Derivatives

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

NSM Interest Rate Swap

On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on $151.0 million of its USD denominated variable rate term loans under the NSM Bank Facility. Under the terms of the swap agreement, NSM pays a fixed-rate of 2.97% and receives a variable rate, which is reset monthly, based on the then-current USD-LIBOR. As of December 31, 2021, the variable rate received by NSM under the swap agreement was 1.00%. Over the term of the swap, the notional amount decreases in accordance with the principal repayments NSM expects to make on its initial term loans. The interest rate swap is scheduled to mature on June 30, 2024.

As of December 31, 2021, $146.1 million of the outstanding term loans were hedged by the swap. For the year ended December 31, 2021, the weighted average effective interest rate on the outstanding term loans that were hedged, including the effect of the amortization of debt issuance costs and the effect of the interest rate swap, was 9.0%.

NSM’s obligations under the swap are secured by the same collateral securing the NSM Bank Facility on a pari passu basis. NSM does not currently hold any collateral deposits from or provide any collateral deposits to the swap counterparty.

NSM evaluated the effectiveness of the swap to hedge its interest rate risk associated with its variable rate debt and concluded at the swap inception date that the swap was highly effective in hedging that risk. NSM evaluates the effectiveness of the hedging relationship on an ongoing basis.

For the years ended December 31, 2021, 2020 and 2019, White Mountains recognized net interest expense of $2.5 million, $2.5 million and $1.1 million for the periodic net settlement payments on the swap. As of December 31, 2021 and 2020, the estimated fair value of the swap and the accrual of the periodic net settlement payments recorded in other liabilities was $4.8 million and $8.2 million. There was no ineffectiveness in the hedge for the years ended December 31, 2021 and 2020. For the years ended December 31, 2021 and 2020, the $(3.4) million and $(1.6) million change in the fair value of the swap is included within White Mountains’s accumulated other comprehensive income (loss).

NSM Interest Rate Cap

On June 4, 2020, NSM entered into an interest rate cap agreement to limit its exposure to the risk of interest rate increases on the GBP denominated term loan under the NSM Bank Facility. The notional amount of the interest rate cap is £42.5 million ($52.4 million based upon the foreign exchange spot rate as of the date of the transaction) and the termination date is June 4, 2022. On August 18, 2020, NSM entered into a separate interest rate cap agreement to extend the term of the original interest rate cap agreement by one year. The second interest rate cap agreement has an effective date of June 15, 2022 and a termination date of June 15, 2023.

NSM paid total initial premiums of $0.1 million for the interest rate caps. Under the terms of the interest rate cap agreements, if the current GBP-LIBOR at the measurement date exceeds 1.25%, NSM will receive payments from the counterparty equal to the then-current GBP-LIBOR rate, less the 1.25% cap rate. As of December 31, 2021, the GBP-LIBOR rate was 0.26%.

NSM accounts for the interest rate caps as derivatives at fair value, with changes in fair value recognized in current period earnings within interest expense. For the years ended December 31, 2021 and December 31, 2020, White Mountains recognized a change in fair value of $(0.2) million and $(0.1) million on the interest rate caps within interest expense. As of December 31, 2021 and 2020, the estimated fair value of the caps recorded in other assets was $0.2 million and $0.1 million.