Investments in Unconsolidated Affiliates

9 Months Ended

Sep. 30, 2011

Investments in Unconsolidated Affiliates

Investments in Unconsolidated Affiliates

Note 11. Investments in Unconsolidated Affiliates

White Mountains’ investments in unconsolidated affiliates represent investments in other companies in which White Mountains has a significant voting and economic interest but does not control the entity.

Millions	September 30, 2011		December 31, 2010
Symetra common shares	$	449.0	$	350.4
Symetra warrants	7.7		37.1
Total investment in Symetra	456.7		387.5
Pentelia Capital Management	1.9		2.2
Total investments in unconsolidated affiliates	$	458.6	$	389.7

Symetra

At September 30, 2011 and December 31, 2010, White Mountains owned 17.4 million common shares of Symetra and warrants to acquire an additional 9.5 million common shares. White Mountains accounts for its investment in common shares of Symetra using the equity method and accounts for its Symetra warrants as derivatives with changes in fair value recognized as a gain or loss through other revenues.  White Mountains uses a Black Scholes valuation model to determine the fair value of the Symetra warrants.  The major assumptions used in valuing the Symetra warrants at September 30, 2011 were a risk free rate of 0.37%, volatility of 31.64%, an expected life of 2.83 years, a strike price of $11.49 per share and a share price of $8.15 per share.

In January 2010, Symetra completed an initial public offering at a price of $12.00 per share, with 25.3 million shares sold by Symetra and 9.7 million shares sold by existing shareholders.  White Mountains did not sell any of its shares in the offering.  As a result of the offering, White Mountains’ fully converted ownership in Symetra decreased to approximately 20% during the first quarter of 2010.  The issuance of the new Symetra shares at a price below its adjusted book value per share diluted White Mountains’ investment in Symetra’s common shares, resulting in a $16.0 million decrease to White Mountains’ carrying value in Symetra.

The following table summarizes amounts recorded by White Mountains relating to its investment in Symetra for the three months ended September 30, 2011 and 2010:

	Three Months Ended September 30, 2011									Three Months Ended September 30, 2010
	Common									Common
Millions	Shares			Warrants			Total			Shares			Warrants			Total
Carrying value of investment in Symetra as of June 30	$	388.5		$	32.5		$	421.0		$	344.9		$	27.6		$	372.5
Equity in earnings of Symetra (1)	1.6			—			1.6			8.3		(4)	—			8.3
Net unrealized gains from Symetra’s fixed maturity portfolio (2)	59.9			—			59.9			46.9			—			46.9
Dividends received	(1.0		)	—			(1.0		)	(.9		)	—			(.9		)
(Decrease) increase in value of warrants	—			(24.8		)	(24.8		)	—			(10.7		)	(10.7		)
Carrying value of investment in Symetra as September 30 (3)	$	449.0		$	7.7		$	456.7		$	399.2		$	16.9		$	416.1

(1)	Equity in earnings excludes tax expense of $0.1 and $0.7.
(2)	Net unrealized gains excludes tax expense of $4.8 and $3.8.
(3)	Includes White Mountains’ equity in net unrealized gains from Symetra’s fixed maturity portfolio of $147.7 and $120.7 as of September 30, 2011 and 2010, which exclude tax expense of $12.3 and $9.8.
(4)	Includes a $0.1 loss from the dilutive effect of Symetra’s quarterly dividend and the issuance of restricted shares by Symetra.

The following table summarizes amounts recorded by White Mountains relating to its investment in Symetra for the nine months ended September 30, 2011 and 2010:

	Nine Months Ended									Nine Months Ended
	September 30, 2011									September 30, 2010
	Common									Common
Millions	Shares			Warrants			Total			Shares			Warrants			Total
Carrying value of investment in Symetra as of December 31	$	350.4		$	37.1		$	387.5		$	269.2		$	38.5		$	307.7
Equity in earnings of Symetra (1)	17.5			—			17.5			2.1		(4)	—			2.1
Net unrealized gains from Symetra’s fixed maturity portfolio (2)	84.0			—			84.0			129.7		(5)	—			129.7
Dividends received	(2.9		)	—			(2.9		)	(1.8		)	—			(1.8		)
(Decrease) increase in value of warrants	—			(29.4		)	(29.4		)	—			(21.6		)	(21.6		)
Carrying value of investment in Symetra as September 30 (3)	$	449.0		$	7.7		$	456.7		$	399.2		$	16.9		$	416.1

(1)	Equity in earnings excludes tax expense of $1.4 and $0.7.
(2)	Net unrealized gains excludes tax expense of $6.8 and $3.8.
(3)	Includes White Mountains’ equity in net unrealized gains from Symetra’s fixed maturity portfolio of $147.7 and $120.7 as of September 30, 2011 and 2010, which excludes tax expense of $24.2 and $9.8.
(4)	Includes a $17.9 loss from the dilutive effect of Symetra’s initial public offering and a $0.7 loss from the dilutive effect of Symetra’s quarterly dividend and issuance of restricted shares by Symetra.
(5)	Includes a $1.9 gain from the effect of Symetra’s initial public offering.

During the three and nine months ended September 30, 2011, White Mountains received cash dividends from Symetra of $1.0 million and $2.9 million on its common share investment that was recorded as a reduction of White Mountains’ investment in Symetra.  During the three and nine months ended September 30, 2011, White Mountains also received cash dividends from Symetra of $0.6 million and $1.6 million on its investment in Symetra warrants that was recorded in net investment income.

The aggregate value of White Mountains’ investment in common shares of Symetra was $141.8 million based upon the quoted market price of $8.15 at September 30, 2011.  White Mountains believes that the difference in the market value and the carrying value of Symetra’s common shares is temporary.