Statutory Capital and Surplus

12 Months Ended

Dec. 31, 2022

Insurance [Abstract]

Statutory Capital and Surplus

Statutory Capital and Surplus

White Mountains’s insurance operations are subject to regulation and supervision in each of the jurisdictions where they are domiciled and licensed to conduct business. Generally, regulatory authorities have broad supervisory and administrative powers over such matters as licenses, standards of solvency, premium rates, policy forms, investments, security deposits, methods of accounting, form and content of financial statements, minimum capital and surplus requirements, dividends and other distributions to shareholders, periodic examinations and annual and other report filings. In general, such regulation is for the protection of policyholders rather than shareholders. 

The Insurance Act 1978 of Bermuda and related regulations, as amended (“Insurance Act”), regulates the insurance business of Bermuda-domiciled insurers. Under the Insurance Act, insurers are required to maintain available statutory capital and surplus at a level equal to or in excess of its enhanced capital requirement which is established by reference to either a Bermuda Solvency Capital Requirement (“BSCR”) model or an approved internal capital model. Generally, the BMA has broad supervisory and administrative powers over such matters as licenses, standards of solvency, investments, methods of accounting, form and content of financial statements, minimum capital and surplus requirements, and annual and other report filings.

HG Global/BAM

HG Re is a special purpose insurer under Bermuda insurance regulations and is subject to regulation and supervision by the BMA. As of December 31, 2022, HG Re had statutory capital and surplus of $730.8 million. As a special purpose insurer, HG Re has a nominal minimum regulatory capital requirement of $1.

BAM is domiciled in New York and is subject to regulation by the NYDFS. New York financial guarantee insurance law establishes single risk and aggregate limits with respect to insured obligations insured by financial guarantee insurers. BAM’s statutory net loss for the years ended December 31, 2022, 2021 and 2020 was $55.0 million, $49.3 million and $59.3 million. BAM’s statutory surplus, as reported to regulatory authorities as of December 31, 2022, was $283.4 million, which exceeds the minimum statutory surplus necessary for BAM to maintain its New York State financial guarantee insurance license of $66.0 million.

Ark

Syndicates 4020 and 3902 are subject to oversight by the Council of Lloyd’s. Ark Syndicate Management Limited (“ASML”) is authorized by the U.K.’s Prudential Regulation Authority and regulated by the Financial Conduct Authority under the Financial Services and Markets Act 2000. The underwriting capacity of a Member of Lloyd’s must be supported by providing a deposit in the form of cash, securities or letters of credit in an amount determined under the capital adequacy regime of the U.K.’s Prudential Regulation Authority (the “PRA”). This amount is determined by Lloyd’s and is based on each syndicate’s solvency and capital requirement as calculated through its internal model. In addition, if the Funds at Lloyd’s are not sufficient to cover all losses, the Lloyd’s Central Fund provides an additional discretionary level of security for policyholders. As of December 31, 2022, Ark had provided Funds at Lloyd’s of $325.4 million.

GAIL is subject to regulation and supervision by the BMA. As of December 31, 2022, GAIL had statutory capital and surplus of $877.6 million. GAIL’s minimum statutory capital and surplus requirement established by the BMA was $419.7 million as of December 31, 2022.

WM Outrigger Re

WM Outrigger Re is a special purpose insurer under Bermuda insurance regulations and is subject to regulation and supervision by the BMA. As of December 31, 2022, WM Outrigger Re had statutory capital and surplus of $204.0 million. As a special purpose insurer, WM Outrigger Re has a nominal minimum regulatory capital requirement of $1.

Dividend Capacity

There are no restrictions under Bermuda law or the law of any other jurisdiction on the payment of dividends from retained earnings by White Mountains, provided that after the payment of any dividend, the Company would continue to be able to pay its liabilities as they become due and the realizable value of the Company’s assets would remain greater that its liabilities. Following is a description of the dividend capacity of White Mountains’s insurance and reinsurance subsidiaries:

HG Global/BAM

HG Re is a special purpose insurer subject to regulation and supervision by the BMA, but does not require regulatory approval to pay dividends. However, HG Re’s dividend capacity is limited to amounts held outside of the Collateral Trusts pursuant to the FLRT with BAM. As of December 31, 2022, HG Re had $9.3 million of cash and investments and $111.7 million of accrued interest on the BAM Surplus Notes held outside the Collateral Trusts. As of December 31, 2022, HG Re had $730.8 million of statutory capital and surplus and $856.9 million of assets held in the Collateral Trusts.

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 in the Supplemental Trust and $9.8 million was a payment of accrued interest held outside the Supplemental Trust.

Ark

During any 12-month period, GAIL, a class 4 licensed Bermuda insurer, has the ability to (i) make capital distributions of up to 15% of its total statutory capital per the previous year’s statutory financial statements, or (ii) make dividend payments of up to 25% of its total statutory capital and surplus per the previous year’s statutory financial statements, without prior approval of Bermuda regulatory authorities. Accordingly, GAIL will have the ability to make capital distributions of up to $113.2 million during 2023, which is equal to 15% of its December 31, 2022 statutory capital of $754.7 million, subject to meeting all appropriate liquidity and solvency requirements and the filing of its December 31, 2022 statutory financial statements. During 2022, GAIL did not pay any dividends to its immediate parent.