) from continuing operations, net of tax	49.7			(121.6		)	160.1
Net income from discontinued operations attributable to White Mountains’s common shareholders	577.5			523.4			135.1
Allocation of earnings to participating restricted common shares ⁽¹⁾	(7.3		)	(6.8		)	(1.6		)
Basic and diluted earnings per share numerators	$	570.2		$	516.6		$	133.5
Basic earnings per share denominators (in thousands):
Total average common shares outstanding during the period	4,293.8			5,014.9			5,879.2
Average unvested restricted common shares ⁽³⁾	(54.3		)	(64.8		)	(68.0		)
Basic earnings per share denominator	4,239.5			4,950.1			5,811.2
Diluted earnings per share denominator (in thousands):
Total average common shares outstanding during the period	4,293.8			5,018.1			5,879.2
Average unvested restricted common shares ⁽³⁾	(54.3		)	(64.8		)	(68.0		)
Diluted earnings per share denominator ⁽⁴⁾	4,239.5			4,953.3			5,811.2
Basic earnings per share (in dollars) - discontinued operations:	$	134.50		$	104.37		$	22.98
Diluted earnings per share (in dollars) - discontinued operations:	$	134.50		$	104.32		$	22.98


⁽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 years ended December 31, 2017, 2016 and 2015.


⁽³⁾	Restricted common shares outstanding vest either in equal annual installments or upon a stated date. See Note 10 — “Employee Share-Based Compensation Plans”.

⁽⁴⁾

The diluted earnings per share denominator for the years ended December 31, 2016 includes the impact of 40,000 common shares issuable upon exercise of the non-qualified options outstanding, which resulted in 3,217 incremental shares outstanding over the period. Prior periods do not include the impact of 125,000 common shares issuable upon exercise of the non-qualified options outstanding as they are anti-dilutive to the calculation.

Fair Value of Financial Instrument in Liabilities Held for Sale

The OBH Senior Notes are recorded as debt at face value less unamortized original issue discount. The following table presents 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 estimates 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, 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 the OneBeacon Transaction, 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.

The following table presents the valuation adjustments taken to arrive at estimated fair value of the OneBeacon Surplus Notes as of December 31, 2016:



Millions	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.