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 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 year ended December 31, 2012. During 2011, OneBeacon recorded an after-tax loss of $19.2 million in loss from sale of discontinued operations for the estimated loss on sale of AutoOne.

Runoff Transaction

On October 17, 2012, OneBeacon entered into an agreement to sell its runoff business to Armour. During 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 December 31, 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.

For the year ended December 31, 2012, White Mountains recorded a $91.5 million after-tax loss on sale and a $24.0 million loss from operations which included a $9.0 million after-tax loss related to an reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale.

Loss and LAE reserve development. During 2012, OneBeacon experienced $40.0 million of net unfavorable loss reserve development from the runoff business. The net unfavorable loss reserve development was primarily related to related to case incurred development on multiple peril liability and general liability claims and the impact of an adverse court ruling in Mississippi regarding a disputed assessment from an involuntary pool for hurricane Katrina claims. In addition, there was a change in the workers' compensation tabular discount rate from 4.5% to 3.5% that resulted in a charge of $15.2 million.

During 2011, OneBeacon experienced $26.7 million of net unfavorable loss reserve development from the runoff business. The net unfavorable loss reserve development resulted from a detailed review of runoff expenses, principally unallocated loss adjustment expenses (“ULAE”), completed during the fourth quarter of 2011. Specifically, OneBeacon completed a detailed review of loss and defense and cost containment expenses (allocated LAE or “ALAE”) and other adjusting expenses (ULAE) during the fourth quarter of 2011. The analysis considered costs, based on current non-staff expenses and staffing projections for the runoff business, as OneBeacon continued efforts to segregate its claims operations between ongoing claims and runoff claims. The analysis also factored in the revised definition of runoff claims to include the non-specialty commercial lines business that was exited via the renewal rights agreement sale beginning with January 1, 2010 effective dates.

During 2010, OneBeacon experienced $23.1 million of net favorable loss reserve development from the runoff business. The net favorable loss reserve development was primarily due to lower than expected severity on multiple peril liability lines and other general liability lines, particularly for accident years 2004 through 2009. As a result of the lower than expected case incurred loss and ALAE, actuarial methods based on case incurred losses produced lower estimated ultimate losses, resulting in lower estimates of required IBNR.

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 in addition to $170.0 million of reserves ceded as of the date of the OneBeacon Acquisition (the “GRC Cover”) . 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 December 31, 2012, the total reinsurance recoverable on paid and unpaid losses of $1,401.9 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 $15.6 million and $1,840.8 million as of December 31, 2012. The reinsurance recoverable on unpaid amount is gross of $150.1 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.

Asbestos and environmental loss and LAE reserve activity. OneBeacon's reserves include provisions made for claims that assert damages from A&E related exposures. Substantially all of these reserves have been reclassified to liabilities held for sale as of December 31, 2012, as they relate to the runoff business. Asbestos claims relate primarily to injuries asserted by those who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up obligations, particularly as mandated by Federal and state environmental protection agencies. In addition to the factors regarding the reserving process, OneBeacon estimates its A&E reserves based upon, among other factors, facts surrounding reported cases and exposures to claims, such as policy limits and deductibles, current law, past and projected claim activity and past settlement values for similar claims, as well as analysis of industry studies and events, such as recent settlements and asbestos-related bankruptcies. The cost of administering A&E claims, which is an important factor in estimating loss reserves, tends to be higher than in the case of non-A&E claims due to the higher legal costs typically associated with A&E claims.

OneBeacon's reserves for A&E losses at December 31, 2012 represent management's best estimate of its ultimate liability based on information currently available. However, significant uncertainties, including but not limited to case law developments, medical and clean up cost increases and industry settlement practices, limit OneBeacon's ability to accurately

estimate ultimate liability and OneBeacon may be subject to A&E losses beyond currently estimated amounts. In addition,

OneBeacon remains liable for risks reinsured in the event that a reinsurer does not honor its obligations under reinsurance

contracts. OneBeacon cannot reasonably estimate at the present time loss reserve additions arising from any such future adverse loss reserve developments and cannot be sure that allocated loss reserves, plus the remaining capacity under the NICO Cover and other reinsurance contracts, will be sufficient to cover additional liability arising from any such adverse loss reserve

developments.

The following tables summarize reported A&E loss and LAE reserve activities (gross and net of reinsurance) for

OneBeacon for the years ended December 31, 2012, 2011 and 2010, respectively.



Net A&E Loss	Year Ended December 31,
Reserve Activity	2012									2011									2010
				Pre-NICO									Pre-NICO									Pre-NICO
Millions	Gross			Net ⁽¹⁾			Net⁽²⁾			Gross			Net ⁽¹⁾			Net⁽²⁾			Gross			Net ⁽¹⁾			Net⁽²⁾
Asbestos:
Beginning balance	$	1,074.3		$	681.2		$	2.2		$	904.0		$	647.3		$	6.4		$	985.6		$	688.8		$	6.5
Incurred losses and LAE	(.3		)	(.5		)	(.5		)	256.8			32.2			(4.0		)	—			—			—
Paid losses and LAE	(144.6		)	(78.2		)	.7			(86.5		)	1.7			(.2		)	(81.6		)	(41.5		)	(.1		)
Ending balance	929.4			602.5			2.4			1,074.3			681.2			2.2			904.0			647.3			6.4
Environmental:
Beginning balance	279.8			151.6			9.0			119.0			93.8			9.2			350.7			218.6			7.6
Incurred losses and LAE	(.9		)	(.5		)	(.5		)	231.8			62.2			10.0			6.2			6.0			6.0
Paid losses and LAE	(45.9		)	(25.7		)	(2.1		)	(71.0		)	(4.4		)	(10.2		)	(237.9		)	(130.8		)	(4.4		)
Ending balance	233.0			125.4			6.4			279.8			151.6			9.0			119.0			93.8			9.2
Total asbestos and environmental:
Beginning balance	1,354.1			832.8			11.2			1,023.0			741.1			15.6			1,336.3			907.4			14.1
Incurred losses and LAE	(1.2		)	(1.0		)	(1.0		)	488.6			94.4			6.0			6.2			6.0			6.0
Paid losses and LAE	(190.5		)	(103.9		)	(1.4		)	(157.5		)	(2.7		)	(10.4		)	(319.5		)	(172.3		)	(4.5		)
Ending balance	$	1,162.4		$	727.9		$	8.8		$	1,354.1		$	832.8		$	11.2		$	1,023.0		$	741.1		$	15.6

⁽¹⁾Represents A&E reserve activity, net of third-party reinsurance, but prior to the NICO Cover.

⁽²⁾ Includes NICO cover

Net Assets Held for Sale

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



	December 31,
Millions	2012		2011
Assets held for sale
Fixed maturity investments, at fair value	$	338.1	$	111.8
Cash	—		5.5
Reinsurance recoverable on unpaid losses	1,840.8		—
Reinsurance recoverable on paid losses	15.6		—
Insurance premiums receivable	11.0		8.8
Deferred acquisition costs	—		2.2
Deferred tax asset	5.1		1.9
Other assets	16.2		2.4
Total assets held for sale	$	2,226.8	$	132.6
Liabilities held for sale
Loss and loss adjustment expense reserves	$	2,052.6	$	64.7
Unearned insurance premiums	.5		34.1
Ceded reinsurance payable	21.9		—
Other liabilities	151.8		8.8
Total liabilities held for sale	2,226.8		107.6
Net assets held for sale	$	—	$	25.0

Net (Loss) Income from Discontinued Operations

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



	Year Ended December 31,
Millions, except per share amounts	2012			2011			2010
Revenues
Earned insurance premiums	$	10.6		$	731.2		$	1,133.4
Net investment income	—			12.0			19.6
Net realized and unrealized investment gains	—			.7			13.3
Other revenue	—			55.1			71.1
Total revenues	10.6			799.0			1,237.4
Expenses
Loss and loss adjustment expenses	48.4			574.9			851.4
Insurance and reinsurance acquisition expenses	(2.1		)	157.0			251.2
Other underwriting expenses	1.7			91.4			124.9
General and administrative expenses	—			38.3			48.7
Total expenses	48.0			861.6			1,276.2
Pre-tax loss	(37.4		)	(62.6		)	(38.8		)
Income tax benefit	13.4			25.9			8.7
Loss from discontinued operations	(24.0		)	(36.7		)	(30.1		)
Gain on sale of Esurance and AFI, net of tax	—			677.5			—
Loss on sale of AutoOne and Runoff Transaction, net of tax	(91.0		)	(19.2		)	—
Net (loss) income from discontinued operations	$	(115.0	)	$	621.6		$	(30.1	)

Earnings (Loss) Per Share

Basic earnings (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 earnings (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 earnings (loss) per share for discontinued operations for the years ended December 31, 2012, 2011 and 2010:



	Year Ended December 31,
	2012			2011			2010
Basic and diluted earnings (loss) per share numerators (in millions):
Net (loss) income attributable to White Mountains’ common shareholders	$	(115.0	)	$	621.6		$	(30.1	)
Allocation of income for participating unvested restricted common shares ⁽¹⁾	1.5			(5.4		)	.4
Net (loss) income attributable to White Mountains’ common shareholders, net of restricted common share amounts ⁽³⁾	$	(113.5	)	$	616.2		$	(29.7	)
Basic earnings (loss) per share denominators (in thousands):
Total average common shares outstanding during the period	6,799.8			7,881.0			8,548.4
Average unvested restricted common shares ⁽¹⁾	(91.1		)	(69.4		)	(97.3		)
Basic earnings (loss) per share denominator	6,708.7			7,811.6			8,451.1
Diluted earnings (loss) per share denominator (in thousands):
Total average common shares outstanding during the period	6,799.8			7,881.0			8,548.4
Average unvested restricted common shares⁽¹⁾	(91.1		)	(69.4		)	(97.3		)
Average outstanding dilutive options to acquire common shares⁽²⁾	—			—			.5
Diluted earnings (loss) per share denominator	6,708.7			7,811.6			8,451.6
Basic and diluted (loss) earnings per share (in dollars):	$	(16.91	)	$	78.88		$	(3.51	)


⁽¹⁾	Restricted common shares outstanding vest either in equal annual installments or upon a stated date (see Note 11).


⁽²⁾	The diluted earnings per share denominator for the year ended December 31, 2010 includes 1,200 common shares issuable upon exercise of incentive options at an average strike price of $189.31 per common share. The non-qualified options were not included in the diluted earnings per share denominator for any of the periods presented as their inclusion would be anti-dilutive.


⁽³⁾	Net income (loss) attributable to White Mountains’ common shareholders, net of restricted share amounts, is equal to undistributed earnings (loss) for the years ended December 31, 2012, 2011 and 2010.


⁽⁴⁾	Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities.