Derivatives

3 Months Ended

Mar. 31, 2022

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 one-month USD-LIBOR rate. As of March 31, 2022, 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. 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.

For the three months ended March 31, 2022 and 2021, White Mountains recognized net interest expense of $0.6 million and $0.6 million for the periodic net settlement payments on the swap. As of March 31, 2022 and December 31, 2021, the estimated fair value of the swap and the accrual of the periodic net settlement payments recorded in other liabilities was $1.3 million and $4.8 million. As of March 31, 2022, the swap no longer qualified for hedge accounting. As a result, the unrealized loss on the swap liability as of December 31, 2021 of $4.8 million will be reclassified from accumulated other comprehensive income and amortized to interest expense over the remaining term of the swap on a straight-line basis. In the first quarter of 2022, $0.5 million of amortization was recognized within interest expense. In addition, NSM recognized $3.5 million of income related to the change in fair value of the swap within interest expense for the three months ended March 31, 2022.

For the three months ended March 31, 2021, the $1.0 million change in the fair value of the swap is included within White Mountains’s accumulated other comprehensive income (loss).

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 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 three-month GBP-LIBOR rate at the measurement date exceeds 1.25%, NSM will receive payments from the counterparty equal to the three-month GBP-LIBOR rate, less the 1.25% cap rate. As of March 31, 2022, the three-month GBP-LIBOR rate was 1.04%.

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 three months ended March 31, 2022 and 2021, White Mountains recognized $0.3 million and less than $0.1 million related to the change in fair value on the interest rate caps within interest expense. As of March 31, 2022 and December 31, 2021, the estimated fair value of the caps recorded in other assets was $0.5 million and $0.2 million.