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Variable Annuity Reinsurance (Tables)
 6 Months Ended
Jun. 30, 2012
Variable Annuity Reinsurance Disclosure [Abstract]  
Pre-tax operating results of WM Life Re
The following table summarizes the pre-tax operating results of WM Life Re for the three and six months ended June 30, 2012 and 2011:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2012
 
2011
 
2012
 
2011
Fees, included in other revenues
 
$
8.0

 
$
8.0

 
$
16.0

 
$
15.9

Change in fair value of variable annuity liability, included in
     other revenues
 
(110.5
)
 
(35.9
)
 
100.8

 
16.4

Change in fair value of derivatives, included in other revenues
 
95.5

 
22.0

 
(111.0
)
 
(43.5
)
Foreign exchange, included in other revenues
 
7.6

 
6.9

 
(15.4
)
 
2.3

Other investment income and gains (losses)
 
1.2

 
(.2
)
 
(.9
)
 
(.6
)
Total revenues
 
1.8

 
.8

 
(10.5
)
 
(9.5
)
Change in fair value of variable annuity death benefit liabilities,
     included in other expenses
 
(2.8
)
 
(.5
)
 
5.9

 
2.5

Death benefit claims paid, included in other expenses
 
(1.7
)
 
(.7
)
 
(3.4
)
 
(1.7
)
General and administrative expenses
 
(1.3
)
 
(1.4
)
 
(2.7
)
 
(2.1
)
Pre-tax loss
 
$
(4.0
)
 
$
(1.8
)
 
$
(10.7
)
 
$
(10.8
)
Changes in White Mountains' variable annuity reinsurance liabilities and derivative instruments
The following tables summarize the changes in White Mountains’ variable annuity reinsurance liabilities and derivative instruments for the three and six months ended June 30, 2012 and 2011:
 
 
 
Three Months Ended June 30, 2012
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Beginning of period
 
$
(548.5
)
 
$
183.8

 
$
(.1
)
 
$
(9.4
)
 
$
174.3

Purchases
 
—

 
—

 
—

 
—

 
—

Realized and unrealized (losses) gains
 
(113.3
)
 
29.5

 
41.7

 
24.3

 
95.5

Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(.3
)
 
19.4

 
(38.6
)
 
(19.5
)
End of period
 
$
(661.8
)
 
$
213.0

 
$
61.0

 
$
(23.7
)
 
$
250.3


 
 
Six Months Ended June 30, 2012
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Beginning of period
 
$
(768.5
)
 
$
247.1

 
$
39.2

 
$
4.1

 
$
290.4

Purchases
 
—

 
6.1

 
—

 
—

 
6.1

Realized and unrealized gains (losses)
 
106.7

 
(30.8
)
 
(56.5
)
 
(23.7
)
 
(111.0
)
Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(9.4
)
 
78.3

 
(4.1
)
 
64.8

End of period
 
$
(661.8
)
 
$
213.0

 
$
61.0

 
$
(23.7
)
 
$
250.3




 
 
Three Months Ended June 30, 2011
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Beginning of period
 
$
(554.9
)
 
$
226.0

 
$
54.8

 
$
7.3

 
$
288.1

Purchases
 
—

 
—

 
—

 
—

 
—

Realized and unrealized (losses) gains
 
(36.4
)
 
6.7

 
12.5

 
2.8

 
22.0

Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
—

 
(19.1
)
 
(22.0
)
 
(41.1
)
End of period
 
$
(591.3
)
 
$
232.7

 
$
48.2

 
$
(11.9
)
 
$
269.0

 
 
 
Six Months Ended June 30, 2011
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Beginning of period
 
$
(610.2
)
 
$
275.3

 
$
72.2

 
$
—

 
$
347.5

Purchases
 
—

 
5.0

 
—

 
—

 
5.0

Realized and unrealized gains (losses)
 
18.9

 
(18.5
)
 
(8.2
)
 
(16.8
)
 
(43.5
)
Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(29.1
)
 
(15.8
)
 
4.9

 
(40.0
)
End of period
 
$
(591.3
)
 
$
232.7

 
$
48.2

 
$
(11.9
)
 
$
269.0

(1) Consists of over-the-counter instruments.
(2) Consists of interest rate swaps, total return swaps, foreign currency forward contracts, and bond forwards. 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) Consists of 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 $471.6 and $370.5 at June 30, 2012 and 2011 posted as collateral to its reinsurance counterparties.
Schedule of significant unobservable inputs associated with the fair value estimates for variable annuity reinsurance liabilities and derivative instruments
The following summarizes quantitative information about significant unobservable inputs associated with the fair value estimates for variable annuity reinsurance liabilities and derivative instruments that have been classified as Level 3 measurements:
 
 
 
June 30, 2012
($ in Millions)
Description
 
Fair 
Value
 
Valuation 
Technique(s)
 
Unobservable Input
 
Range
 
Weighted Average
Variable annuity benefit guarantee liabilities
 
$
661.8

 
Discounted cash flows
 
Surrenders
 
0.1
%
-
3.0
%
 
0.7
%
 

 
 
 
Mortality
 
—
%
-
6.4
%
 
1.0
%
 

 
 
 
Foreign exchange volatilities
 
12.3
%
-
29.1
%
 
16.5
%
 

 
 
 
Index volatilities
 
13.1
%
-
32.1
%
 
22.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange and equity index options
 
$
213.0

 
Black-Scholes option pricing model
 
Expected equity dividends
 
1.5
%
-
4.1
%
 
2.7
%
 

 
Foreign exchange volatilities
 
12.3
%
-
29.1
%
 
16.5
%
 

 
 
 
Index volatilities
 
13.1
%
-
32.1
%
 
22.7
%
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 three and six months ended June 30, 2012 and 2011 and the carrying values, included in other assets, at June 30, 2012 and December 31, 2011, by type of instrument:
 
 
 
Gains (Losses)

 
Carrying Value
 
 
Three Months Ended
 
Six Months Ended
 
As of
 
 
June 30,
 
June 30,
 
June 30,
2012
 
December 31,
2011
Millions
 
2012
 
2011
 
2012
 
2011
 
 
Fixed income/Interest rate
 
$
28.6

 
$
(6.3
)
 
$
(50.5
)
 
$
(12.5
)
 
$
64.8

 
$
31.1

Foreign exchange
 
27.4

 
17.1

 
(27.5
)
 
(30.2
)
 
127.7

 
161.3

Equity
 
39.5

 
11.2

 
(33.0
)
 
(.8
)
 
57.8

 
98.0

Total
 
$
95.5

 
$
22.0

 
$
(111.0
)
 
$
(43.5
)
 
$
250.3

 
$
290.4
Summary of collateral provided to WM Life Re from counterparties
  The following summarizes collateral provided to WM Life Re from counterparties:
 
Millions
 
June 30, 2012
 
December 31, 2011
Short-term investments
 
$
86.9

 
$
73.2

Fixed maturity securities
 
—

 
—

Total
 
$
86.9

 
$
73.2
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments
The following summarizes the value, collateral (held) provided by WM Life Re and net exposure to credit losses on OTC derivative instruments recorded within other assets:
 
Millions
 
June 30, 2012
 
December 31, 2011
OTC derivative instruments (1)
 
$
282.2

 
$
295.4

Collateral held
 
(86.9
)
 
(73.2
)
Collateral provided
 
62.6

 
83.0

Net exposure to credit losses on fair value of OTC instruments
 
$
257.9

 
$
305.2

 (1) Value of OTC derivative instruments as of June 30, 2012 and December 31, 2011 excludes adjustments for counterparty credit risk of $(8.2)
and $(9.1) included in fair value under GAAP.
T
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:
 
 
 
Uncollateralized
balance as of
 
 
Millions
 
June 30, 2012
 
S&P Rating(1)
Citigroup (2)
 
$
55.6

 
A-
Royal Bank of Scotland
 
67.4

 
A-
Bank of America
 
52.9

 
A-
JP Morgan (2)
 
27.8

 
A
Nomura (2)
 
30.5

 
BBB+
Barclays
 
20.6

 
A
Goldman Sachs (2)
 
3.1

 
A-
Total
 
$
257.9

 
 
(1) Standard & Poor’s (“S&P”) ratings as detailed above are: “A” (Strong, which is the sixth highest of
twenty-one creditworthiness ratings), “A-” (Strong, which is the seventh highest of twenty-one creditworthiness
ratings) and “BBB+” (Adequate, 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 additional collateral consists of the following:
 
Millions
 
June 30, 2012
 
December 31, 2011
Cash
 
$
360.0

 
$
453.5

Short-term investments
 
20.6

 
.6

Fixed maturity investments
 
91.0

 
31.2

Total
 
$
471.6

 
$
485.3