Municipal Bond Guarantee Reinsurance

12 Months Ended

Dec. 31, 2024

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 the BAM Surplus Notes.

Reinsurance Treaties

FLRT

HG Re is a party to the FLRT with BAM, under which HG Re provides first-loss reinsurance protection of up to 15%-of-par outstanding for each policy assumed from BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds. HG Re is required to provide reinsurance on policies that fall within the FLRT underwriting guidelines agreed upon by HG Re.

BAM charges an insurance premium on each municipal bond insurance policy it underwrites. Historically, approximately 55% of the total insurance premium charged by BAM has been a MSC and the remainder is a risk premium. In return for the reinsurance provided, HG Re receives approximately 60% of the risk premium charged, which is net of a ceding commission.

The FLRT is a perpetual agreement with terms that can be renegotiated every five years. For the next renegotiation period, either party may provide notice during 2028 to trigger a renegotiation that would take effect on January 1, 2030.

Prior to the deconsolidation of BAM on July 1, 2024, HG Re’s reinsurance balances under the FLRT eliminated in White Mountains’s consolidated financial statements. Subsequent to the deconsolidation, White Mountains recognized gross written premiums of $31.9 million and earned premiums of $14.9 million for the period from July 1, 2024 to December 31, 2024.

XOLT

HG Re is party to the XOLT with BAM, under which 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, 2024, 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 XOLT is accounted for using deposit accounting as the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance. Accordingly, any financing revenues related to the XOLT are recorded in other revenues.

Prior to the deconsolidation of BAM on July 1, 2024, HG Re’s reinsurance balances under the XOLT eliminated in White Mountains’s consolidated financial statements. Subsequent to the deconsolidation, other revenues recognized by White Mountains for period from July 1, 2024 to December 31, 2024 related to the XOLT were insignificant.

Collateral Trusts

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, 2024 and 2023 was $352.1 million and $341.6 million, which consisted of cash, investments and accrued investment income.

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. For the year ended December 31, 2024, HG Re received a distribution out of the Supplemental Trust of $79.7 million, which was comprised of the assignment of $58.5 million of accrued interest on the BAM Surplus Notes and a cash distribution of $21.2 million. For the year ended December 31, 2023, HG Re did not receive any distributions out of the Supplemental Trust.

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, 2024 and 2023 was $598.0 million and $606.9 million, which included $289.4 million and $247.0 million of cash, investments and accrued investment income, $300.9 million and $322.2 million of BAM Surplus Notes at nominal value and $7.7 million and $37.7 million of accrued interest receivable on the BAM Surplus Notes at nominal value.

As of December 31, 2024 and 2023, the Collateral Trusts held total assets of $950.1 million and $948.5 million.

BAM Surplus Notes

Through June 30, 2024, the interest rate on the BAM Surplus Notes was a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually, with each payment applied pro rata between outstanding principal and interest. Accordingly, in 2024 the interest rate on the BAM Surplus Notes was 8.2% through June 30, 2024. Effective July 1, 2024 and through maturity, HG Global and BAM amended the interest rate on the BAM Surplus Notes to be 10.0%, with a higher proportion of each payment to be applied to outstanding principal.

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.

During 2024, HG Global received cash payments of principal and interest on the BAM Surplus Notes totaling $30.0 million. Of these payments, $21.3 million was a repayment of principal held in the Supplemental Trust, $0.5 million was a payment of accrued interest held in the Supplemental Trust and $8.2 million was a payment of accrued interest held outside the Supplemental Trust.

During 2023, HG Global received a cash payment of principal and interest on the BAM Surplus Notes of $27.4 million. Of this payment, $17.8 million was a repayment of principal held in the Supplemental Trust, $2.0 million was a payment of accrued interest held in the Supplemental Trust and $7.6 million was a payment of accrued interest held outside the Supplemental Trust.

As of December 31, 2024 and 2023, the principal balance on the BAM Surplus Notes was $300.9 million and $322.2 million and total interest receivable on the BAM Surplus Notes was $194.8 million and $174.5 million, all at nominal value.

Prior to the deconsolidation of BAM on July 1, 2024, the BAM Surplus Notes, including accrued interest receivable, were classified as intercompany notes carried at nominal value, which eliminated in consolidation. Upon deconsolidation, White Mountains elected the fair value option for the BAM Surplus Notes. As of July 1, 2024 and December 31, 2024, the fair value of the BAM Surplus Notes was $387.4 million and $381.7 million. The difference between the nominal value of the BAM Surplus Notes and the fair value as of July 1, 2024 was recorded as an unrealized loss on deconsolidation in 2024. This loss includes the impact of a discount for the time value of money, which was previously included in adjusted book value per share as a non-GAAP adjustment to book value per share.

Subsequent to the deconsolidation, White Mountains values the BAM Surplus Notes each quarter using a discounted cash flow analysis. The BAM Surplus Notes are classified as a Level 3 measurement. The discounted cash flow analysis used to value the BAM Surplus Notes depends on key inputs, such as projections of future revenues and earnings for BAM, expected payments on the BAM Surplus Notes through maturity and a discount rate to reflect time value and related uncertainty of the repayment pattern. The expected payments on the BAM Surplus Notes are based on management judgment, considering current performance, budgets and projected future results. These expected payments depend on BAM’s ability to generate excess cash flows from its operations, driven primarily by assumptions regarding future trends for the issuance of municipal bonds, interest rates, credit spreads, insured market penetration, competitive activity in the market for municipal bond insurance and other factors affecting the demand for and pricing of BAM’s municipal bond insurance as well as BAM’s investment returns. The discount rate considers comparably-rated companies and instruments, adjusted for risks specific to BAM and the BAM Surplus Notes. As of July 1, 2024 and December 31, 2024, White Mountains concluded that a discount rate, which is a significant unobservable input used in estimating the fair value of the BAM Surplus Notes, of 8.15% and 8.10% was appropriate. The change in the discount rate in the period from July 1, 2024 to December 31, 2024 was driven by a decline in market interest rates.

Subsequent to the deconsolidation of BAM, White Mountains recognized an unrealized gain of $0.5 million related to the change in fair value of the BAM Surplus Notes for the period from July 1, 2024 to December 31, 2024.

Insured Obligations and Premiums

The following table presents the HG Global segment’s insured obligations as of December 31, 2024 and 2023:


	December 31, 2024		December 31, 2023
Contracts outstanding	15,884		14,485
Remaining weighted average contract period (in years) (1)	11.2		11.1

Outstanding par value of policies assumed (in millions) (2)	$	18,503.3	$	16,575.2	(3)




Gross unearned insurance premiums (in millions)	$	297.3	$	273.9	(4)

(1) The remaining weighted average contract period was calculated using total contractual debt service outstanding, including principal and interest.

(2) Under the FLRT, HG Re provides first-loss reinsurance protection of up to 15%-of-par outstanding for each policy assumed from BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds.

(3) As of December 31, 2023, which was prior to BAM’s deconsolidation, BAM’s total contractual debt service outstanding was $165,686.0, split between principal of $109,673.8 and interest of $56,012.2.

(4) As of December 31, 2023, which was prior to BAM’s deconsolidation, BAM’s gross unearned insurance premiums were $325.8.

The following table presents the HG Global segment’s future premium revenues as of December 31, 2024:


Millions	December 31, 2024
January 1, 2025 - March 31, 2025	$	6.8
April 1, 2025 - June 30, 2025	6.6
July 1, 2025 - September 30, 2025	6.5
October 1, 2025 - December 31, 2025	6.4
Total 2025	26.3
2026	24.7
2027	23.3
2028	21.8
2029	20.2
2030 and thereafter	181.0
Total gross unearned insurance premiums	$	297.3

The following tables present gross written premiums and gross earned premiums included in the HG Global segment for the years ended December 31, 2024, 2023 and 2022:


	Year Ended December 31, 2024
Millions	HG Global		BAM		Eliminations		Total
Written premiums:
Direct	$	—	$	24.1	$	—	$	24.1
Assumed	52.4		—		(20.5)		31.9
Gross written premiums (1)	$	52.4	$	24.1	$	(20.5)	$	56.0
Earned premiums:
Direct	$	—	$	15.8	$	—	$	15.8
Assumed	28.9		1.0		(14.0)		15.9
Gross earned premiums (1)	$	28.9	$	16.8	$	(14.0)	$	31.7

(1) Subsequent to the deconsolidation of BAM, there are no ceded premiums, such that gross written premiums and gross earned premiums are equivalent to net written premiums and net earned premiums, respectively. For the six months ended June 30, 2024, BAM ceded written premiums of $20.5 and ceded earned premiums of $14.0 to HG Global, which eliminated in consolidation.


	Year Ended December 31, 2023
Millions	HG Global		BAM		Eliminations		Total
Written premiums:
Direct	$	—	$	58.6	$	—	$	58.6
Assumed	50.1		—		(50.1)		—
Gross written premiums (1)	$	50.1	$	58.6	$	(50.1)	$	58.6
Earned premiums:
Direct	$	—	$	28.7	$	—	$	28.7
Assumed	26.0		2.5		(26.0)		2.5
Gross earned premiums (1)	$	26.0	$	31.2	$	(26.0)	$	31.2

(1) For the year ended December 31, 2023, BAM ceded written premiums of $50.1 and ceded earned premiums of $26.0 to HG Global, which eliminated in consolidation.


	Year Ended December 31, 2022
Millions	HG Global		BAM		Eliminations		Total
Written premiums:
Direct	$	—	$	63.8	$	—	$	63.8
Assumed	55.9		1.3		(55.9)		1.3
Gross written premiums (1)	$	55.9	$	65.1	$	(55.9)	$	65.1
Earned premiums:
Direct	$	—	$	28.6	$	—	$	28.6
Assumed	27.5		4.7		(27.5)		4.7
Gross earned premiums (1)	$	27.5	$	33.3	$	(27.5)	$	33.3

(1) For the year ended December 31, 2022, BAM ceded written premiums of $55.9 and ceded earned premiums of $27.5 to HG Global, which eliminated in consolidation.