Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

MediaAlpha IPO

On October 30, 2020, MediaAlpha completed an initial public offering. At the IPO price of $19.00 per share, MediaAlpha had an equity market capitalization of approximately $1.2 billion and an enterprise valuation of approximately $1.4 billion. In the offering, White Mountains sold 3,609,894 shares and received total proceeds of $63.8 million. Following the completion of the MediaAlpha IPO, White Mountains owns 20,532,202 MediaAlpha shares, representing a 32.3% fully-diluted ownership interest. At the IPO price of $19.00 per share, the value of White Mountains’s remaining investment in MediaAlpha was $390.1 million. At the October month-end closing price of $33.83 per share, the value of White Mountains’s investment in MediaAlpha was $694.6 million.

Agreement to Acquire Ark Insurance

On October 1, 2020, White Mountains entered into a subscription and purchase agreement (the “Ark SPA”) with Ark Insurance Holdings Limited (“Ark”) and certain selling shareholders (collectively with Ark, the “Ark Sellers”). Certain Ark Sellers also entered into a related management warranty deed (together with the Ark SPA, the “Ark Acquisition Agreement”) pursuant to which they made certain warranties about the Ark business. Ark manages the underwriting of syndicates 4020 and 3902 at Lloyd's, which underwrite a diversified and balanced portfolio of reinsurance and insurance, including property, accident & health, energy, marine and political risks.

Under the terms of the Ark Acquisition Agreement, White Mountains will contribute $605.4 million of equity capital to Ark, at a pre money valuation of $300.0 million, and will also purchase $40.9 million of shares from the selling shareholders. White Mountains will also commit to contribute up to an additional $200.0 million of equity capital to Ark in 2021 (collectively, the “Ark Transaction”). Total post-closing capitalization of Ark is expected to exceed $800.0 million ($1.0 billion if the additional $200.0 million is contributed). At closing, White Mountains will own 72.0% of Ark on a basic shares outstanding basis (63.0% on a fully-diluted, fully-converted basis, taking account of management’s equity incentives). If the additional $200.0 million is contributed in full, White Mountains will own 77.1% of Ark on a basic shares outstanding basis (67.5% on a fully-diluted, fully-converted basis). Management’s equity incentives are subject to an 8% rate of return threshold with no catch-up. All shares outstanding not owned by White Mountains will be owned by management rollover shareholders.

In the future, management rollover shareholders could earn additional shares in the company if and to the extent that White Mountains achieves certain multiple of invested capital return thresholds.  These additional shares are generally eligible to vest in three equal tranches at multiple on invested capital (“MOIC”) thresholds of 2.0x, 2.5x and 3.0x. If fully earned, these additional shares would represent 12.5% of the shares outstanding at closing.

The Ark Transaction is expected to close in January 2021. The Ark Transaction is subject to the receipt of regulatory approvals, receipt by Ark’s Bermuda reinsurer of an indicative rating letter from A.M. Best indicating a rating of “A-” or higher, receipt by Ark of $150.0 million of letters of credit, the non-occurrence of a material adverse effect and other customary closing conditions.

On October 26, 2020, A.M. Best assigned Ark a preliminary credit assessment of “A”. On November 3, 2020, Ark received a commitment for $150.0 million of letters of credit. If all closing conditions are satisfied before December 15, 2020, White Mountains has committed to pre-fund up to $400.0 million of its capital contribution at that time, with the closing then occurring on January 1, 2021.

COVID-19

On January 30, 2020, the spread of novel coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern by the World Health Organization. Subsequently, on March 11, 2020, the WHO characterized the COVID-19 outbreak as a pandemic. White Mountains continues to monitor the impact of the COVID-19 pandemic but, as the pandemic is ongoing, White Mountains cannot determine the ultimate impact it may have on the global financial markets, the overall economy and on White Mountains’s businesses, results of operations and financial condition.