Discontinued Operations

Esurance

On October 7, 2011, White Mountains completed the sale of Esurance Insurance and AFI to Allstate (see Note 2). As a result of the transaction, Esurance Insurance, AFI and the business Esurance Insurance cedes to Sirius Group (collectively, “the Esurance Disposal Group”) are reported as discontinued operations. White Mountains recognized a gain of $677.5 million on the Esurance Sale which is recorded net of tax in discontinued operations. Effective as of December 31, 2011, the results of operations for the Esurance Disposal Group have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income.

AutoOne

On February 22, 2012, OneBeacon completed the sale of the AutoOne business to Interboro. AutoOne operated as a division within OneBeacon that offered products and services to automobile assigned risk markets. The transaction included the sale of two insurance entities, AOIC and AOSIC, through which substantially all of the AutoOne business was written on a direct basis. The results of operations for the AutoOne business have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income. The assets and liabilities associated with the AutoOne business as of December 31, 2011 have been presented in the balance sheet as held for sale.

During the third quarter of 2012, OneBeacon and Interboro finalized the post-closing adjustments to the closing balance sheet resulting in OneBeacon recording a net gain of $0.5 million after tax. This after-tax net gain is included in loss from sale of discontinued operations in the statements of comprehensive income (loss) for the three and nine months ended September 30, 2012. During the third quarter of 2011, OneBeacon recorded an after-tax loss of $18.2 million in loss from sale of discontinued operations for the estimated loss on sale of AutoOne.

OneBeacon runoff business

On October 17, 2012, OneBeacon entered into an agreement to sell its runoff business to Armour. For the nine months ended September 30, 2012, the results of operations for the runoff business have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income. Prior year results of operations have been reclassified to conform to the current period’s presentation. The assets and liabilities associated with the runoff business as of September 30, 2012 have been presented in the balance sheet as held for sale. The amounts classified as discontinued operations exclude investing and financing activities that are conducted on an overall consolidated level and, accordingly, there were no separately identifiable investments associated with the runoff business. Therefore, the prior period balance sheet has not been reclassified to conform to the current period's presentation.

During the third quarter of 2012, OneBeacon recorded $100.5 million in after-tax losses related to the Runoff Transaction. These losses are presented in discontinued operations and are composed of a $91.5 million after-tax loss on sale and a $9.0 million after-tax loss related to a reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale. OneBeacon also recognized $6.5 million of after-tax underwriting losses primarily related to unfavorable loss reserve development from a legacy assumed reinsurance treaty, which is presented in discontinued operations.

Reinsurance

Included in the assets held for sale are reinsurance recoverables from two reinsurance contracts with subsidiaries of Berkshire Hathaway Inc. that OneBeacon was required to purchase in connection with White Mountains' acquisition of OneBeacon in 2001: a reinsurance contract with National Indemnity Company (“NICO”) for up to $2.5 billion in old asbestos and environmental (“A&E”) claims and certain other exposures (the “NICO Cover”) and an adverse loss reserve development cover from General Reinsurance Corporation (“GRC”) for up to $570.0 million, comprised of $400.0 million of adverse loss reserve development occurring in years 2000 and prior (the “GRC Cover”) in addition to $170.0 million of reserves ceded as of the date of the OneBeacon Acquisition. The NICO Cover and GRC Cover, which were contingent on and occurred contemporaneously with the OneBeacon Acquisition, were put in place in lieu of a seller guarantee of loss and LAE reserves and are therefore accounted for under GAAP as a seller guarantee. As of September 30, 2012, the total reinsurance recoverables on paid and unpaid losses of $1,449.2 million related to both the NICO cover and the GRC cover has been included in assets held for sale. Both NICO and GRC have an A.M Best rating of A++, Superior, which is the highest of fifteen ratings.

The total reinsurance recoverables on paid and unpaid losses in assets held for sale were $17.6 million and $2,110.0 million as of September 30, 2012. The reinsurance recoverable on unpaid amount is gross of $153.4 million in purchase accounting adjustments that will become recoverable if claims are paid in accordance with current reserve estimates. In addition, $36.7 million of the amount that is currently included in assets held for sale on the balance sheet will be reported in reinsurance recoverables on unpaid losses when the Runoff Transaction closes (at the then current value) as a result of a related reinsurance contract.

Net Assets Held for Sale

The following summarizes the assets and liabilities associated with the businesses classified as held for sale:



Millions	September 30, 2012		December 31, 2011
Assets held for sale
Fixed maturity investments, at fair value	$	377.3	$	111.8
Cash	—		5.5
Reinsurance recoverable on unpaid losses	1,956.6		—
Reinsurance recoverable on paid losses	17.6		—
Insurance premiums receivable	13.6		8.8
Deferred acquisition costs	—		2.2
Deferred tax asset	6.1		1.9
Other assets	17.0		2.4
Total assets held for sale	$	2,388.2	$	132.6
Liabilities held for sale
Loss and loss adjustment expense reserves	$	2,212.9	$	64.7
Unearned insurance premiums	.6		34.1
Ceded reinsurance payable	19.5		—
Other liabilities	155.2		8.8
Total liabilities held for sale	2,388.2		107.6
Net assets held for sale	$	—	$	25.0

Loss from Discontinued Operations

The following summarizes the results of operations, including related income taxes associated with the businesses classified as discontinued operations:



	Three Months Ended						Nine Months Ended
Millions, except per share amounts	Sept 30,						Sept 30,
	2012			2011			2012			2011
Revenues
Earned insurance premiums	$	(.4	)	$	233.3		$	10.0		$	701.9
Net investment income	—			3.8			—			11.8
Net realized and unrealized investment gains (losses)	—			(6.4		)	—			1.4
Other revenue	—			17.5			—			54.0
Total revenues	(.4		)	248.2			10.0			769.1
Expenses
Loss and loss adjustment expenses	27.7			177.4			48.4			512.3
Insurance and reinsurance acquisition expenses	(.8		)	51.4			(1.3		)	154.1
Other underwriting expenses	(1.1		)	35.0			1.1			83.9
General and administrative expenses	—			1.7			—			37.5
Total expenses	25.8			265.5			48.2			787.8
Pre-tax loss	(26.2		)	(17.3		)	(38.2		)	(18.7		)
Income tax benefit	10.4			5.3			13.7			10.9
Loss from discontinued operations	(15.8		)	(12.0		)	(24.5		)	(7.8		)
Loss from sale of discontinued operations	(91.0		)	(18.2		)	(91.0		)	(18.2		)
Net loss from discontinued operations	$	(106.8	)	$	(30.2	)	$	(115.5	)	$	(26.0	)

Loss Per Share

Basic loss per share amounts are based on the weighted average number of common shares outstanding including unvested restricted shares that are considered participating securities. Diluted loss per share amounts are based on the weighted average number of common shares including unvested restricted shares and the net effect of potentially dilutive common shares outstanding.

The following table outlines the computation of loss per share for discontinued operations for the three and nine months ended September 30, 2012 and 2011:



	Three Months Ended						Nine Months Ended
	Sept 30,						Sept 30,
	2012			2011			2012			2011
Basic and diluted loss per share numerators (in millions):
Net loss attributable to White Mountains’ common shareholders	$	(106.8	)	$	(30.2	)	$	(115.5	)	$	(26.0	)
Allocation of income for participating unvested restricted common shares ⁽¹⁾	1.5			.3			1.5			.2
Net loss attributable to White Mountains’ common shareholders, net of restricted common share amounts⁽²⁾	$	(105.3	)	$	(29.9	)	$	(114.0	)	$	(25.8	)
Basic loss per share denominators (in thousands):
Total average common shares outstanding during the period	6,590.4			7,919.3			6,885.9			7,970.0
Average unvested restricted common shares⁽³⁾	(96.5		)	(73.5		)	(89.5		)	(68.0		)
Basic loss per share denominator	6,493.9			7,845.8			6,796.4			7,902.0
Diluted loss per share denominator (in thousands):
Total average common shares outstanding during the period	6,590.4			7,919.3			6,885.9			7,970.0
Average unvested restricted common shares	(96.5		)	(73.5		)	(89.5		)	(68.0		)
Average outstanding dilutive options to acquire common shares	—			—			—			—
Diluted loss per share denominator	6,493.9			7,845.8			6,796.4			7,902.0
Basic and diluted loss per share (in dollars):	$	(16.21	)	$	(3.81	)	$	(16.77	)	$	(3.26	)

⁽¹⁾Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities.

⁽²⁾Net loss attributable to White Mountains’ common shareholders, net of restricted share amounts, is equal to undistributed loss for the three and nine months ended September 30, 2012 and 2011.

⁽³⁾ Restricted common shares outstanding vest either in equal annual installments or upon a stated date (see Note 12)