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Variable Annuity Reinsurance and Weather Derivatives (Tables)
 12 Months Ended
Dec. 31, 2011
Variable Annuity Reinsurance and Weather Derivatives  
Pre-tax operating results of WM Life Re

The following table summarizes the pre-tax operating results of WM Life Re for the years ended December 31, 2011, 2010 and 2009:

 

 

 

Year Ended December 31,

 

Millions

 

2011

 

2010

 

2009

 

Fees, included in other revenues

 

$

32.5

 

$

30.2

 

$

28.5

 

Change in fair value of variable annuity liability, included in other revenues

 

(156.5

)

(223.5

)

77.1

 

Change in fair value of derivatives, included in other revenues

 

92.9

 

127.0

 

(158.4

)

Foreign exchange, included in other revenues

 

15.1

 

21.4

 

(3.9

)

Other investment income and gains (losses)

 

(.9

)

(.9

)

(1.4

)

Total revenues

 

(16.9

)

(45.8

)

(58.1

)

Change in fair value of variable annuity death benefit liabilities, included in other expenses

 

(1.8

)

(6.0

)

9.3

 

Death benefit claims paid, included in other expenses

 

(3.8

)

(2.7

)

(2.2

)

General and administrative expenses

 

(4.7

)

(6.3

)

(5.6

)

Pre-tax loss

 

$

(27.2

)

$

(60.8

)

$

(56.6

)
Changes in White Mountains' variable annuity reinsurance liabilities and derivative instruments

The following table summarizes the changes in White Mountains’ variable annuity reinsurance liabilities and derivative instruments for the year ended December 31, 2011:

 

 

 

Variable Annuity
(Liabilities)

 

Derivative Instruments

 

Millions

 

Level 3

 

Level 3 (1)

 

Level 2 (1)(2)

 

Level 1 (3)

 

Total(4)

 

Balance at January 1, 2011

 

$

(610.2

)

$

275.3

 

$

72.2

 

$

—

 

$

347.5

 

Purchases

 

—

 

5.0

 

—

 

—

 

5.0

 

Realized and unrealized gains (losses)

 

(158.3

)

14.5

 

67.7

 

10.7

 

92.9

 

Transfers in (out)

 

—

 

—

 

—

 

—

 

—

 

Sales/settlements

 

—

 

(47.7

)

(100.7

)

(6.6

)

(155.0

)

Balance at December 31, 2011

 

$

(768.5

)

$

247.1

 

$

39.2

 

$

4.1

 

$

290.4

 

 

(1)   Comprises over-the-counter instruments.

(2)   Comprises interest rate swaps, total return swaps and foreign currency forward contracts. Fair value measurement based upon bid/ask pricing quotes for similar instruments that are actively traded, where available.  Swaps for which an active market does not exist have been priced using observable inputs including the swap curve and the underlying bond index.

(3)   Comprises exchange traded equity index, foreign currency and interest rate futures. Fair value measurements based upon quoted prices for identical instruments that are actively traded.

(4)   In addition to derivative instruments, WM Life Re held cash, short-term and fixed maturity investments of $485.3 at December 31, 2011 posted as collateral to its counterparties.
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument

The following summarizes realized and unrealized derivative gains (losses) recognized in other revenues for the years ended December 31, 2011, 2010, and 2009 and the carrying values at December 31, 2011 and 2010 by type of instrument:

 

 

 

 

 

 

 

 

 

Carrying Value

 

 

 

Year Ended December 31,

 

December 31,

 

Millions

 

2011

 

2010

 

2009

 

2011

 

2010

 

Fixed income/interest rate

 

$

8.9

 

$

17.6

 

$

8.0

 

$

31.1

 

$

43.9

 

Foreign exchange

 

29.5

 

144.6

 

(69.5

)

161.3

 

225.3

 

Equity

 

54.5

 

(35.2

)

(96.9

)

98.0

 

78.3

 

Total

 

$

92.9

 

$

127.0

 

$

(158.4

)

$

290.4

 

$

347.5
Summary of collateral provided to WM Life Re from counterparties

The following summarizes collateral provided to WM Life Re from counterparties:

 

 

 

Year Ended December 31,

 

Millions

 

2011

 

2010

 

Short term investments

 

$

73.2

 

$

52.4

 

Fixed maturity securities

 

—

 

48.6

 

Total

 

$

73.2

 

$

101.0
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments

The following summarizes the value of collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments recorded within other assets:

 

Millions

 

December 31, 2011

 

December 31, 2010

 

OTC derivative instruments(1)

 

$

295.4

 

$

351.5

 

Collateral held

 

(73.2

)

(101.0

)

Collateral provided

 

83.0

 

25.3

 

Net exposure on fair value of OTC instruments

 

$

305.2

 

$

275.8

 

 

 

(1)   Value of OTC derivative instruments as of December 31, 2011 and 2010 excludes adjustments for counterparty credit risk of $(9.1) and $(4.0) included in fair value under GAAP.
Summary of uncollateralized amounts due under WM Life Re's OTC derivative contracts

The following table summarizes uncollateralized amounts due under WM Life Re’s OTC derivative contracts as of December 31, 2011 by counterparty:

 

Millions

 

Uncollateralized
balance as of
December 31, 2011

 

Standard & Poor’s
Rating(1)

 

Royal Bank of Scotland

 

$

82.5

 

A-

 

Citigroup (2)

 

67.7

 

A-

 

Bank of America

 

54.2

 

A-

 

JP Morgan Chase(2)

 

34.2

 

A

 

Nomura(2)

 

31.9

 

BBB+

 

Barclays

 

25.1

 

A

 

Goldman Sachs

 

9.6

 

A-

 

Total

 

$

305.2

 

 

 

 

(1)   Standard & Poor’s ratings as detailed above are:  “A” (which is the sixth highest of twenty-one creditworthiness ratings), “A-” (which is the seventh highest of twenty-one creditworthiness ratings), and BBB+ (which is the eighth highest of twenty-one creditworthiness ratings).

(2)   Collateral provided (held) calculated under master netting agreement.
Summary of additional collateral posted for variable reinsurance counterparties

The total collateral comprises the following:

 

 

 

Year Ended December 31,

 

Millions

 

2011

 

2010

 

Cash

 

$

453.5

 

$

291.1

 

Short-term investments

 

.6

 

31.6

 

Fixed maturity investments

 

31.2

 

3.3

 

Total

 

$

485.3

 

$

326.0