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Investment Securities
 12 Months Ended
Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities

Net Investment Income
White Mountains’ net investment income is comprised primarily of interest income associated with White Mountains’ fixed maturity investments, dividend income from its equity investments and interest income from its short-term investments.
Pre-tax net investment income for 2012, 2011 and 2010 consisted of the following:
 
 
Year Ended December 31,
Millions
 
2012
 
2011
 
2010
Investment income:
 
 
 
 
 
 
Fixed maturity investments
 
$
132.0

 
$
166.2

 
$
194.7

Short-term investments
 
3.1

 
4.5

 
3.0

Common equity securities
 
22.2

 
15.4

 
10.2

Convertible fixed maturity investments
 
6.0

 
5.5

 
5.6

Other long-term investments
 
3.1

 
4.2

 
6.0

Interest on funds held under reinsurance treaties
 
.6

 
(.4
)
 
(1.7
)
Total investment income
 
167.0

 
195.4

 
217.8

Third-party investment expenses
 
(13.4
)
 
(10.9
)
 
(8.9
)
Net investment income, pre-tax
 
$
153.6

 
$
184.5

 
$
208.9



Net Realized and Unrealized Investment Gains and Losses
The following table summarizes net realized investment gains (losses) and changes in the carrying value of investments measured at fair value:
 
 
Year Ended December 31, 2012
Millions
 
Net
realized and unrealized
gains
(losses)
 
Net
foreign
currency
gains
(losses)
 
Total net realized
and unrealized gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
101.0

 
$
(48.4
)
 
$
52.6

Short-term investments
 
—

 
(4.2
)
 
(4.2
)
Common equity securities
 
67.2

 
(.1
)
 
67.1

Convertible fixed maturity investments
 
2.5

 
—

 
2.5

Other long-term investments
 
5.0

 
(4.5
)
 
.5

Forward contracts
 
(.3
)
 
—

 
(.3
)
Net realized and unrealized investment gains (losses), pre-tax
 
175.4

 
(57.2
)
 
118.2

Income taxes attributable to realized and unrealized investment gains (losses)
 
(41.7
)
 
14.9

 
(26.8
)
Net realized and unrealized investment gains (losses), after-tax
 
$
133.7

 
$
(42.3
)
 
$
91.4

 
 
Year Ended December 31, 2011
Millions
 
Net
realized and unrealized
gains
(losses)
 
Net
foreign
currency
gains
(losses)
 
Total net realized
and unrealized gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
57.0

 
$
30.6

 
$
87.6

Short-term investments
 
—

 
(11.0
)
 
(11.0
)
Common equity securities
 
(6.0
)
 
(1.8
)
 
(7.8
)
Convertible fixed maturity investments
 
(13.7
)
 
—

 
(13.7
)
Other long-term investments
 
16.1

 
2.9

 
19.0

Net realized and unrealized investment gains, pre-tax
 
53.4

 
20.7

 
74.1

Income taxes attributable to realized and unrealized investment gains
 
(13.0
)
 
(5.1
)
 
(18.1
)
Net realized and unrealized investment gains, after-tax
 
$
40.4

 
$
15.6

 
$
56.0

 
 
Year Ended December 31, 2010
Millions
 
Net
realized and unrealized
gains
(losses)
 
Net
foreign
currency
gains
(losses)
 
Total net realized
and unrealized gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
29.5

 
$
(61.6
)
 
$
(32.1
)
Short-term investments
 
—

 
(9.1
)
 
(9.1
)
Common equity securities
 
79.3

 
(8.0
)
 
71.3

Convertible fixed maturity investments
 
11.3

 
—

 
11.3

Other long-term investments
 
33.5

 
2.7

 
36.2

Net realized and unrealized investment gains (losses), pre-tax
 
153.6

 
(76.0
)
 
77.6

Income taxes attributable to realized and unrealized investment gains (losses)
 
(41.6
)
 
20.1

 
(21.5
)
Net realized and unrealized investment gains (losses), after-tax
 
$
112.0

 
$
(55.9
)
 
$
56.1



White Mountains recognized gross realized investment gains of $162.2 million, $191.6 million and $205.0 million and gross realized investment losses of $94.1 million, $123.3 million and $73.6 million on sales of investment securities during 2012, 2011 and 2010.
As of December 31, 2012 and 2011 White Mountains reported $11.4 million and $34.6 million in accounts payable on unsettled investment purchases and $3.9 million and $4.7 million in accounts receivable on unsettled investment sales.
The following table summarizes the amount of total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the years ended December 31, 2012, 2011 and 2010.
 
 
Year Ended December 31,
Millions
 
2012
 
2011
 
2010
Fixed maturities
 
$
7.7

 
$
(12.2
)
 
$
10.2

Common equity securities
 
3.0

 
(16.6
)
 
(19.2
)
Convertible fixed maturities
 
—

 
—

 
—

Other long-term investments
 
7.0

 
(16.8
)
 
39.0

Total net unrealized investment gains (losses), pre-tax - Level 3 investments
 
$
17.7

 
$
(45.6
)
 
$
30.0



The components of White Mountains’ net realized and unrealized investment gains (losses), after-tax, as recorded on the statements of operations and comprehensive income were as follows:
 
 
Year Ended December 31,
Millions
 
2012
 
2011
 
2010
Net change in pre-tax unrealized gains (losses) on investments in unconsolidated affiliates
 
$
62.8

 
$
(63.6
)
 
$
72.7

Income taxes
 
(5.1
)
 
5.1

 
.8

Net change in unrealized gains (losses) on investments in unconsolidated affiliates, after tax
 
57.7

 
(58.5
)
 
73.5

Net realized and unrealized foreign currency gains (losses) on investments through OCI
 
95.5

 
(41.7
)
 
107.9

Total investments gains (losses) through accumulated other comprehensive income
 
153.2

 
(100.2
)
 
181.4

Net realized and unrealized investment gains, after-tax
 
91.4

 
56.0

 
56.1

Total investment gains (losses) recorded during the period, after-tax
 
$
244.6

 
$
(44.2
)
 
$
237.5


Investment Holdings
The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’ fixed maturity investments as of December 31, 2012 and 2011, were as follows:
 
 
December 31, 2012
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
losses
 
Carrying
value
US Government and agency obligations
 
$
440.4

 
$
1.0

 
$
(0.1
)
 
$
(1.2
)
 
$
440.1

Debt securities issued by industrial corporations
 
2,321.4

 
88.3

 
(1.6
)
 
(23.0
)
 
2,385.1

Municipal obligations
 
5.3

 
—

 
(0.1
)
 
—

 
5.2

Mortgage-backed and asset-backed securities
 
2,081.0

 
25.1

 
(1.1
)
 
(9.4
)
 
2,095.6

Foreign government, agency and provincial obligations
 
526.6

 
6.9

 
(3.0
)
 
(8.6
)
 
521.9

Preferred stocks
 
79.9

 
6.7

 
—

 
(0.2
)
 
86.4

Total fixed maturity investments including assets held for sale
 
$
5,454.6

 
$
128.0

 
$
(5.9
)
 
$
(42.4
)
 
$
5,534.3

Fixed maturity investments reclassified to assets held for sale (1)
 
 
 
 
 
 
 
 
 
(338.1
)
Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
5,196.2

(1) Assets held for sale related to discontinued operations. See Note 20.
 
 
December 31, 2011
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
US Government and agency obligations
 
$
299.4

 
$
5.3

 
$
(0.1
)
 
$
0.4

 
$
305.0

Debt securities issued by industrial corporations
 
2,072.1

 
73.7

 
(7.8
)
 
(2.9
)
 
2,135.1

Municipal obligations
 
2.7

 
—

 
—

 
—

 
2.7

Mortgage-backed and asset-backed securities
 
3,190.5

 
25.9

 
(3.9
)
 
10.4

 
3,222.9

Foreign government, agency and provincial obligations
 
581.2

 
11.0

 
(0.1
)
 
(2.9
)
 
589.2

Preferred stocks
 
82.3

 
3.2

 
(6.7
)
 
—

 
78.8

Total fixed maturity investments including assets held for sale
 
$
6,228.2

 
$
119.1

 
$
(18.6
)
 
$
5.0

 
$
6,333.7

Fixed maturity investments reclassified to assets held for sale (1)
 
 
 
 
 
 
 
 
 
(111.8
)
Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
6,221.9

(1) Assets held for sale related to discontinued operations. See Note 20.

The weighted average duration of White Mountains’ fixed maturity portfolio at December 31, 2012 was approximately 2.4 years, including short-term investments, and approximately 2.7 years excluding short-term investments.
The cost or amortized cost and carrying value of White Mountains’ fixed maturity investments and convertible fixed maturity investments at December 31, 2012 is presented below by contractual maturity. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
 
 
December 31, 2012
Millions
 
Cost or
amortized cost
 
Carrying
value
Due in one year or less
 
$
395.9

 
$
396.7

Due after one year through five years
 
2,297.8

 
2,336.7

Due after five years through ten years
 
648.9

 
671.6

Due after ten years
 
72.8

 
74.7

Mortgage-backed and asset-backed securities
 
2,081.0

 
2,095.6

Preferred stocks
 
79.9

 
86.4

Total
 
$
5,576.3

 
$
5,661.7



The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’ common equity securities, convertible fixed maturity investments and other long-term investments as of December 31, 2012 and 2011 were as follows:
 
 
December 31, 2012
Millions
 
Cost or
amortized cost
 
Gross unrealized
gains
 
Gross unrealized
losses
 
Net foreign
currency losses
 
Carrying
value
Common equity securities
 
$
895.2

 
$
143.4

 
$
(8.8
)
 
$
(.1
)
 
$
1,029.7

Convertible fixed maturity investments
 
$
121.7

 
$
6.1

 
$
(.4
)
 
$
—

 
$
127.4

Other long-term investments
 
$
257.2

 
$
65.9

 
$
(22.8
)
 
$
(6.1
)
 
$
294.2

 
 
December 31, 2011
Millions
 
Cost or
amortized cost
 
Gross unrealized
gains
 
Gross unrealized
losses
 
Net foreign
currency losses
 
Carrying
value
Common equity securities
 
$
691.7

 
$
72.0

 
$
(8.7
)
 
$
—

 
$
755.0

Convertible fixed maturity investments
 
$
139.2

 
$
6.2

 
$
(1.6
)
 
$
—

 
143.8

Other long-term investments
 
$
274.4

 
$
55.5

 
$
(25.2
)
 
$
(3.4
)
 
$
301.3



Sales and maturities of investments, excluding short-term investments, totaled $6,997.5 million, $5,034.0 million and $4,492.6 million for the years ended December 31, 2012, 2011 and 2010. There were no non-cash exchanges or involuntary sales of investment securities during 2012, 2011 and 2010.

Investments Held on Deposit or as Collateral
As of December 31, 2012 and 2011, investments of $169.9 million and $79.2 million, respectively, were held in trusts required to be maintained in relation to various reinsurance agreements. White Mountains’ consolidated insurance and reinsurance operations are required to maintain deposits with certain insurance regulatory agencies in order to maintain their insurance licenses. The fair value of such deposits which are included within total investments totaled $319.3 million and $313.4 million as of December 31, 2012 and 2011.

Fair value measurements at December 31, 2012
White Mountains used quoted market prices or other observable inputs to determine fair value for the 95.0% of its investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, common equities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs consist of fixed maturity investments including corporate debt, state and other governmental debt, convertible fixed maturity securities and mortgage and asset-backed securities. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains’ investments in hedge funds and private equity funds, as well as investments in certain debt securities where quoted market prices are unavailable. White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services used by White Mountains have indicated that if no observable inputs are available for a security, they will not provide a price. In those circumstances, White Mountains estimates the fair value using industry standard pricing models and observable inputs such as benchmark interest rates, matrix pricing, market comparables, broker quotes, issuer spreads, bids, offers, credit rating, prepayment speeds and other relevant inputs. White Mountains performs procedures to validate the market prices obtained from the outside pricing sources. Such procedures, which cover substantially all of its fixed maturity investments include, but are not limited to, evaluation of model pricing methodologies and review of the pricing services’ quality control processes and procedures on at least an annual basis, comparison of market prices to prices obtained from different independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices, and review of assumptions utilized by the pricing service for selected measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5.0% and $1.0 million from the expected price based on these procedures are considered outliers. In circumstances where the results of White Mountains’ review process do not appear to support the market price provided by the pricing services, White Mountains challenges the price. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question. The fair values of such securities are considered to be Level 3 measurements.
 White Mountains’ investments in debt securities are generally valued using matrix and other pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds.  Income on mortgage-backed and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized or accreted prospectively over the remaining economic life.
White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of each hedge fund and private equity fund and periodically discussing each fund’s pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. Accordingly, the fair value of White Mountains’ investments in hedge funds and private equity funds has been classified as Level 3 measurements. The fair value of White Mountains’ investments in hedge funds and private equity funds has been determined using net asset value.
 In addition to the investments described above, White Mountains has $79.7 million and $68.1 million of investment-related liabilities recorded at fair value and included in other liabilities as of December 31, 2012 and December 31, 2011.  These liabilities relate to securities that have been sold short by limited partnerships in which White Mountains has investments and is required to consolidate under GAAP.  All of the liabilities included have a Level 1 designation.
Fair Value Measurements by Level
The following tables summarize White Mountains’ fair value measurements for investments at December 31, 2012 and 2011 by level. The fair value measurements for derivative assets associated with White Mountains’ variable annuity business are presented in Note 8.
 
 
December 31, 2012
Millions
 
Fair value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Fixed maturity investments:
 
 
 
 
 
 
 
 
U.S. Government and agency obligations
 
$
440.1

 
$
369.1

 
$
71.0

 
$
—

Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Consumer
 
727.1

 
—

 
727.1

 
—

Industrial
 
330.8

 
—

 
330.8

 
—

Financials
 
401.4

 
1.0

 
400.4

 
—

Communications
 
276.1

 
—

 
276.1

 
—

Energy
 
181.5

 
—

 
181.5

 
—

Basic materials
 
189.1

 
—

 
189.1

 
—

Utilities
 
204.2

 
—

 
204.2

 
—

Technology
 
54.0

 
—

 
54.0

 
—

Other
 
20.9

 
—

 
20.9

 
—

Total debt securities issued by corporations:
 
2,385.1

 
1.0

 
2,384.1

 
—

 
 
 
 
 
 
 
 
 
Municipal obligations
 
5.2

 
—

 
5.2

 
—

Mortgage-backed and asset-backed securities
 
2,095.6

 
—

 
2,073.5

 
22.1

Foreign government, agency and provincial obligations
 
521.9

 
52.1

 
469.8

 
—

Preferred stocks
 
86.4

 
—

 
15.6

 
70.8

Total fixed maturity investments (1)
 
5,534.3

 
422.2

 
5,019.2

 
92.9

 
 
 
 
 
 
 
 
 
Short-term investments
 
630.6

 
630.6

 
—

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
324.5

 
286.3

 
.9

 
37.3

Consumer
 
255.6

 
255.6

 
—

 
—

Basic materials
 
103.3

 
103.3

 
—

 
—

Energy
 
101.0

 
101.0

 
—

 
—

Utilities
 
43.6

 
43.4

 
.2

 
—

Technology
 
90.2

 
90.2

 
—

 
—

Other
 
111.5

 
53.1

 
58.4

 
—

Total common equity securities
 
1,029.7

 
932.9

 
59.5

 
37.3

Convertible fixed maturity investments
 
127.4

 
—

 
127.4

 
—

Other long-term investments (2) 
 
259.3

 
—

 
—

 
259.3

Total investments
 
$
7,581.3

 
$
1,985.7

 
$
5,206.1

 
$
389.5

(1) Carrying value includes $338.1 that is classified as assets held for sale relating to discontinued operations.
(2) Excludes carrying value of $35.0 associated with other long-term investment limited partnerships accounted for using the equity method and $(0.1) related to currency forward contracts.
 
 
December 31, 2011
Millions
 
Fair value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Fixed maturity investments:
 
 

 
 

 
 

 
 

US Government and agency obligations
 
$
305.0

 
$
296.2

 
$
8.8

 
$
—

Debt securities issued by corporations:
 
 

 
 

 
 

 
 

Consumer
 
790.7

 
—

 
790.7

 
—

Industrial
 
359.4

 
—

 
359.4

 
—

Financials
 
239.6

 
3.8

 
235.8

 
—

Communications
 
225.8

 
—

 
225.8

 
—

Basic materials
 
195.7

 
—

 
195.7

 
—

Energy
 
155.8

 
—

 
155.8

 
—

Utilities
 
140.1

 
—

 
140.1

 
—

Technology
 
24.5

 
—

 
24.5

 
—

Diversified
 
3.5

 
—

 
3.5

 
—

Total debt securities issued by corporations:
 
2,135.1

 
3.8

 
2,131.3

 
—

 
 
 
 
 
 
 
 
 
Municipal obligations
 
2.7

 
—

 
2.7

 
—

Mortgage-backed and asset-backed securities
 
3,222.9

 
—

 
3,207.8

 
15.1

Foreign government, agency and provincial obligations
 
589.2

 
65.7

 
523.5

 
—

Preferred stocks
 
78.8

 
—

 
15.0

 
63.8

Total fixed maturity investments (1)
 
6,333.7

 
365.7

 
5,889.1

 
78.9

 
 
 
 
 
 
 
 
 
Short-term investments
 
846.0

 
846.0

 
—

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
219.2

 
185.8

 
1.5

 
31.9

Consumer
 
188.8

 
188.5

 
.3

 
—

Basic materials
 
121.0

 
119.9

 
1.1

 
—

Energy
 
72.6

 
72.6

 
—

 
—

Utilities
 
42.0

 
41.8

 
.2

 
—

Technology
 
25.8

 
25.8

 
—

 
—

Other
 
85.6

 
33.0

 
52.2

 
.4

Total common equity securities
 
755.0

 
667.4

 
55.3

 
32.3

Convertible fixed maturity investments
 
143.8

 
—

 
143.8

 
—

Other long-term investments (2)
 
268.3

 
—

 
—

 
268.3

Total investments
 
$
8,346.8

 
$
1,879.1

 
$
6,088.2

 
$
379.5

(1) Carrying value includes $111.8 that is classified as assets held for sale relating to discontinued operations.
(2) Excludes carrying value of $33.0 associated with other long-term investments accounted for using the equity method.


Debt securities issued by corporations
The following table summarizes the ratings of the corporate debt securities held in White Mountains’ investment portfolio as of December 31, 2012 and 2011:
 
 
Fair Value at
 
 
December 31,
Millions
 
2012
 
2011
AAA
 
$
—

 
$
—

AA
 
193.4

 
206.8

A
 
1,061.0

 
802.8

BBB
 
1,116.9

 
1,110.8

BB
 
7.0

 
6.2

Other
 
6.8

 
8.5

Debt securities issued by corporations (1)
 
$
2,385.1

 
$
2,135.1

(1) Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) and 2) Moody’s Investor Service (“Moody’s”).

Mortgage-backed, Asset-backed Securities
White Mountains purchases commercial and residential mortgage-backed securities with the goal of maximizing risk adjusted returns in the context of a diversified portfolio. White Mountains’ non-agency commercial mortgage-backed portfolio (“CMBS”) is generally short-term and structurally senior, with more than 25 points of subordination on average for fixed rate CMBS and more than 50 points of subordination on average for floating rate CMBS as of December 31, 2012.  In general, subordination represents the percentage principal loss on the underlying collateral that would be absorbed by other securities lower in the capital structure before the more senior security incurs a loss. White Mountains believes these levels of protection will mitigate the risk of loss tied to the refinancing challenges facing the commercial real estate market.  As of December 31, 2012, on average less than 1.0% of the underlying loans were reported as non-performing for all non-agency CMBS held by White Mountains. White Mountains is not an originator of residential mortgage loans and did not hold any residential mortgage-backed securities (“RMBS”) categorized as sub-prime as of December 31, 2012. White Mountains’ investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities at December 31, 2012. White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics).
White Mountains categorizes mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’ review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. White Mountains’ non-agency residential mortgage-backed portfolio is generally moderate-term and structurally senior. White Mountains does not own any collateralized debt obligations, including residential mortgage-backed collateralized debt obligations.
 
 
December 31, 2012
 
December 31, 2011
Millions
 
Fair Value
 
Level 2
 
Level 3
 
Fair Value
 
Level 2
 
Level 3
Mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

 
 

 
 

GNMA
 
$
1,013.4

 
$
1,013.4

 
$
—

 
$
1,365.8

 
$
1,365.8

 
$
—

FNMA
 
74.6

 
74.6

 
—

 
712.6

 
712.6

 
—

FHLMC
 
55.8

 
55.8

 
—

 
35.9

 
35.9

 
—

Total Agency (1)
 
1,143.8

 
1,143.8

 
—

 
2,114.3

 
2,114.3

 
—

Non-agency:
 
 

 
 

 
 

 
 

 
 

 
 

Residential
 
160.6

 
160.6

 
—

 
83.1

 
68.0

 
15.1

Commercial
 
334.1

 
334.1

 
—

 
276.7

 
276.7

 
—

Total Non-agency
 
494.7

 
494.7

 
—

 
359.8

 
344.7

 
15.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage-backed securities
 
1,638.5

 
1,638.5

 
—

 
2,474.1

 
2,459.0

 
15.1

Other asset-backed securities:
 
 

 
 
 
 
 
 

 
 

 
 

Credit card receivables
 
173.5

 
151.4

 
22.1

 
380.6

 
380.6

 
—

Vehicle receivables
 
265.1

 
265.1

 
—

 
345.6

 
345.6

 
—

Other
 
18.5

 
18.5

 
—

 
22.6

 
22.6

 
—

Total other asset-backed securities
 
457.1

 
435.0

 
22.1

 
748.8

 
748.8

 
—

Total mortgage and asset-backed securities
 
$
2,095.6

 
$
2,073.5

 
$
22.1

 
$
3,222.9

 
$
3,207.8

 
$
15.1

(1)  Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

Non-agency Mortgage-backed Securities
The security issuance years of White Mountains’ investments in non-agency RMBS and non-agency CMBS securities as of December 31, 2012 are as follows:
 
 
 
 
Security Issuance Year
 
 
Millions
 
Fair Value
 
2003
 
2006
 
2007
 
2009
 
2010
 
2011
 
2012
Non-agency RMBS
 
$
160.6

 
$
2.0

 
$
21.4

 
$
5.9

 
$
1.7

 
$
54.0

 
$
75.6

 
$
—

Non-agency CMBS
 
334.1

 
—

 
8.8

 
15.6

 
—

 
13.4

 
99.8

 
196.5

Total
 
494.7

 
$
2.0

 
$
30.2

 
$
21.5

 
$
1.7

 
$
67.4

 
$
175.4

 
$
196.5



Non-agency Residential Mortgage-backed Securities
The classification of the underlying collateral quality and the tranche levels of White Mountains’ non-agency RMBS securities are as follows as of December 31, 2012:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Prime
 
$
160.1

 
$
9.7

 
$
150.4

 
$
—

Non-prime
 
.5

 
—

 
.5

 
—

Sub-prime
 
—

 
—

 
—

 
—

Total
 
$
160.6

 
$
9.7

 
$
150.9

 
$
—

(1) At issuance, Super Senior were rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch Ratings (“Fitch”) and were senior to other AAA or Aaa bonds.
(2) At issuance, Senior were rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch and were senior to non-AAA or non-Aaa bonds.
(3) At issuance, Subordinate were not rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch and were junior to AAA or Aaa bonds. 

Non-agency Commercial Mortgage-backed Securities
The amount of fixed and floating rate securities and their tranche levels of White Mountains’ non-agency CMBS securities are as follows as of December 31, 2012:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Fixed rate CMBS
 
$
311.5

 
$
212.3

 
$
90.4

 
$
8.8

Floating rate CMBS
 
22.6

 
15.6

 
1.4

 
5.6

Total
 
$
334.1

 
$
227.9

 
$
91.8

 
$
14.4

(1)  At issuance, Super Senior were rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch and were senior to other AAA or Aaa bonds.
(2) At issuance, Senior were rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch and were senior to non-AAA or non-Aaa bonds.
(3)  At issuance, Subordinate were not rated AAA by Standard & Poor’s, Aaa by Moody’s or AAA by Fitch and were junior to AAA or Aaa bonds. 

Other long-term investments
White Mountains holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments has been estimated using the net asset value of the funds. At December 31, 2012, White Mountains held investments in 16 hedge funds and 38 private equity funds.  The largest investment in a single fund was $16.0 million at December 31, 2012 and $27.4 million at December 31, 2011. The following table summarizes investments in hedge funds and private equity interests by investment objective and sector at December 31, 2012 and December 31, 2011:
 
 
December 31, 2012
 
December 31, 2011
Millions
 
Fair Value
 
Unfunded
Commitments (1)
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short equity
 
$
60.3

 
$
—

 
$
48.8

 
$
—

Long/short credit & distressed
 
22.7

 
—

 
32.3

 
—

Long diversified strategies
 
1.7

 
—

 
16.9

 
—

Long/short equity REIT
 
16.0

 
—

 
14.5

 
—

Long/short equity activist
 
13.6

 
—

 
12.3

 
—

Long bank loan
 
.3

 
—

 
.5

 
—

Total hedge funds
 
114.6

 
—

 
125.3

 
—

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Multi-sector
 
23.3

 
5.4

 
26.9

 
8.2

Energy infrastructure & services
 
36.3

 
15.6

 
28.0

 
9.9

Distressed residential real estate
 
15.8

 
—

 
27.4

 
—

Real estate
 
11.6

 
3.3

 
9.5

 
3.3

Private equity secondaries
 
10.5

 
3.1

 
11.3

 
4.0

International multi-sector, Europe
 
5.1

 
5.0

 
7.8

 
4.7

Manufacturing/Industrial
 
9.9

 
15.1

 
6.2

 
—

Healthcare
 
4.3

 
5.4

 
2.3

 
7.0

International multi-sector, Asia
 
.4

 
2.7

 
3.6

 
2.6

Insurance
 
3.0

 
41.3

 
3.5

 
41.3

Aerospace/Defense/Government
 
2.8

 
22.2

 
—

 
—

Venture capital
 
2.2

 
.3

 
2.4

 
.5

Total private equity funds
 
125.2

 
119.4

 
128.9

 
81.5

 
 
 
 
 
 
 
 
 
Total hedge and private equity funds included in other long-term investments
 
$
239.8

 
$
119.4

 
$
254.2

 
$
81.5

(1) White Mountains also has unfunded commitments to a tax advantaged federal affordable housing development fund of $5.3 at December 31, 2012.
Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions.  Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the December 31, 2012 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
 
 
Notice Period
Millions
Redemption frequency
 
30-59 days
notice
 
60-89 days
notice
 
90-119 days
notice
 
120+ days
notice
 
Total
Monthly
 
—

 
—

 
—

 
6.7

 
6.7

Quarterly
 
28.4

 
29.3

 
8.7

 
9.9

 
76.3

Semi-annual
 
—

 
21.8

 
—

 
—

 
21.8

Annual
 
1.7

 
—

 
7.8

 
0.3

 
9.8

Total
 
$
30.1

 
$
51.1

 
$
16.5

 
$
16.9

 
$
114.6



Certain of the hedge fund investments in which White Mountains is invested are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund’s underlying investments are liquidated. At December 31, 2012, distributions of $3.3 million were outstanding from these investments. The actual amount of the final distribution remittances remain subject to market fluctuations. The date at which such remittances will be received is not determinable at December 31, 2012.
White Mountains has also submitted redemption requests for certain of its investments in active hedge funds.  At December 31, 2012, redemptions of $1.9 million are outstanding and are subject to market fluctuations. Redemptions are recorded as receivables when approved by the hedge funds and no longer subject to market fluctuations.
Investments in private equity funds are generally subject to a “lock-up” period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors.
At December 31, 2012, investments in private equity funds were subject to lock-up periods as follows:
 
Millions
 
1-3 years
 
3 – 5 years
 
5 – 10 years
 
>10 years
 
Total
Private Equity Funds — expected lock-up period remaining
 
$
24.6

 
$
11.7

 
79.0

 
$
9.9

 
125.2



Rollforward of Fair Value Measurements by Level
White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities, convertible fixed maturity investments and other long-term investments at December 31, 2012 and 2011 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.
The following tables summarize the changes in White Mountains’ fair value measurements by level for the year ended December 31, 2012 and 2011:
 
 
 
 
 
 
Level 3 Investments
 
 
 
Millions
 
Level 1
Investments
 
Level 2
Investments
 
Fixed
Maturities
 
Common
equity
securities
 
Convertible
fixed
maturities
 
Other long-term
investments
 
Total
 
Balance at January 1, 2012
 
$
1,879.1

 
$
6,088.2

 
$
78.9

 
$
32.3

 
$
—

 
$
268.3

 
$
8,346.8

(1)(2) 
Total realized and unrealized gains (losses)
 
46.8

 
53.6

 
8.7

 
12.4

 
—

 
(3.3
)
 
118.2

  
Foreign currency gains (losses) in OCI and other revenue
 
8.9

 
81.9

 
.8

 
.2

 
—

 
3.7

 
95.5

  
Amortization/Accretion
 
(.8
)
 
(48.0
)
 
(.8
)
 
—

 
—

 
—

 
(49.6
)
 
Purchases
 
7,266.5

 
4,927.1

 
144.4

 
3.1

 
—

 
39.4

 
12,380.5

 
Sales
 
(7,214.8
)
 
(5,937.0
)
 
(99.4
)
 
(10.1
)
 
—

 
(48.8
)
 
(13,310.1
)
 
Transfers in
 
—

 
62.4

 
22.1

 
—

 
—

 
—

 
84.5

  
Transfers out
 
—

 
(22.1
)
 
(61.8
)
 
(.6
)
 
—

 
—

 
(84.5
)
  
Balance at
December 31, 2012
 
$
1,985.7

 
$
5,206.1

 
$
92.9

 
$
37.3

 
$
—

 
$
259.3

 
$
7,581.3

(1)(2) 
(1)  Excludes carrying value of $33.0 and $35.0 at January 1, 2012 and December 31, 2012 associated with other long-term investments accounted for using the equity method and $(0.1) at December 31, 2012 related to currency forward contracts.
(2)  Carrying value includes $111.8 and $338.1 at January 1, 2012 and December 31, 2012 that is classified as assets held for sale relating to discontinued operations.
 
 
 
 
 
 
Level 3 Investments
 
Millions
 
Level 1
Investments
 
Level 2
Investments
 
Fixed
Maturities
 
Common
equity
securities
 
Convertible
fixed
maturities
 
Other long-term
investments
 
Total
 
Balance at January 1, 2011
 
$
1,894.4

 
$
5,477.4

 
$
128.4

 
$
71.2

 
$
—

 
$
330.2

(1) 
$
7,901.6

(1) 
Total realized and unrealized (losses) gains
 
(1.4
)
 
113.2

 
(8.1
)
 
(4.7
)
 
—

 
19.5

  
118.5

 
Foreign currency gains (losses) in OCI and other revenue
 
4.6

 
(76.1
)
 
(4.4
)
 
1.6

 
—

 
(5.0
)
  
(79.3
)
 
Amortization/Accretion
 
2.3

 
(54.2
)
 
0.3

 
—

 
—

 
—

  
(51.6
)
 
Purchases
 
10,653.6

 
8,905.6

 
213.7

 
19.7

 
—

 
58.4

  
19,851.0

 
Sales
 
(10,674.4
)
 
(8,528.7
)
 


 
(55.5
)
 
—

 
(134.8
)
 
(19,393.4
)
 
Transfers in
 
—

 
269.2

 
18.2

 
—

 
—

 
—

  
287.4

 
Transfers out
 
—

 
(18.2
)
 
(269.2
)
 
—

 
—

 
—

  
(287.4
)
 
Balance at
December 31, 2011
 
$
1,879.1

 
$
6,088.2

 
$
78.9

 
$
32.3

 
$
—

 
$
268.3

(1) 
$
8,346.8

(1)(2) 
(1) Excludes carrying value of $33.0 and $41.9 at December 31, 2011 and January 1, 2011 associated with other long-term investment limited partnerships accounted for using the equity method.
(2)  Carrying value includes $111.8 that is classified as assets held for sale relating to AutoOne discontinued operations.

Fair Value Measurements — transfers between levels
 During 2012, two fixed maturity securities classified as Level 3 measurements in the prior period was recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available at December 31, 2012.  These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $61.8 million for the period ended December 31, 2012. For the year-ended December 31, 2012, “Transfers out” of Level 2 and “Transfers in” to Level 3 fixed maturity investments of $22.1 million consists of one asset-backed security for which the estimated fair value was determined using a single broker quote.
At December 31, 2011, ten fixed maturity securities which had been classified as Level 3 measurements at January 1, 2011 were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available at December 31, 2011. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $269.2 million for the period ended December 31, 2011.  One security that was classified as a Level 2 investment at January 1, 2011 was priced with unobservable inputs and represents “Transfers in” of $18.2 million in Level 3 investments.  The fair value of this security was estimated using industry standard pricing models, in which management selected inputs using its best judgment.  The pricing models used by White Mountains use the same valuation methodology for all Level 3 measurements for fixed maturities. The security is considered to be Level 3 because the measurements are not directly observable. At December 31, 2011, the estimated fair value for this security determined using the industry standard pricing models was $1.6 million less than the estimated fair value based upon quoted prices provided by a third party pricing vendor.

Significant Unobservable Inputs
The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3 at December 31, 2012:
($ in Millions)
 
December 31, 2012
 
Description
 
Fair Value
Rating
Valuation Technique(s)
Unobservable Input
Asset-backed securities (1)
 
$22.1
AA+
Broker pricing
Broker quote
 
Preferred Stock (1)
 
$70.8
NR
Discounted cash flow
Discount yield
7.6
%
Private equity securities
 
$36.9
NR
Multiple of GAAP book value
Book value multiple
1.0

(1) As of December 31, 2012 each asset type consists of one security.