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Investment Securities
 6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investments Securities

White Mountains’s portfolio of investment securities held for general investment purposes consists of fixed maturity investments, short-term investments, common equity securities and other long-term investments, which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date.  Net realized and unrealized investment gains (losses) on trading securities are reported in pre-tax revenues.
White Mountains’s fixed maturity investments are generally valued using industry standard pricing methodologies. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life.
Realized investment gains (losses) resulting from sales of investment securities are accounted for using the specific identification method. Premiums and discounts on all fixed maturity investments are amortized or accreted to income over the anticipated life of the investment. Short-term investments consist of interest-bearing money market funds and other securities, which at the time of purchase, mature or become available for use within one year.  Short-term investments are carried at amortized or accreted cost, which approximated fair value as of June 30, 2018 and December 31, 2017.
Other long-term investments consist primarily of hedge funds, private equity funds and unconsolidated private capital investments.

Net Investment Income

White Mountains’s net investment income is comprised primarily of interest income associated with White Mountains’s fixed maturity investments and short-term investments and dividend income from its common equity securities and other long-term investments.
The following table presents pre-tax net investment income for the three and six months ended June 30, 2018 and 2017.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2018
 
2017
 
2018
 
2017
Investment income:
 
 
 
 
 
 
 
 
Fixed maturity investments
 
$
8.9

 
$
11.2

 
$
19.8

 
$
23.1

Short-term investments
 
2.1

 
.2

 
4.7

 
.3

Common equity securities
 
2.8

 
3.7

 
7.8

 
5.0

Other long-term investments
 
(1.4
)
 
.4

 
.5

 
.4

Total investment income
 
12.4

 
15.5

 
32.8

 
28.8

Third-party investment expenses
 
(.6
)
 
(.8
)
 
(1.3
)
 
(1.3
)
Net investment income, pre-tax
 
$
11.8

 
$
14.7

 
$
31.5

 
$
27.5




Net Realized and Unrealized Investment Gains (Losses)

The following table presents net realized and unrealized investment gains (losses) for the three and six months ended June 30, 2018 and 2017:
 
 
Three Months Ended
Six Months Ended
 
 
June 30,
June 30,
Millions
 
2018
 
2017
2018
 
2017
Net realized investment gains (losses), pre-tax
 
$
1.4

 
$
13.4

$
(3.7
)
 
$
14.0

Net unrealized investment gains (losses), pre-tax
 
9.1

 
20.3

(39.5
)
 
56.0

Net realized and unrealized investment gains (losses), pre-tax
 
10.5

 
33.7

(43.2
)
 
70.0

Income tax (expense) benefit attributable to net realized and
     unrealized investment gains (losses)
 
(1.9
)
 
(1.7
)
3.8

 
(5.5
)
Net realized and unrealized investment gains (losses), after-tax
 
$
8.6

 
$
32.0

$
(39.4
)
 
$
64.5


Net Realized Investment Gains (Losses)
The following tables present net realized investment gains (losses) for the three and six months ended June 30, 2018 and 2017
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
June 30, 2017
Millions
 
Net
realized (losses) gains
 
Net
foreign
exchange gains (losses)
 
Total net realized
(losses) gains
reflected in
earnings
 
Net
realized gains
 
Net
foreign
exchange gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
(8.8
)
 
$
—

 
$
(8.8
)
 
$
.1

 
$
1.3

 
$
1.4

Short-term investments
 
(.7
)
 
—

 
(.7
)
 
—

 
—

 
—

Common equity securities
 
10.8

 
—

 
10.8

 
12.8

 
.5

 
13.3

Other long-term investments
 
.1

 
—

 
.1

 
.4

 
(1.7
)
 
(1.3
)
Net realized investment gains, pre-tax
 
1.4

 
—

 
1.4

 
13.3

 
.1

 
13.4

Income tax benefit (expense) attributable to net realized investment gains
 
9.4

 
—

 
9.4

 
(2.7
)
 
—

 
(2.7
)
Net realized investment gains, after-tax
 
$
10.8

 
$
—

 
$
10.8

 
$
10.6

 
$
.1

 
$
10.7


 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
Millions
 
Net
realized (losses) gains
 
Net
foreign
exchange gains (losses)
 
Total net realized
(losses) gains
reflected in
earnings
 
Net
realized (losses) gains
 
Net
foreign
exchange gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
(22.5
)
 
$
18.2

 
$
(4.3
)
 
$
(1.0
)
 
$
1.4

 
$
.4

Short-term investments
 
(.8
)
 
—

 
(.8
)
 
—

 
—

 
—

Common equity securities
 
12.0

 
—

 
12.0

 
13.6

 
.6

 
14.2

Other long-term investments
 
(3.4
)
 
(7.2
)
 
(10.6
)
 
1.1

 
(1.7
)
 
(.6
)
Net realized investment (losses) gains,
   pre-tax
 
(14.7
)
 
11.0

 
(3.7
)
 
13.7

 
.3

 
14.0

Income tax benefit (expense) attributable to net realized investment (losses) gains
 
8.9

 
—

 
8.9

 
(2.9
)
 
—

 
(2.9
)
Net realized investment (losses)
   gains, after-tax
 
$
(5.8
)
 
$
11.0

 
$
5.2

 
$
10.8

 
$
.3

 
$
11.1




Net Unrealized Investment Gains (Losses)
The following tables present net unrealized investment gains (losses) and changes in the carrying value of investments measured at fair value for the three and six months ended June 30, 2018 and 2017:
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
June 30, 2017
Millions
 
Net
unrealized gains
   
 
Net
foreign
exchange losses

 
Total net unrealized gains
reflected in
earnings
 
Net
unrealized gains
 
Net
foreign
exchange gains (losses)
 
Total net unrealized gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
1.4

 
$
—

 
$
1.4

 
$
7.3

 
$
5.8

 
$
13.1

Short-term investments
 
.7

 
—

 
.7

 
—

 
—

 
—

Common equity securities
 
5.5

 
—

 
5.5

 
7.8

 
2.6

 
10.4

Other long-term investments
 
2.3

 
(.8
)
 
1.5

 
4.7

 
(7.9
)
 
(3.2
)
Net unrealized investment gains (losses), pre-tax
 
9.9

 
(.8
)
 
9.1

 
19.8

 
.5

 
20.3

Income tax (expense) benefit attributable to net unrealized
   investment gains (losses)
 
(11.4
)
 
.1

 
(11.3
)
 
1.0

 
—

 
1.0

Net unrealized investment (losses) gains, after-tax
 
$
(1.5
)
 
$
(.7
)
 
$
(2.2
)
 
$
20.8

 
$
.5

 
$
21.3


 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
Millions
 
Net
unrealized (losses) gains
   
 
Net
foreign
exchange (losses)
gains
 
Total net unrealized (losses)
 gains
reflected in
earnings
 
Net
unrealized gains
 
Net
foreign
exchange gains (losses)
 
Total net unrealized gains
reflected in
earnings
Fixed maturity investments
 
$
(17.2
)
 
$
(14.8
)
 
$
(32.0
)
 
$
17.5

 
$
7.4

 
$
24.9

Common equity securities
 
(11.2
)
 
—

 
(11.2
)
 
26.9

 
3.1

 
30.0

Other long-term investments
 
.4

 
3.3

 
3.7

 
11.7

 
(10.6
)
 
1.1

Net unrealized investment (losses) gains, pre-tax
 
(28.0
)
 
(11.5
)
 
(39.5
)
 
56.1

 
(.1
)
 
56.0

Income tax expense attributable to net unrealized
   investment (losses) gains
 
(5.1
)
 
—

 
(5.1
)
 
(2.6
)
 
—

 
(2.6
)
Net unrealized investment (losses) gains, after-tax
 
$
(33.1
)
 
$
(11.5
)
 
$
(44.6
)
 
$
53.5

 
$
(.1
)
 
$
53.4



The following table presents total gains (losses) included in earnings attributable to net unrealized investment gains (losses) for Level 3 investments for the three and six months ended June 30, 2018 and 2017:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2018
 
2017
 
2018
 
2017
Other long-term investments
 
$
3.2

 
$
(1.7
)
 
$
(1.9
)
 
$
(1.5
)
Total net unrealized investment gains (losses) , pre-tax - Level 3 investments
 
$
3.2

 
$
(1.7
)
 
$
(1.9
)
 
$
(1.5
)


Investment Holdings

The following tables present the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains, and carrying values of White Mountains’s fixed maturity investments as of June 30, 2018 and December 31, 2017.
 
 
June 30, 2018
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations
 
$
122.5

 
$
—

 
$
(1.4
)
 
$
—

 
$
121.1

Debt securities issued by corporations
 
607.3

 
.4

 
(15.2
)
 
—

 
592.5

Mortgage and asset-backed securities
 
135.8

 
—

 
(3.1
)
 
—

 
132.7

Municipal obligations
 
262.6

 
1.3

 
(1.5
)
 
—

 
262.4

Total fixed maturity investments
 
$
1,128.2

 
$
1.7

 
$
(21.2
)
 
$
—

 
$
1,108.7


 
 
December 31, 2017
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations
 
$
297.8

 
$
—

 
$
(1.3
)
 
$
—

 
$
296.5

Debt securities issued by corporations
 
867.6

 
2.9

 
(4.3
)
 
14.7

 
880.9

Mortgage and asset-backed securities
 
697.2

 
1.6

 
(4.1
)
 
—

 
694.7

Municipal obligations
 
252.0

 
3.7

 
(.8
)
 
—

 
254.9

Foreign government, agency and provincial obligations
 
2.6

 
—

 
—

 
.1

 
2.7

Total fixed maturity investments
 
$
2,117.2

 
$
8.2

 
$
(10.5
)
 
$
14.8

 
$
2,129.7


The following tables present the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency losses, and carrying values of White Mountains’s common equity securities and other long-term investments as of June 30, 2018 and December 31, 2017:
 
 
June 30, 2018
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
losses
 
Carrying
value
Common equity securities
 
$
796.0

 
$
117.9

 
$
(2.7
)
 
$
—

 
$
911.2

Other long-term investments
 
$
289.8

 
$
17.6

 
$
(50.2
)
 
$
(1.7
)
 
$
255.5

 
 
December 31, 2017
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
losses
 
Carrying
value
Common equity securities
 
$
739.7

 
$
129.4

 
$
(3.0
)
 
$
—

 
$
866.1

Other long-term investments
 
$
246.6

 
$
6.8

 
$
(39.7
)
 
$
(4.9
)
 
$
208.8


Other Long-Term Investments

The following table presents the carrying values of White Mountains’s other long-term investments as of June 30, 2018 and December 31, 2017:
 
 
Carrying Value at
Millions
 
June 30, 2018
 
December 31, 2017
Hedge funds and private equity funds, at fair value
 
$
129.6

 
$
125.3

Private equity securities, at fair value (1)(2)(3)
 
110.8

 
83.2

Foreign currency forward contracts
 
—

 
(3.7
)
Other
 
15.1

 
4.0

Total other long-term investments
 
$
255.5

 
$
208.8

(1) See Fair Value Measurements by Level table.
(2) Includes White Mountains's non-controlling interests in common equity securities, limited liability companies and private convertible preferred securities.
(3) White Mountains holds a 20% ownership interest in OneTitle Holdings LLC (“OneTitle”) and has provided a $10.0 million surplus note facility under which OneTitle’s wholly-owned insurance subsidiary, OneTitle National Guaranty Company, Inc., may draw funds under certain circumstances. At June 30, 2018, no funds had been drawn on the surplus note facility.

Hedge Funds and Private Equity Funds
White Mountains invests in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments is generally estimated using the NAV of the funds. As of June 30, 2018, White Mountains held investments in one hedge fund and twelve private equity funds.  The largest investment in a single fund was $58.5 million as of June 30, 2018 and $54.9 million as of December 31, 2017.
The following table presents investments in hedge funds and private equity funds by investment objective and sector as of June 30, 2018 and December 31, 2017:
 
 
June 30, 2018
 
December 31, 2017
Millions
 
Fair Value
 
Unfunded
Commitments
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short banks and financial
 
$
58.5

 
$
—

 
$
54.9

 
$
—

Total hedge funds
 
58.5

 
—

 
54.9

 
—

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Manufacturing/Industrial
 
39.2

 
10.5

 
43.3

 
10.4

Aerospace/Defense/Government
 
18.3

 
37.9

 
15.8

 
12.9

Direct lending
 
7.8

 
22.6

 
7.1

 
23.1

Financial services
 
5.8

 
10.3

 
4.2

 
11.7

Real estate
 
—

 
50.0

 
—

 
—

Total private equity funds
 
71.1

 
131.3

 
70.4

 
58.1

Total hedge funds and private equity funds
    included in other long-term investments
 
$
129.6

 
$
131.3

 
$
125.3

 
$
58.1

 


Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. As of June 30, 2018, White Mountains held one active hedge fund with a fair value of $58.5 million. The hedge fund is subject to a lock-up period that expires on September 1, 2018, with a semi-annual restriction on redemption frequency thereafter and an advance notice period requirement of not less than 45 days.
Investments in private equity funds are generally subject to a lock-up period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds have the option to extend the lock-up period.
The following table presents investments in private equity funds that were subject to lock-up periods as of June 30, 2018:
Millions
 
1 – 3 years
 
3 – 5 years
 
5 – 10 years
 
>10 years
 
Total
Private equity funds — expected lock-up period remaining
 
$9.0
 
$5.8
 
$42.7
 
$13.6
 
$71.1


Investors in private equity funds are generally subject to indemnification obligations outside of the capital commitment period and prior to the winding up of the fund. As of June 30, 2018 and December 31, 2017, White Mountains is not aware of any indemnification claims relating to its investments in private equity funds.  Any future indemnification obligations would be disclosed separately as opposed to being included in the Unfunded Commitments balance.

Fair Value Measurements as of June 30, 2018
Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). Quoted prices in active markets for identical assets or liabilities have the highest priority (“Level 1”), followed by observable inputs other than quoted prices, including prices for similar but not identical assets or liabilities (“Level 2”) and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”). As of June 30, 2018 and December 31, 2017, White Mountains used quoted market prices or other observable inputs to determine fair value for approximately 90% and 94% of the investment portfolio.

Fair Value Measurements by Level
The following tables present White Mountains’s fair value measurements for investments as of June 30, 2018 and December 31, 2017 by level. The major security types were based on the legal form of the securities. White Mountains has disaggregated its fixed maturity investments based on the issuing entity type, which impacts credit quality, with debt securities issued by U.S. Government entities carrying minimal credit risk, while the credit and other risks associated with other issuers, such as corporations, foreign governments, municipalities or entities issuing mortgage and asset-backed securities vary depending on the nature of the issuing entity type. White Mountains further disaggregates debt securities issued by corporations and common equity securities by industry sector because investors often reference commonly used benchmarks and their subsectors to monitor risk and performance. Accordingly, White Mountains has further disaggregated these asset classes into subclasses based on the similar sectors and industry classifications it uses to evaluate investment risk and performance against commonly used benchmarks, such as the Bloomberg Barclays U.S. Intermediate Aggregate and S&P 500 indices.

 
 
June 30, 2018
Millions
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
121.1

 
$
121.1

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Financials
 
143.2

 
—

 
143.2

 
—

Consumer
 
112.5

 
—

 
112.5

 
—

Technology
 
63.6

 
—

 
63.6

 
—

Healthcare
 
63.5

 
—

 
63.5

 
—

Energy
 
53.6

 
—

 
53.6

 
—

Materials
 
51.5

 
—

 
51.5

 
—

Communications
 
44.3

 
—

 
44.3

 
—

Industrial
 
41.1

 
—

 
41.1

 
—

Utilities
 
19.2

 
—

 
19.2

 
—

Total debt securities issued by corporations:
 
592.5

 
—

 
592.5

 
—

 
 
 
 
 
 
 
 
 
Mortgage and asset-backed securities
 
132.7

 
—

 
132.7

 
—

Municipal obligations
 
262.4

 
—

 
262.4

 
—

Total fixed maturity investments
 
1,108.7

 
121.1

 
987.6

 
—

 
 
 
 
 
 
 
 
 
Short-term investments(1)
 
321.7

 
314.6

 
7.1

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Exchange traded funds (2)
 
621.9

 
558.9

 
63.0

 
—

Financials
 
17.9

 
17.9

 
—

 
—

Healthcare
 
17.1

 
17.1

 
—

 
—

Technology
 
15.8

 
15.8

 
—

 
—

Industrial
 
11.0

 
11.0

 
—

 
—

Consumer
 
8.8

 
8.8

 
—

 
—

Communications
 
7.5

 
7.5

 
—

 
—

Energy
 
7.2

 
7.2

 
—

 
—

Other (3)
 
204.0

 
—

 
204.0

 
—

Total common equity securities
 
911.2

 
644.2

 
267.0

 
—

 
 
 
 
 
 
 
 
 
Other long-term investments (4) 
 
125.9

 
—

 
—

 
125.9

Total investments
 
$
2,467.5

 
$
1,079.9

 
$
1,261.7

 
$
125.9

(1) Short-term investments are measured at amortized cost, which approximates fair value.
(2) ETFs traded on foreign exchanges are priced using the fund's published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(3) Consists of two investments in unit trusts that primarily invest in international equities.
(4) Excludes carrying value of $129.6 associated with hedge funds and private equity funds for which fair value is measured at NAV using the practical expedient.

 
 
December 31, 2017
Millions
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
296.5

 
$
296.5

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 

 
 

 
 

Consumer
 
185.1

 
—

 
185.1

 
—

Communications
 
127.8

 
—

 
127.8

 
—

Financials
 
114.8

 
—

 
114.8

 
—

Utilities
 
108.9

 
—

 
108.9

 
—

Materials
 
95.5

 
—

 
95.5

 
—

Healthcare
 
94.3

 
—

 
94.3

 
—

Technology
 
80.5

 
—

 
80.5

 
—

Energy
 
48.1

 
—

 
48.1

 
—

Industrial
 
25.9

 
—

 
25.9

 
—

Total debt securities issued by corporations:
 
880.9

 
—

 
880.9

 
—

 
 
 
 
 
 
 
 
 
Mortgage and asset-backed securities
 
694.7

 
—

 
694.7

 
—

Municipal obligations
 
254.9

 
—

 
254.9

 
—

Foreign government, agency and provincial obligations
 
2.7

 
—

 
2.7

 
—

Total fixed maturity investments
 
2,129.7

 
296.5

 
1,833.2

 
—

 
 
 
 
 
 
 
 
 
Short-term investments (1)
 
176.1

 
151.0

 
25.1

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Exchange traded funds (2)
 
569.7

 
508.1

 
61.6

 
—

Healthcare
 
17.1

 
17.1

 
—

 
—

Financials
 
16.3

 
16.3

 
—

 
—

Technology
 
15.1

 
15.1

 
—

 
—

Industrial
 
11.9

 
11.9

 
—

 
—

Communications
 
10.9

 
10.9

 
—

 
—

Consumer
 
10.7

 
10.7

 
—

 
—

Energy
 
3.8

 
3.8

 
—

 
—

Other (3)
 
210.6

 
—

 
210.6

 
—

Total common equity securities
 
866.1

 
593.9

 
272.2

 
—

 
 
 
 
 
 
 
 
 
Other long-term investments (4)
 
87.2

 
—

 
—

 
87.2

Total investments
 
$
3,259.1

 
$
1,041.4

 
$
2,130.5

 
$
87.2

(1) Short-term investments are measured at amortized cost, which approximates fair value.
(2) ETFs traded on foreign exchanges are priced using the fund’s published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(3) Consists of two investments in unit trusts that primarily invests in international equities.
(4) Excludes carrying value of $(3.7) related to foreign currency forward contracts and $125.3 associated with hedge funds and private equity funds for which fair value is measured at NAV using the practical expedient.






Debt Securities Issued by Corporations

The following table presents the ratings of debt securities issued by corporations held in White Mountains’s investment portfolio as of June 30, 2018 and December 31, 2017:
 
 
Fair Value at
Millions
 
June 30, 2018
 
December 31, 2017
AAA
 
$
8.8

 
$
1.6

AA
 
60.1

 
42.6

A
 
275.6

 
192.5

BBB
 
163.9

 
465.2

BB
 
71.9

 
161.7

B
 
12.2

 
17.3

Debt securities issued by corporations (1)
 
$
592.5

 
$
880.9

(1) Credit ratings are assigned based on the following hierarchy: (1) Standard & Poor’s Financial Services LLC (“S&P”) and (2) Moody's Investor Service, Inc. (“Moody’s”).

Mortgage and Asset-backed Securities

The following table presents the carrying value of White Mountains’s mortgage and asset-backed securities as of June 30, 2018 and December 31, 2017:
 
 
June 30, 2018
 
December 31, 2017
Millions
 
Fair Value
 
Level 2
 
Level 3
 
Fair Value
 
Level 2
 
Level 3
Mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

 
 

 
 

GNMA
 
$
25.9

 
$
25.9

 
$
—

 
$
46.3

 
$
46.3

 
$
—

FNMA
 
53.9

 
53.9

 
—

 
84.5

 
84.5

 
—

FHLMC
 
40.8

 
40.8

 
—

 
62.0

 
62.0

 
—

Total agency (1)
 
120.6

 
120.6

 
—

 
192.8

 
192.8

 
—

Non-agency:
 
 

 
 

 
 

 
 

 
 

 
 

Commercial
 
—

 
—

 
—

 
70.5

 
70.5

 
—

Total non-agency
 
—

 
—

 
—

 
70.5

 
70.5

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage-backed securities
 
120.6

 
120.6

 
—

 
263.3

 
263.3

 
—

Other asset-backed securities:
 
 

 
 
 
 
 
 

 
 
 
 
Credit card receivables
 
8.9

 
8.9

 
—

 
206.0

 
206.0

 
—

Vehicle receivables
 
3.2

 
3.2

 
—

 
142.4

 
142.4

 
—

Other
 
—

 
—

 
—

 
83.0

 
83.0

 
—

Total other asset-backed securities
 
12.1

 
12.1

 
—

 
431.4

 
431.4

 
—

Total mortgage and asset-backed securities
 
$
132.7

 
$
132.7

 
$
—

 
$
694.7

 
$
694.7

 
$
—

(1)  Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. Government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics). As of June 30, 2018 White Mountains did not hold any mortgage-backed securities categorized as sub-prime.
White Mountains considers mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’s review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. As of June 30, 2018, White Mountains did not hold any mortgage-backed securities classified as non-prime.

Rollforward of Fair Value Measurements by Level

 White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities and other long-term investments as of June 30, 2018 and 2017 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.
The following tables present the changes in White Mountains’s fair value measurements by level for the six months ended June 30, 2018 and 2017:
 
 
 
Level 3 Investments
 
Millions
Level 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
 
Total
 
Balance at December 31, 2017
$
890.4

$
2,105.4

$
—

$
87.2

$
125.3

 
$
3,208.3

(1)(2) 
Net realized and unrealized gains (losses)
3.3

(34.6
)
—

(5.5
)
1.9

 
(34.9
)
(4) 
Amortization/Accretion
.1

(1.9
)
—

—

—

 
(1.8
)
 
Purchases
315.7

539.0

—

44.2

2.9

 
901.8

 
Sales
(444.2
)
(1,353.3
)
—

—

(.5
)
 
(1,798.0
)
 
Transfers in
—

—

—

—

—

 
—

  
Transfers out
—

—

—

—

—

 
—

  
Balance at June 30, 2018
$
765.3

$
1,254.6

$
—

$
125.9

$
129.6

 
$
2,275.4

(2) 
(1)  Excludes carrying value of $(3.7) as of December 31, 2017 associated with foreign currency forward contracts.
(2)  Excludes carrying value of $176.1 and $321.7 at December 31, 2017 and June 30, 2018 classified as short-term investments.
(3) Investments for which fair value is measured at NAV using the practical expedient are no longer classified within the fair value hierarchy. See Note 1 — “Basis of Presentation and Significant Accounting Policies”.
(4) Excludes realized and unrealized losses associated with foreign currency forward contracts, foreign currency on cash and open trades and short-term investments of $3.5, $4.2 and $0.6 for the six months ended June 30, 2018.

 
 
 
Level 3 Investments
 
 
 
Millions
Level 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
Total
 
Balance at December 31, 2016
$
279.5

$
2,093.8

$
—

$
91.4

$
82.6

$
2,547.3

(1)(2)(4) 
Net realized and unrealized gains (losses)
30.4

39.0

.1

(1.5
)
15.0

83.0

(5) 
Amortization/Accretion
—

(4.7
)
—

—

—

(4.7
)
 
Purchases
665.0

770.7

25.6

2.6

52.5

1,516.4

 
Sales
(243.9
)
(1,255.0
)
(.5
)
(2.0
)
(1.6
)
(1,503.0
)
 
Deconsolidation of SSIE
—

(5.2
)
—

—

—

(5.2
)
 
Transfers in
—

11.1

—

—

—

11.1

 
Transfers out
—

—

(11.1
)
—

—

(11.1
)
 
Balance at June 30, 2017
$
731.0

$
1,649.7

$
14.1

$
90.5

$
148.5

$
2,633.8

(1)(2) 

(1) Excludes carrying value of $175.0 and $71.6 at December 31, 2016 and June 30, 2017 classified as short-term investments, of which $0.1 is classified as held for sale at December 31, 2016.
(2)  Excludes carrying value of $(1.2) and $(12.5) as of December 31, 2016 and June 30, 2017 associated with foreign currency forward contracts.
(3) Investments for which fair value is measured at NAV using the practical expedient are no longer classified within the fair value hierarchy. See Note 1 — “Basis of Presentation and Significant Accounting Policies”.
(4)  Includes carrying value of $6.6 of fixed maturity investments at December 31, 2016 that is classified as assets held for sale related to SSIE.
(5) Excludes realized and unrealized losses associated with foreign currency forward contracts of $13.0 for the six months ended June 30, 2017.

Fair Value Measurements — Transfers Between Levels - Six-months ended June 30, 2018 and 2017
Transfers between levels are recorded using the fair value measurement as of the end of the quarterly period in which the event or change in circumstance giving rise to the transfer occurred.
During the first six months of 2018, there were no fixed maturity investments or other long-term investments classified as Level 3 measurements in the prior period that were transferred to Level 2 measurements.
During the first six months of 2017, one fixed maturity investment classified as a Level 3 measurement in the prior period was transferred to Level 2 measurement because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available as of June 30, 2017. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $11.1 million for the period ended June 30, 2017.

Significant Unobservable Inputs

The following tables present significant unobservable inputs used in estimating the fair value of investment securities, other than hedge funds and private equity funds, classified within Level 3 as of June 30, 2018 and December 31, 2017. The fair value of investments in hedge funds and private equity funds are generally estimated using the NAV of the funds.

$ in millions, except share price
 
June 30, 2018
Description
 
Valuation Technique(s)
 
Fair Value (1)
 
Unobservable Input
Private equity security
 
Share price of most recent transaction
 
$28.3
 
Share price
-
$56.60
Private equity security
 
Discounted cash flow
 
$21.0
 
Discount rate
-
25.0%
Private equity security
 
Discounted cash flow
 
$22.1
 
Discount rate
-
35.0%
Private convertible preferred security
 
Discounted cash flow
 
$14.5
 
Discount rate
-
30.0%
Private equity security
 
Discounted cash flow/
Option pricing method
 
$11.0
 
Discount rate
-
21.0%
 
 
 
 
 
 
Time until expiration
-
4 years
 
 
 
 
Volatility/Standard deviation
-
50.0%
 
 
 
 
Risk free rate
-
1.77%
Private preferred security
 
Multiple of EBITDA
 
$2.6
 
EBITDA multiple
-
6.00
Private debt instrument
 
Discounted cash flow
 
$10.5
 
Discount rate
-
9.62%
(1) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.

$ in millions, except share price
 
December 31, 2017
Description
 
Valuation Technique(s)
 
Fair Value (1)
 
Unobservable Input
Private equity security
 
Discounted cash flow
 
$21.0
 
Discount rate
-
25.0%
Private equity security
 
Discounted cash flow
 
$22.1
 
Discount rate
-
35.0%
Private convertible preferred security
 
Discounted cash flow
 
$14.5
 
Discount rate
-
30.0%
Private equity security
 
Discounted cash flow/
Option pricing method
 
$11.3
 
Discount rate
-
21.0%
 
 
 
 
 
 
Time until expiration
-
4 years
 
 
 
 
Volatility/Standard deviation
-
50.0%
 
 
 
 
Risk free rate
-
1.77%
Private preferred security
 
Multiple of EBITDA
 
$0.6
 
EBITDA multiple
-
6.00
Private equity security
 
Share price of most recent transaction
 
$3.6
 
Share price
-
$2.52
(1) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.