Investment Securities

9 Months Ended

Sep. 30, 2011

Investment Securities

Investment Securities

Note 5.  Investment Securities

White Mountains’ invested assets consist of securities and other long-term investments held for general investment purposes.  The portfolio of investment securities includes fixed maturity investments, convertible fixed maturities and equity securities which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date.  Realized and unrealized investment gains and losses on trading securities are reported pre-tax in revenues. White Mountains’ investments in debt securities, including mortgage-backed and asset-backed securities, are generally valued using industry standard pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage-backed and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life.

Realized investment gains and losses resulting from sales of investment securities are accounted for using the specific identification method.  Premiums and discounts on all fixed maturity investments are accreted or amortized to income over the anticipated life of the investment.  Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year.  Short-term investments are carried at amortized cost, which approximated fair value as of September 30, 2011 and December 31, 2010.

Other long-term investments primarily comprise White Mountains’ investments in hedge funds and private equity funds.

Net Investment Income

Pre-tax net investment income for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,
Millions	2011			2010			2011			2010
Investment income:
Fixed maturity investments	$	38.5		$	46.9		$	127.0		$	149.9
Short-term investments	.9			.8			3.2			3.7
Common equity securities	3.6			2.7			10.1			7.1
Convertible fixed maturity investments	1.3			.4			3.9			4.4
Other long-term investments	1.2			1.1			1.9			1.6
Interest on funds held under reinsurance treaties	.2			(.5		)	(.6		)	(2.2		)
Total investment income	45.7			51.4			145.5			164.5
Less third-party investment expenses	(2.9		)	(2.5		)	(7.4		)	(7.1		)
Net investment income, pre-tax	$	42.8		$	48.9		$	138.1		$	157.4

Net Realized and Unrealized Investment Gains and Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
Millions	2011			2010			2011			2010
Net realized investment gains (losses), pre-tax	$	37.1		$	31.4		$	109.6		$	93.7
Net unrealized investment gains (losses), pre-tax	(35.4		)	(19.8		)	(31.3		)	11.0
Net realized and unrealized investment gains (losses), pre-tax	1.7			11.6			78.3			104.7
Income taxes attributable to realized and unrealized investment gains (losses)	(1.1		)	(22.7		)	(23.7		)	(24.5		)
Net realized and unrealized investment gains (losses), after-tax	$	.6		$	(11.1	)	$	54.6		$	80.2

Net realized investment gains (losses)

Net realized investment gains (losses) for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,
Millions	2011			2010			2011			2010
Fixed maturity investments	$	14.0		$	34.7		$	33.6		$	68.1
Short-term investments	—			—			—			—
Common equity securities	23.1			(13.7		)	41.0			6.7
Convertible fixed maturity investments	(.7		)	6.2			6.3			19.9
Other long-term investments	.7			4.2			28.7			(1.0		)
Net realized investment gains (losses), pre-tax	37.1			31.4			109.6			93.7
Income taxes attributable to realized investment gains (losses)	(8.0		)	(4.9		)	(31.7		)	(20.5		)
Net realized investment gains (losses), after-tax	$	29.1		$	26.5		$	77.9		$	73.2

Net unrealized investment gains (losses)

The following table summarizes changes in the carrying value of investments measured at fair value:

	Three Months Ended September 30, 2011									Nine Months Ended September 30, 2011
Millions	Net unrealized gains (losses)			Net foreign exchange gains (losses)			Total changes in fair value reflected in earnings			Net unrealized gains (losses)			Net foreign exchange gains (losses)			Total changes in fair value reflected in earnings
Fixed maturities	$	3.5		$	67.5		$	71.0		$	12.6		$	77.7		$	90.3
Short-term investments	(.1		)	(.4		)	(.5		)	(.1		)	(1.4		)	(1.5		)
Common equity securities	(101.0		)	(.9		)	(101.9		)	(95.1		)	(1.8		)	(96.9		)
Convertible fixed maturity investments	(11.2		)	—			(11.2		)	(19.3		)	—			(19.3		)
Other long-term investments	(1.2		)	8.4			7.2			(8.4		)	4.5			(3.9		)
Net unrealized investment gains (losses), pre-tax	(110.0		)	74.6			(35.4		)	(110.3		)	79.0			(31.3		)
Income taxes attributable to unrealized investment gains (losses)	26.4			(19.5		)	6.9			28.5			(20.5		)	8.0
Net unrealized investment gains (losses), after-tax	$	(83.6	)	$	55.1		$	(28.5	)	$	(81.8	)	$	58.5		$	(23.3	)

	Three Months Ended September 30, 2010									Nine Months Ended September 30, 2010
Millions	Net unrealized gains (losses)			Net foreign exchange gains (losses)			Total changes in fair value reflected in earnings			Net unrealized gains (losses)			Net foreign exchange gains (losses)			Total changes in fair value reflected in earnings
Fixed maturities	$	3.3		$	(81.2	)	$	(77.9	)	$	36.4		$	(53.6	)	$	(17.2	)
Short-term investments	—			1.4			1.4			—			.6			.6
Common equity securities	64.3			(10.8		)	53.5			31.8			(9.7		)	22.1
Convertible fixed maturity investments	2.8			—			2.8			(8.3		)	—			(8.3		)
Other long-term investments	9.0			(8.6		)	.4			20.5			(6.7		)	13.8
Net unrealized investment gains (losses), pre-tax	79.4			(99.2		)	(19.8		)	80.4			(69.4		)	11.0
Income taxes attributable to unrealized investment gains (losses)	(28.8		)	11.0			(17.8		)	(22.4		)	18.4			(4.0		)
Net unrealized investment gains (losses), after-tax	$	50.6		$	(88.2	)	$	(37.6	)	$	58.0		$	(51.0	)	$	7.0

The following table summarizes the amount of total pre-tax gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,					Nine Months Ended September 30,
Millions	2011			2010		2011			2010
Fixed maturities	$	(13.5	)	$	3.3	$	(14.9	)	$	9.5
Common equity securities	(17.5		)	2.5		(17.0		)	(20.0		)
Convertible fixed maturities	—			—		—			—
Other long-term investments	(3.2		)	8.5		(6.5		)	37.4
Total unrealized investment gains (losses), pre-tax - Level 3 investments	$	(34.2	)	$	14.3	$	(38.4	)	$	26.9

Investment Holdings

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses and carrying values of White Mountains’ fixed maturity investments as of September 30, 2011 and December 31, 2010, were as follows:

	September 30, 2011
Millions	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains (losses)			Carrying value
U.S. Government and agency obligations	$	347.1	$	5.8	$	(.2	)	$	.4		$	353.1
Debt securities issued by corporations	1,990.0		76.6		(11.9		)	(.8		)	2,053.9
Municipal obligations	2.4		—		—			—			2.4
Mortgage-backed and asset-backed securities	2,200.8		29.8		(4.9		)	14.9			2,240.6
Foreign government, agency and provincial obligations	653.0		14.1		(.2		)	(.9		)	666.0
Preferred stocks	82.3		3.3		(11.0		)	—			74.6
Total fixed maturity investments(1)	$	5,275.6	$	129.6	$	(28.2	)	$	13.6		$	5,390.6

(1) Carrying value includes $102.9 that is classified as assets held for sale relating to AutoOne discontinued operations.

	December 31, 2010
Millions	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains (losses)			Carrying value
U.S. Government and agency obligations	$	385.9	$	13.6	$	(.8	)	$	—		$	398.7
Debt securities issued by corporations	2,149.2		87.9		(21.1		)	(37.9		)	2,178.1
Municipal obligations	3.3		.1		(.1		)	—			3.3
Mortgage-backed and asset-backed securities	2,082.0		18.2		(15.6		)	(12.9		)	2,071.7
Foreign government, agency and provincial obligations	1,053.6		7.7		(6.6		)	(8.3		)	1,046.4
Preferred stocks	81.9		6.1		—			(.1		)	87.9
Total fixed maturity investments	$	5,755.9	$	133.6	$	(44.2	)	$	(59.2	)	$	5,786.1

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses and carrying values of White Mountains’ common equity securities, convertible fixed maturities and other long-term investments as of September 30, 2011 and December 31, 2010, were as follows:

	September 30, 2011
Millions	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains (losses)			Carrying value
Common equity securities	$	661.0	$	35.4	$	(26.6	)	$	—		$	669.8
Convertible fixed maturities	$	143.7	$	4.4	$	(7.6	)	$	—		$	140.5
Other long-term investments	$	290.2	$	56.2	$	(15.2	)	$	(2.4	)	$	328.8

	December 31, 2010
Millions	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains (losses)			Carrying value
Common equity securities	$	561.2	$	105.5	$	(1.5	)	$	1.8		$	667.0
Convertible fixed maturities	$	126.9	$	16.2	$	(.1	)	$	—		$	143.0
Other long-term investments	$	329.5	$	62.4	$	(13.0	)	$	(6.8	)	$	372.1

Other long-term investments

White Mountains holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments has been estimated using the net asset value of the funds. At September 30, 2011, White Mountains held investments in 17 hedge funds and 33 private equity funds.  The decrease in the fair value of hedge funds and private equity funds is due to net redemptions during the period. The largest investment in a single fund was $31.4 million at September 30, 2011. The following table summarizes investments in hedge funds and private equity interests by investment objective and sector at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
Millions	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
Hedge funds
Long/short equity	$	49.0	$	—	$	50.4	$	—
Long/short credit & distressed	32.3		—		34.1		—
Long diversified strategies	22.0		—		24.0		—
Long/short equity REIT	14.7		—		25.2		—
Long/short equity activist	11.7		—		16.9		—
Long bank loan	.5		—		5.1		—
Total hedge funds	130.2				155.7		—
Private equity funds
Distressed residential real estate	31.4		—		49.2		—
Energy infrastructure & services	29.5		9.9		24.2		10.8
Multi-sector	28.0		8.2		26.0		10.6
Manufacturing/Industrial	17.0		—		17.9		—
Private equity secondaries	11.3		4.0		10.4		4.4
Real estate	10.2		3.3		9.1		4.6
International multi-sector, Europe	8.0		4.7		10.5		5.3
International multi-sector, Asia	3.6		2.7		4.9		2.7
Insurance	3.6		41.3		3.9		41.3
Venture capital	2.5		.5		2.2		1.0
Healthcare	2.3		7.0		1.5		8.0
Total private equity funds	147.4		81.6		159.8		88.7
Total hedge and private equity funds included in other long-term investments	$	277.6	$	81.6	$	315.5	$	88.7

Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions.  Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the September 30, 2011 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:

	Notice Period
Millions Redemption frequency	30-59 days notice		60-89 days notice		90-119 days notice		120+ days notice		Total
Monthly	$	—	$	—	$	—	$	6.0	$	6.0
Quarterly	26.1		29.7		19.6		—		75.4
Semi-annual	—		5.1		—		14.7		19.8
Annual	21.9		—		6.6		.5		29.0
Total	$	48.0	$	34.8	$	26.2	$	21.2	$	130.2

Certain of the hedge fund investments in which White Mountains is invested are no longer active and are in process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund’s underlying investments are liquidated.  At September 30, 2011, distributions of $3.2 million were outstanding from these investments. The actual amount of the final distribution remittances remain subject to market fluctuations. The date at which such remittances will be received is not determinable at September 30, 2011.

White Mountains has also submitted redemption requests for certain of its investments in active hedge funds.  At September 30, 2011 redemptions of $2.0 million are outstanding. The date at which such remittances will be received is not determinable at September 30, 2011. Redemptions are recorded as receivables when approved by the hedge funds and no longer subject to market fluctuations.

Investments in private equity funds are generally subject to a “lock-up” period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. At September 30, 2011, investments in private equity funds were subject to lock-up periods as follows:

Millions	1-3 years		3 – 5 years		5 – 10 years		>10 years		Total
Private Equity Funds — expected lock-up period remaining	$	47.3	$	—	$	83.1	$	17.0	$	147.4

Fair value measurements at September 30, 2011

White Mountains’ invested assets measured at fair value include fixed maturity securities, common and preferred equity securities, convertible fixed maturity securities and other long-term investments which primarily consist of hedge funds and private equity funds. Fair value measurements reflect management’s best estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements fall into a hierarchy with three levels based on the nature of the inputs. Fair value measurements based on quoted prices in active markets for identical assets are at the top of the hierarchy (“Level 1”), followed by fair value measurements based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar, but not identical instruments (“Level 2”). Measurements based on unobservable inputs, including a reporting entity’s estimates of the assumptions that market participants would use are at the bottom of the hierarchy (“Level 3”).

White Mountains uses quoted market prices or other observable inputs to estimate fair value for the vast majority of its investment portfolio. Investments valued using Level 1 inputs include fixed maturities, primarily U.S. Treasury securities, publicly-traded common equities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs consist of fixed maturities, including corporate debt, state and other government debt, convertible fixed maturity securities and mortgage-backed and asset-backed securities. Fair value estimates for investments classified as Level 3 measurements include investments in hedge funds, private equity funds and certain investments in fixed maturities and common equity securities. Fair value measurements for securities for which observable inputs are unavailable are estimated using industry standard pricing models and observable inputs such as benchmark interest rates, matrix pricing, market comparables, broker quotes, issuer spreads, bids, offers, credit ratings, prepayment speeds and other relevant inputs. In circumstances where quoted prices or observable inputs are adjusted to reflect management’s best estimate of fair value, such fair value measurements are considered a lower level measurement in the fair value hierarchy.

White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing each hedge fund’s and private equity fund’s audited annual financial statements and periodically discussing each fund’s pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. Accordingly, the fair values of White Mountains’ investments in hedge funds and private equity funds have been classified as Level 3 measurements. The fair value of White Mountains’ investments in hedge funds and private equity funds has been determined using net asset value.

In addition to the investments described above, White Mountains has $66.1 million and $77.8 million of investment-related liabilities recorded at fair value and included in other liabilities as of September 30, 2011 and December 31, 2010.  These liabilities relate to securities that have been sold short by limited partnerships in which White Mountains has investments and is required to consolidate under GAAP.  All of the liabilities included have a Level 1 designation.

Fair Value Measurements by Level

The following tables summarize White Mountains’ fair value measurements for investments at September 30, 2011 and December 31, 2010, by level. The fair value measurements for derivative assets associated with White Mountains’ variable annuity reinsurance business are presented in Note 8.

	September 30, 2011
Millions	Fair value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Fixed maturities:
US Government and agency obligations	$	353.1	$	343.5	$	9.6	$	—
Debt securities issued by corporations:
Consumer	719.0		—		719.0		—
Industrial	425.3		—		425.3		—
Financials	243.4		5.7		212.2		25.5
Communications	211.0		—		211.0		—
Energy	118.0		—		118.0		—
Basic materials	160.1		—		160.1		—
Utilities	148.3		—		148.3		—
Technology	25.3		—		25.3		—
Diversified	3.5		—		3.5		—
Total debt securities issued by corporations:	2,053.9		5.7		2,022.7		25.5
Municipal obligations	2.4		—		2.4		—
Mortgage-backed and asset-backed securities	2,240.6		—		2,108.7		131.9
Foreign government, agency and provincial obligations	666.0		64.5		601.5		—
Preferred stocks	74.6		—		15.1		59.5
Total fixed maturities(2)	5,390.6		413.7		4,760.0		216.9
Short-term investments	772.8		759.0		13.8		—
Common equity securities:
Financials	191.6		159.4		.5		31.7
Consumer	166.0		164.8		1.2		—
Basic materials	108.4		107.2		1.2		—
Energy	57.5		57.5		—		—
Utilities	40.7		40.7		—		—
Technology	28.6		27.6		1.0		—
Other	77.0		25.3		51.3		.4
Total common equity securities	669.8		582.5		55.2		32.1
Convertible fixed maturity investments	140.5		—		140.5		—
Other long-term investments(1)	292.2		—		—		292.2
Total investments	$	7,265.9	$	1,755.2	$	4,969.5	$	541.2

(1)  Excludes carrying value of $36.6 associated with other long-term investment limited partnerships accounted for using the equity method.

(2)  Carrying value includes $102.9 that is classified as assets held for sale relating to AutoOne discontinued operations.

	December 31, 2010
Millions	Fair value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Fixed maturities:
US Government and agency obligations	$	398.7	$	388.9	$	9.8	$	—
Debt securities issued by corporations:
Consumer	769.0		—		769.0		—
Industrial	511.3		—		511.3		—
Financials	265.8		6.3		259.5		—
Communications	226.3		—		226.3		—
Basic materials	125.3		—		125.3		—
Utilities	106.7		—		106.7		—
Energy	151.5		—		151.5		—
Technology	22.1		—		22.1		—
Total debt securities issued by corporations:	2,178.0		6.3		2,171.7		—
Municipal obligations	3.3		—		3.3
Mortgage-backed and asset-backed securities	2,071.7		—		2,014.7		57.0
Foreign government, agency and provincial obligations	1,046.5		82.6		963.9		—
Preferred stocks	87.9		—		16.5		71.4
Total fixed maturities	5,786.1		477.8		5,179.9		128.4
Short-term investments	975.3		878.7		96.6		—
Common equity securities:
Financials	221.6		152.6		1.2		67.8
Consumer	123.3		122.5		.8		—
Basic materials	98.8		97.1		1.7		—
Energy	60.2		60.2		—		—
Utilities	47.6		44.6		—		3.0
Technology	31.8		30.4		1.4		—
Other	83.7		30.5		52.8		.4
Total common equity securities	667.0		537.9		57.9		71.2
Convertible fixed maturity investments	143.0		—		143.0		—
Other long-term investments(1)	330.2		—		—		330.2
Total investments	$	7,901.6	$	1,894.4	$	5,477.4	$	529.8

(1) Excludes carrying value of $41.9 associated with other long-term investment limited partnerships accounted for using the equity method.

Debt securities issued by corporations

The following table summarizes the ratings of the corporate debt securities held in White Mountains’ investment portfolio as of September 30, 2011 and December 31, 2010:

Millions	September 30, 2011		December 31, 2010
AAA	$	—	$	—
AA	217.4		210.0
A	765.0		833.7
BBB	1,059.8		1,109.1
BB	5.5		24.5
Other	6.2		.7
Debt securities issued by corporations	$	2,053.9	$	2,178.0

Mortgage-backed, Asset-backed Securities

White Mountains purchases commercial and residential mortgage-backed securities with the goal of maximizing risk adjusted returns in the context of a diversified portfolio. White Mountains’ non-agency commercial mortgage-backed portfolio (“CMBS”) is generally short tenor, fixed rate and structurally senior, with more than 20 points of subordination on average for fixed rate CMBS and more than 55 points of subordination on average for floating rate CMBS as of September 30, 2011.  In general, subordination represents the percentage principal loss on the underlying collateral that would be absorbed by other securities lower in the capital structure before the more senior security incurs any loss. White Mountains believes these levels of protection will mitigate the risk of loss tied to the refinancing challenges facing the commercial real estate market.  As of September 30, 2011, on average approximately 2% of the underlying loans were reported as non-performing for all non-agency CMBS held by White Mountains. White Mountains is not an originator of residential mortgage loans and did not hold any residential mortgage-backed securities (“RMBS”) categorized as sub-prime as of September 30, 2011.  White Mountains’ investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities at September 30, 2011. White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be a sub-prime risk regardless of credit scores or other metrics).

White Mountains categorizes mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’ review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. White Mountains’ non-agency residential mortgage-backed portfolio is generally of moderate average life and structurally senior. White Mountains does not own any collateralized debt obligations, including residential mortgage-backed collateralized debt obligations.

	September 30, 2011						December 31, 2010
Millions	Fair Value		Level 2		Level 3		Fair Value		Level 2		Level 3
Mortgage-backed securities:
Agency:
GNMA	$	1,268.0	$	1,136.1	$	131.9	$	1,143.6	$	1,102.7	$	40.9
FNMA	268.9		268.9		—		234.9		234.9		—
FHLMC	56.6		56.6		—		39.1		39.1		—
Total Agency(1)	1,593.5		1,461.6		131.9		1,417.6		1,376.7		40.9
Non-agency:
Residential	68.0		68.0		—		90.6		74.5		16.1
Commercial	243.5		243.5		—		87.0		87.0		—
Total Non-agency	311.5		311.5		—		177.6		161.5		16.1
Total mortgage-backed securities	1,905.0		1,773.1		131.9		1,595.2		1,538.2		57.0
Other asset-backed securities:
Credit card receivables	77.5		77.5		—		248.3		248.3		—
Vehicle receivables	235.5		235.5		—		228.1		228.1		—
Other	22.6		22.6		—		.1		.1		—
Total other asset-backed securities	335.6		335.6		—		476.5		476.5		—
Total mortgage and asset-backed securities	$	2,240.6	$	2,108.7	$	131.9	$	2,071.7	$	2,014.7	$	57.0

(1) Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

Non-agency Mortgage-backed Securities

The security issuance years of White Mountains’ investments in non-agency RMBS and non-agency CMBS securities as of September 30, 2011 are as follows:

			Security Issuance Year
Millions	Fair Value		2003		2005		2006		2007		2009		2010		2011
Non-agency RMBS	$	68.0	$	3.7	$	—	$	24.3	$	29.5	$	—	$	10.5	$	—
Non-agency CMBS	243.5		2.4		14.7		—		17.1		11.3		2.2		195.8
Total	$	311.5	$	6.1	$	14.7	$	24.3	$	46.6	$	11.3	$	12.7	$	195.8

Non-agency Residential Mortgage-backed Securities

The classification of the underlying collateral quality and the tranche levels of White Mountains’ non-agency RMBS securities are as follows as of September 30, 2011:

Millions	Fair Value		Super Senior (1)		Senior (2)		Subordinate(3)
Prime	$	49.9	$	23.2	$	26.7	$	—
Non-prime	18.1		17.2		.9		—
Sub-prime	—		—		—		—
Total	$	68.0	$	40.4	$	27.6	$	—

(1)	At issuance, Super Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to other AAA or Aaa bonds.
(2)	At issuance, Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to non-AAA or non-Aaa bonds.
(3)	At issuance, Subordinate were not rated AAA by Standard & Poor’s or Aaa by Moody’s and were junior to AAA or Aaa bonds.

Non-agency Commercial Mortgage-backed Securities

The amount of fixed and floating rate securities and their tranche levels of White Mountains’ non-agency CMBS securities are as follows as of September 30, 2011:

Millions	Fair Value		Super Senior (1)		Senior(2)		Subordinate(3)
Fixed rate CMBS	$	201.8	$	24.3	$	177.5	$	—
Floating rate CMBS	41.7		31.8		9.9		—
Total	$	243.5	$	56.1	$	187.4	$	—

(1)	At issuance, Super Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to other AAA or Aaa bonds.
(2)	At issuance, Senior were rated AAA by Standard & Poor’s or Aaa by Moody’s and were senior to non-AAA or non-Aaa bonds.
(3)	At issuance, Subordinate were not rated AAA by Standard & Poor’s or Aaa by Moody’s and were junior to AAA or Aaa bonds.

Rollforward of Fair Value Measurements by Level

White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturities, common equity securities, convertible fixed maturities and other long-term investments at September 30, 2011 are comprised of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.

The following table summarizes the changes in White Mountains’ fair value measurements by level for the nine months ended September 30, 2011:

							Level 3 Investments
Millions	Level 1 Investments			Level 2 Investments			Fixed Maturities			Common equity securities			Convertible fixed maturities		Other long- term investments			Total
Balance at January 1, 2011	$	1,894.4		$	5,477.4		$	128.4		$	71.2		$	—	$	330.2	(1)	$	7,901.6	(1)
Total realized and unrealized gains (losses)	(50.5		)	115.9			(10.6		)	(4.9		)	—		22.5			72.4
Foreign currency gains (losses) through OCI and other revenue	.3			(84.4		)	(4.4		)	1.6			—		(5.0		)	(91.9		)
Amortization/Accretion	2.4			(40.7		)	(.1		)				—					(38.4		)
Purchases	6,690.7			3,987.4			212.8			19.7			—		27.9			10,938.5
Sales	(6,782.1		)	(4,596.9		)	1.6			(55.5		)	—		(83.4		)	(11,516.3		)
Transfers in	—			111.8			1.0			—			—		—			112.8
Transfers out	—			(1.0		)	(111.8		)	—			—		—			(112.8		)
Balance at September 30, 2011	$	1,755.2		$	4,969.5		$	216.9		$	32.1		$	—	$	292.2	(1)	$	7,265.9	(1)

(1) Excludes carrying value of $36.6 and $41.9 at September 30, 2011 and January 1, 2011 associated with other long-term investment limited partnerships accounted for using the equity method.

Fair Value Measurements — transfers between levels - Nine-month period ended September 30, 2011

During the first nine months of 2011, seven securities which had been classified as Level 3 measurements in the prior period were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available at September 30, 2011. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $111.8 million in fixed maturities for the period ended September 30, 2011. One security that was classified as a Level 2 investment in the prior period was priced with unobservable inputs during the current period and represents the “Transfers in” of $1 million in Level 3 investments.  The fair value of this security was estimated using industry standard pricing models, in which management selected inputs using its best judgment.  The security is considered to be Level 3 because the measurements are not directly observable. At September 30, 2011, the estimated fair value for this security determined using the industry standard pricing models was $0.8 million less than the estimated fair value based upon quoted prices provided by a third party.