HG Global was established to fund the startup of BAM, a mutual municipal bond insurer. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of BAM Surplus Notes.

BAM is a party to a first loss reinsurance treaty (“FLRT”) with HG Re under which HG Re provides first loss protection up to 15%-of-par outstanding on each municipal bond insured by BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds. In return, BAM cedes approximately 60% of the risk premium charged for insuring the municipal bond, which is net of a ceding commission. The FLRT is a perpetual agreement with terms that can be renegotiated after a specified period of time. During 2021, BAM and HG Re agreed that the terms may be renegotiated at the end of 2024, and each subsequent five-year period thereafter.

BAM is party to a collateralized financial guarantee excess of loss reinsurance agreement that serves to increase BAM’s claims paying resources and is provided by Fidus Re.

In 2018, Fidus Re was initially capitalized by the issuance of $100.0 million of insurance-linked securities (the “Fidus Re 2018 Agreement”). The proceeds from issuance were placed in a collateral trust supporting Fidus Re’s obligations to BAM. The insurance-linked securities were issued by Fidus Re with an initial term of 12 years and are callable five years after the date of issuance. Under the Fidus Re 2018 Agreement, Fidus Re reinsures 90% of aggregate losses exceeding $165.0 million on a portion of BAM’s financial guarantee portfolio (the “2018 Covered Portfolio”) up to a total reimbursement of $100.0 million. The Fidus Re 2018 Agreement does not provide coverage for losses in excess of $276.1 million. The 2018 Covered Portfolio consists of approximately 27% of BAM’s gross par outstanding as of December 31, 2022.

In 2021, Fidus Re issued an additional $150.0 million of insurance linked securities (the “Fidus Re 2021 Agreement”) which have an initial term of 12 years and are callable five years after the date of issuance. The proceeds from issuance were placed in a collateral trust supporting Fidus Re’s obligations to BAM. Under the Fidus Re 2021 Agreement, Fidus Re reinsures 90% of aggregate losses exceeding $135.0 million on a portion of BAM’s financial guarantee portfolio (the “2021 Covered Portfolio”) up to a total reimbursement of $150.0 million. The Fidus Re 2021 Agreement does not provide coverage for losses in excess of $301.7 million. The 2021 Covered Portfolio consists of approximately 32% of BAM’s gross par outstanding as of December 31, 2022.

In the fourth quarter of 2022, Fidus Re issued an additional $150.0 million of insurance linked securities (the “Fidus Re 2022 Agreement”) which have an initial term of 12 years and are callable seven years after the date of issuance. The proceeds from issuance were placed in a collateral trust supporting Fidus Re’s obligations to BAM. Under the Fidus Re 2022 Agreement, Fidus Re reinsures 90% of aggregate losses exceeding $110.0 million on a portion of BAM’s financial guarantee portfolio (the “2022 Covered Portfolio”) up to a total reimbursement of $150.0 million. The Fidus Re 2022 Agreement does not provide coverage for losses in excess of $276.7 million. The 2022 Covered Portfolio consists of approximately 33% of BAM’s gross par outstanding as of December 31, 2022.

The Fidus Re agreements are accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses as they do not meet the risk transfer requirements necessary to be accounted for as reinsurance.

In January 2020, BAM entered into the XOLT with HG Re. Under the XOLT, HG Re provides last dollar protection for exposures on municipal bonds insured by BAM in excess of the New York State Department of Financial Services (“NYDFS”) single issuer limits. As of December 31, 2022, the XOLT is subject to an aggregate limit equal to the lesser of $125.0 million or the assets held in the supplemental collateral trust (the “Supplemental Trust”) at any point in time. The agreement is accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses as the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance.

HG Re’s obligations under the FLRT are subject to an aggregate limit equal to the assets in two collateral trusts: the Supplemental Trust and the Regulation 114 Trust (together, the “Collateral Trusts”) at any point in time.

On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT directly into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to HG Re’s unearned premiums and unpaid loss and LAE reserves, if any. If, at the end of any quarter, the Regulation 114 Trust balance is below the target balance, funds will be withdrawn from the Supplemental Trust and deposited into the Regulation 114 Trust in an amount equal to the shortfall. If, at the end of any quarter, the Regulation 114 Trust balance is above 102% of the target balance, funds will be withdrawn from the Regulation 114 Trust and deposited into the Supplemental Trust. The Regulation 114 Trust balance as of December 31, 2022 and 2021 was $288.6 million and $250.2 million.

The Supplemental Trust target balance is $603.0 million, less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance (the “Supplemental Trust Target Balance”). If, at the end of any quarter, the Supplemental Trust balance exceeds the Supplemental Trust Target Balance, such excess may be distributed to HG Re. The distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities.

As the BAM Surplus Notes are repaid over time, the BAM Surplus Notes will be replaced in the Supplemental Trust by cash and fixed income securities. The Supplemental Trust balance as of December 31, 2022 and 2021 was $568.3 million and $601.8 million.

As of December 31, 2022 and 2021, the Collateral Trusts held assets of $856.9 million and $852.0 million, which included $503.3 million and $481.7 million of cash and investments, $340.0 million and $364.6 million of BAM Surplus Notes and $13.6 million and $5.7 million of interest receivable on the BAM Surplus Notes.

Through 2024, the interest rate on the BAM Surplus Notes is a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually. During 2023, the interest rate on the BAM Surplus Notes will be 7.7%. Beginning in 2025, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its “AA/stable” rating from Standard & Poor’s. No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS.

In December 2022, BAM made a $36.0 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $24.6 million was a repayment of principal held in the Supplemental Trust, $1.0 million was a payment of accrued interest held in the Supplemental Trust and $10.4 million was a payment of accrued interest held outside the Supplemental Trust.

In December 2021, BAM made a $33.8 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $23.6 million was a repayment of principal held in the Supplemental Trust, $0.4 million was a payment of accrued interest held inside the Supplemental Trust and $9.8 million was a payment of accrued interest held outside the Supplemental Trust.

As of December 31, 2022 and 2021, the principal balance on the BAM Surplus Notes was $340.0 million and $364.6 million, and total interest receivable on the BAM Surplus Notes was $157.9 million and $157.6 million.


	December 31,
	2022		2021
Contracts outstanding	13,382		12,350
Remaining weighted average contract period (in years)	10.8		10.8
Contractual debt service outstanding (in millions):
Principal	$	99,996.9	$	89,196.5
Interest	48,880.6		41,486.5
Total debt service outstanding	$	148,877.5	$	130,683.0

Gross unearned insurance premiums (in millions)	$	298.3	$	266.3


Millions	December 31, 2022
January 1, 2023 - March 31, 2023	$	7.0
April 1, 2023 - June 30, 2023	7.0
July 1, 2023 - September 30, 2023	6.8
October 1, 2023 - December 31, 2023	6.7
	27.5
2024	25.9
2025	24.2
2026	22.6
2027	21.0
2028 and thereafter	177.1
Total gross unearned insurance premiums	$	298.3

The following table presents a schedule of written premiums and earned premiums included in White Mountains’s HG Global/BAM segment for the years ended December 31, 2022, 2021 and 2020:


	December 31,
Millions	2022		2021		2020
Written premiums:
Direct	$	63.8	$	51.0	$	61.5
Assumed	1.3		4.6		.2
Gross written premiums (1)	$	65.1	$	55.6	$	61.7
Earned premiums:
Direct	$	28.6	$	23.2	$	19.4
Assumed	4.7		3.7		3.4
Gross earned premiums (1)	$	33.3	$	26.9	$	22.8

In September 2022, BAM entered into a 100% facultative quota share reinsurance agreement under which it assumed a portfolio of municipal bond guarantee contracts with a par value of $42.5 million.

In January 2021, BAM entered into a 100% facultative quota share reinsurance agreement under which it assumed a portfolio of municipal bond guarantee contracts with a par value of $805.5 million.

In the second quarter of 2020, BAM assumed a municipal bond guarantee contract with a par value of $36.9 million through an endorsement to the facultative quota share reinsurance agreement.

None of the contracts assumed under these reinsurance agreements were non-performing, and no loss reserves have been established for any of the contracts, either as of the transaction dates or as of December 31, 2022. The agreements, which cover future claims exposure only, meet the risk transfer criteria under ASC 944-20, Insurance Activities and accordingly have been accounted for as reinsurance.