Employee Share-Based Incentive Compensation Plans

White Mountains’ Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees and service providers of the Company and certain of its subsidiaries. White Mountains’ share-based compensation incentive awards consist of performance shares, restricted shares and stock options.

Share-Based Compensation Based on White Mountains Common Shares

WTM Performance Shares

Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of common shares at the time awards are paid. The following table summarizes performance share activity for the three and six months ended June 30, 2012 and 2011 for performance shares granted under the WTM Incentive Plan and phantom performance shares granted under the Sirius Group Performance Plan (the “WTM Phantom Share Plan”):



	Three Months Ended June 30,									Six Months Ended June 30,
	2012				2011					2012					2011
Millions, except share amounts	Target Performance Shares Outstanding	Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	118,450	$	27.4		149,820		$	35.6		150,064		$	66.1		163,184		$	29.4
Shares paid or expired ⁽¹⁾	—	—			—		—			(68,357	)	(48.4		)	(51,131	)	—
New grants	—	—			250		—			35,932		—			37,675		—
Assumed forfeitures and cancellations ⁽²⁾	—	(.2		)	(6	)	(.5		)	811		.8			336		(.6		)
Expense recognized	—	5.5			—		21.4			—		14.2			—		27.7
Ending June 30,	118,450	$	32.7		150,064		$	56.5		118,450		$	32.7		150,064		$	56.5

⁽¹⁾WTM performance share payments in 2012 for the 2009-2011 performance cycle ranged from147% to 155% of target. There were no payments made in 2011 for the 2008-2010 performance cycle; those performance shares did not meet the threshold performance goals and expired.

⁽²⁾Amounts include changes in assumed forfeitures, as required under GAAP.

For the 2009-2011 performance cycle, the Company issued common shares for 9,577 performance shares earned and all other performance shares earned were settled in cash.

If the outstanding WTM performance shares had vested on June 30, 2012, the total additional compensation cost to be recognized would have been $30.4 million, based on accrual factors at June 30, 2012 (common share price and payout assumptions).

Performance Shares granted under the WTM Incentive Plan

The following table summarizes performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at June 30, 2012 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2010 – 2012	42,890		$	17.2
2011 – 2013	37,675		10.7
2012 – 2014	35,932		3.3
Sub-total	116,497		31.2
Assumed forfeitures	(2,912	)	(.9		)
Total at June 30, 2012	113,585		$	30.3

Phantom Performance Shares granted under WTM Phantom Share Plan

The following table summarizes phantom performance shares outstanding and accrued expense for grants made under WTM Phantom Share Plan at June 30, 2012 for each performance cycle:



Millions, except share amounts	Target WTM Phantom Performance Shares Outstanding		Accrued Expense
Performance cycle:
2010 – 2012	4,990		$	2.4
2011 – 2013 ⁽¹⁾	—		—
2012 – 2014 ⁽¹⁾	—		—
Sub-total	4,990		2.4
Assumed forfeitures	(125	)	—
Total at June 30, 2012	4,865		$	2.4

⁽¹⁾ All performance shares for the 2011–2013 and 2012–2014 performance cycles were granted from the

WTM Incentive Plan.

Restricted Shares

The following outlines the unrecognized compensation cost associated with the outstanding restricted share awards for the three and six months ended June 30, 2012 and 2011:



	Three Months Ended June 30,									Six Months Ended June 30,
	2012					2011				2012					2011
Millions, except share amounts	Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	93,460		$	24.5		73,250	$	21.7		72,000		$	13.3		46,250	$	14.1
Issued	—		—			250	.1			28,460		13.7			27,250	9.9
Vested	—		—			—	—			(7,000	)	—			—	—
Forfeited	—		—			—	—			—		—			—	—
Expense recognized	—		(3.0		)	—	(2.9		)	—		(5.5		)	—	(5.1		)
Non-vested at June 30,	93,460	—	$	21.5		73,500	$	18.9		93,460		$	21.5		73,500	$	18.9

During the first quarter of 2012, White Mountains issued 25,460 restricted shares that vest on January 1, 2015 and 3,000 restricted shares that vest in two equal annual installments beginning in February 2014. During the second quarter of 2011, White Mountains issued 250 restricted shares that vest on January 1, 2014. During the first quarter of 2011, White Mountains issued 27,000 restricted shares that vest on January 1, 2014. The unrecognized compensation cost at June 30, 2012 is expected to be recognized ratably over the remaining vesting periods.

Non-Qualified Options

In January 2007, the Company issued 200,000 seven-year Non-Qualified Options to the Company’s Chairman and CEO that vested in equal annual installments over five years and that had an initial exercise price of $650 per common share that escalated at an annual rate of 5% less the annual regular dividend rate. At the 2010 Annual General Meeting of Members held on May 26, 2010, the Company’s shareholders approved the following amendments to the Non-Qualified Options: (1) extend the term of the Non-Qualified Options by three years to January 20, 2017; (2) freeze the exercise price at $742 per common share, the exercise price on February 24, 2010; (3) extinguish 75,000 of the 200,000 Non-Qualified Options; and (4) limit the potential in-the-money value of the Non-Qualified Options in excess of $100.0 million to 50% of the amount in excess of $100.0 million. For the six months ended June 30, 2011, White Mountains recognized a total of $0.1 million of expense related to amortizing the Non-Qualified Options. As of the first quarter of 2011 the Non-Qualified Options were fully amortized.

Share-Based Compensation Based on OneBeacon Ltd. Common Shares

The OneBeacon Long-Term Incentive Plan (the “OneBeacon Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees of OneBeacon Ltd. and certain of its subsidiaries. OneBeacon’s share-based incentive awards consist of OneBeacon performance shares, stock options granted in connection with OneBeacon’s initial public offering, restricted shares and restricted stock units (“RSUs”).

OneBeacon Performance Shares

OneBeacon performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. OneBeacon performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of OneBeacon Ltd. common shares at the time awards are paid.

The following table summarizes performance share activity for the three and six months ended June 30, 2012 and 2011 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:



	Three Months Ended June 30,										Six Months Ended June 30,
	2012					2011					2012					2011
Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	569,745		$	3.2		718,172		$	8.4		642,667		$	9.7		1,464,295		$	18.5
Payments and deferrals⁽¹⁾⁽²⁾	(9,168	)	(.3		)	—		—			(258,901	)	(7.8		)	(936,150	)	(10.5		)
New awards	—		—			—		—			181,290		—			194,900		—
Assumed forfeitures and cancellations⁽³⁾	—		—			(46,445	)	(0.3		)	(4,479	)	—			(51,318	)	(.3		)
Expense recognized	—		.2			—		1.9			—		1.2			—		2.3
Ending June 30,	560,577		$	3.1		671,727		$	10.0		560,577		$	3.1		671,727		$	10.0

⁽¹⁾ OneBeacon performance share payments in 2012 for the 2009-2011 performance cycle were at 138.6% of target. OneBeacon performance shares payments in 2011 for the 2008-2010 performance cycle were at 68.5% of target. Amounts include deposits into OneBeacon’s deferred compensation plan.

⁽²⁾ OneBeacon performance share payments also include accelerated payments resulting from the OneBeacon Personal Lines and Commercial Lines Transactions. The accelerated OneBeacon performance shares payments for the 2009-2011 and 2010-2012 performance cycles were on a pro rata basis and at a performance factor of 100%.

⁽³⁾ Amounts include changes in assumed forfeitures, as required under GAAP.

If the outstanding OneBeacon performance shares had been vested on June 30, 2012, the total additional compensation cost to be recognized would have been $3.4 million, based on accrual factors at June 30, 2012 (common share price and payout assumptions).

The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at June 30, 2012 for each performance cycle:



Millions, except share amounts	Target OneBeacon Performance Shares Outstanding		Accrued Expense
Performance cycle:
2010 – 2012	242,098		$	1.7
2011 – 2013	151,563		1.1
2012 – 2014	181,290		.4
Sub-total	574,951		3.2
Assumed forfeitures	(14,374	)	(.1		)
Total at June 30, 2012	560,577		$	3.1

OneBeacon Restricted Shares

The following outlines the unrecognized compensation cost associated with the outstanding restricted share awards for the three and six months ended June 30, 2012:



	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
Millions, except share amounts	Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	930,000	$	11.9		—	$	—		630,000	$	7.7		—	$	—
Issued	—	—			630,000	8.6			300,000	4.6			630,000	8.6
Vested	—	—			—	—			—	—			—	—
Forfeited	—	—			—	—			—	—			—	—
Expense recognized	—	(.7		)	—	(.1		)	—	(1.1		)	—	(.1		)
Non-vested at June 30,	930,000	$	11.2		630,000	$	8.5		930,000	$	11.2		630,000	$	8.5

On March 1, 2012, OneBeacon issued 300,000 restricted shares that vest in two equal annual installments beginning on February 28, 2014.

On May 25, 2011, OneBeacon issued 630,000 restricted shares to its CEO that vest in four equal annual installments beginning on February 22, 2014. Concurrently with the grant of the restricted shares, 35,000 OneBeacon performance shares issued to OneBeacon’s CEO for the 2011-2013 performance share cycle were forfeited and performance share awards to OneBeacon’s CEO for the next five years will also be reduced by 35,000 shares.

The unrecognized compensation cost at June 30, 2012 is expected to be recognized ratably over the remaining vesting periods.

Non-Qualified Options

In November 2006, in connection with its initial public offering, OneBeacon Ltd. issued to its key employees 1,420,000 OneBeacon Non-Qualified Options to acquire OneBeacon Ltd. common shares at an above-market fixed exercise price.

The following table summarizes option activity for the three and six months ended June 30, 2012 and 2011:



	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
Millions, except share amounts	Target Options Outstanding		Expense Amortized		Target Options Outstanding		Expense Amortized		Target Options Outstanding		Expense Amortized		Target Options Outstanding		Expense Amortized
Beginning of period	740,870		$	5.0	768,652		$	4.6	740,870		$	5.0	768,652		$	4.5
New awards	—		—		—		—		—		—		—		—
Forfeitures and cancellations	—		—		(18,522	)	—		—		—		(18,522	)	—
Vested and expired	(740,870	)	—		—		—		(740,870	)	—		—		—
Exercised	—		—		—		—		—		—		—		—
Expense recognized	—		—		—		.2		—		—		—		.3
Ending June 30,	—		$	5.0	750,130		$	4.8	—		$	5.0	750,130		$	4.8

The fair value of each option award at grant was estimated using a Black-Scholes option pricing model using an expected volatility assumption of 30%, a risk-free interest rate assumption of 4.6%, a forfeiture assumption of 5%, an expected dividend rate assumption of 3.4% and an expected term assumption of 5.5 years. The options originally had a per share exercise price of $30.00. On May 27, 2008, the OneBeacon Compensation Committee of the Board of Directors (the “OB Compensation Committee”) amended the exercise price to $27.97 as a result of the $2.03 per share special dividend paid in the first quarter of 2008. On November 16, 2010, the OB Compensation Committee adjusted the exercise price to $25.47 as a result of the $2.50 per share special dividend paid in the third quarter of 2010. The compensation expense associated with the options and the incremental fair value of the award modifications were recognized ratably over the vesting period. As of December 31, 2011, the OneBeacon Non-Qualified Options were fully amortized. As of June 30, 2012, the options have expired unexercised.

Restricted Stock Units

The Non-Qualified Options granted by OneBeacon Ltd., in connection with its initial public offering, did not include a mechanism in the options to reflect the contribution to total return from the regular quarterly dividend. As a result, during the first quarter of 2008, OneBeacon granted 116,270 Restricted Stock Units (“RSUs”) to actively employed option holders that were scheduled to vest equally on November 9, 2009, 2010 and 2011 subject to, for each vesting tranche of units, the attainment of 4% growth in OneBeacon’s book value per share from January 1, 2008 through the end of the calendar year immediately following the applicable vesting date. Consistent with the terms of the RSU plan, all of the RSUs have vested and were deferred into a OneBeacon non-qualified deferred compensation plan that were paid out in May 2012.