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Derivatives (Tables)
 12 Months Ended
Dec. 31, 2012
Derivative Instruments and Hedging Activities 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 years ended December 31, 2012, 2011 and 2010:
 
 
Year Ended December 31,
Millions
 
2012
 
2011
 
2010
Fees, included in other revenues
 
$
31.8

 
$
32.5

 
$
30.2

Change in fair value of variable annuity liability, included in other revenues
 
312.8

 
(156.5
)
 
(223.5
)
Change in fair value of derivatives, included in other revenues
 
(339.0
)
 
92.9

 
127.0

Foreign exchange, included in other revenues
 
(30.3
)
 
15.1

 
21.4

Other investment income and gains (losses)
 
2.5

 
(.9
)
 
(.9
)
Total revenues
 
(22.2
)
 
(16.9
)
 
(45.8
)
Change in fair value of variable annuity death benefit liabilities, included in general and administrative expenses
 
14.2

 
(1.8
)
 
(6.0
)
Death benefit claims paid, included in general and administrative expenses
 
(5.7
)
 
(3.8
)
 
(2.7
)
General and administrative expenses
 
(5.2
)
 
(4.7
)
 
(6.3
)
Pre-tax loss
 
$
(18.9
)
 
$
(27.2
)
 
$
(60.8
)
Fair Value of Assets and Liabilities Measured on Recurring and Non-recurring Basis Table
The following table summarizes the changes in White Mountains’ variable annuity reinsurance liabilities and derivative instruments for the year ended December 31, 2012, 2011 and 2010:
 
 
Variable Annuity
 (Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Balance at January 1, 2012
 
$
(768.5
)
 
$
247.1

 
$
39.2

 
$
4.1

 
$
290.4

Purchases
 
—

 
6.1

 
—

 
—

 
6.1

Realized and unrealized gains (losses)
 
327.0

 
(84.0
)
 
(186.9
)
 
(68.1
)
 
(339.0
)
Transfers in (out)
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(28.7
)
 
127.2

 
42.3

 
140.8

Balance at December 31, 2012
 
$
(441.5
)
 
$
140.5

 
$
(20.5
)
 
$
(21.7
)
 
$
98.3

 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total (4)
Balance at January 1, 2011
 
$
(610.2
)
 
$
275.3

 
$
72.2

 
$
—

 
$
347.5

Purchases
 
—

 
5.0

 
—

 
—

 
5.0

Realized and unrealized (losses) gains
 
(158.3
)
 
14.5

 
67.7

 
10.7

 
92.9

Transfers in (out)
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(47.7
)
 
(100.7
)
 
(6.6
)
 
(155.0
)
Balance at December 31, 2011
 
$
(768.5
)
 
$
247.1

 
$
39.2

 
$
4.1

 
$
290.4

 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
 Level 3 (1)
 
Level 2 (1)(2)
 
 Level 1 (3)
 
Total (4)
Balance at January 1, 2010
 
$
(380.7
)
 
$
208.5

 
$
23.8

 
$
(38.0
)
 
$
194.3

Purchases
 
—

 
19.4

 
—

 
—

 
19.4

Realized and unrealized (losses) gains
 
(229.5
)
 
66.4

 
80.0

 
(19.4
)
 
127.0

Transfers in (out)
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(19.0
)
 
(31.6
)
 
57.4

 
6.8

Balance at December 31, 2010
 
$
(610.2
)
 
$
275.3

 
$
72.2

 
$
—

 
$
347.5

(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 , $393.6, $485.3 and $326.0 at December 31, 2012, 2011 and 2010 posted as collateral to its reinsurance counterparties.
The following tables summarize the changes in White Mountains’ forward contracts for the year ended December 31, 2012:
Millions
 
Year ended
December 31, 2012
Beginning of period
 
$
—

    Purchases
 
—

    Realized and unrealized gains(losses)
 
(.3
)
    Sales/settlements
 
.2

End of period
 
$
(.1
)
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The following summarizes realized and unrealized derivative gains (losses) recognized in net realized and unrealized investment gains and the carrying values, included in other long-term investments, at December 31, 2012 by type of currency:
 
 
December 31, 2012
Millions
 
Gains (Losses)
 
Carrying Value
USD
 
$
(.2
)
 
$
—

SEK
 
—

 
—

EUR
 
(.1
)
 
(.1
)
GBP
 
—

 
—

Currency Translation
 
—

 
—

Total
 
$
(.3
)
 
$
(.1
)
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:
 
 
 
December 31, 2012
($ in Millions)
Description
 
Fair 
Value
 
Valuation 
Technique(s)
 
Unobservable Input
 
Range
 
Weighted Average
Variable annuity benefit guarantee liabilities
 
$
441.5

 
Discounted cash flows
 
Surrenders
 

 

 


 
 
 
 
     1 year
 
0.3
 %
-
3.0
 %
 
0.5
 %
 
 
 
 
     2 year
 
0.2
 %
-
3.0
 %
 
0.4
 %
 
 
 
 
     3 and more years
 
0.1
 %
-
3.0
 %
 
0.4
 %
 

 
 
 
Mortality
 
0.0
 %
-
4.8
 %
 
0.9
 %
 

 
 
 
Foreign exchange volatilities
 

 

 


 
 
 
 
     1 year
 
11.3
 %
-
12.5
 %
 
12.2
 %
 
 
 
 
     2 year
 
10.7
 %
-
13.2
 %
 
12.1
 %
 
 
 
 
     3 and more years
 
10.0
 %
-
15.4
 %
 
13.1
 %
 
 
 
 
Index volatilities
 

 

 


 
 
 
 
     1 year
 
13.6
 %
-
19.3
 %
 
14.5
 %
 
 
 
 
     2 year
 
17.5
 %
-
22.7
 %
 
19.2
 %
 

 
 
 
     3 and more years
 
19.9
 %
-
22.7
 %
 
21.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Options
 
$
76.8

 
Counterparty valuations, adjusted for unwind quote discount
 
Adjustment to counterparty valuations
 
(2.2
)%
-
(7.9
)%
 
(3.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Index Options
 
$
63.7

 
Counterparty valuations, adjusted for unwind quote discount
 
Adjustment to counterparty valuations
 
(1.1
)%
-
(2.5
)%
 
(1.5
)%
 

 
 
 
 
 
 
 
 

 
 
 
 
 

 

 
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument
The following summarizes realized and unrealized gains (losses) recognized in other revenues for the years ended December 31, 2012, 2011 and 2010 and the carrying values at December 31, 2012 and 2011 by type of instrument:
 
 
 
 
 
 
 
 
Carrying Value
 
 
Year Ended December 31,
 
December 31,
Millions
 
2012
 
2011
 
2010
 
2012
 
2011
Fixed income/interest rate
 
$
(149.5
)
 
$
8.9

 
$
17.6

 
$
4.3

 
$
31.1

Foreign exchange
 
(102.3
)
 
29.5

 
144.6

 
51.3

 
161.3

Equity
 
(87.2
)
 
54.5

 
(35.2
)
 
42.7

 
98.0

Total
 
$
(339.0
)
 
$
92.9

 
$
127.0

 
$
98.3

 
$
290.4
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments
The following summarizes the value of collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments recorded within other assets:
Millions
 
December 31, 2012
 
December 31, 
2011
OTC derivative instruments (1)
 
$
123.5

 
$
295.4

Collateral held
 
(30.6
)
 
(73.2
)
Collateral provided
 
119.3

 
83.0

Net exposure on fair value of OTC instruments
 
$
212.2

 
$
305.2

(1)Value of OTC derivative instruments as of December 31, 2012 and 2011 excludes adjustments for
counterparty credit risk of $(3.6) and $(9.1) included in fair value under GAAP.
Schedule of Uncollateralized Amounts Due
The following table summarizes uncollateralized amounts due under WM Life Re’s OTC derivative contracts as of December 31, 2012 by counterparty:
Millions
 
Uncollateralized
balance as of
December 31, 
2012
 
Standard & 
Poor’s
Rating (1)
Citigroup (2)
 
$
54.9

 
A
Bank of America
 
49.6

 
A
Royal Bank of Scotland
 
34.5

 
A
JP Morgan Chase (2)
 
30.9

 
A+
Nomura (2)
 
26.9

 
BBB+
Barclays
 
12.3

 
A+
Goldman Sachs
 
3.1

 
A-
Total
 
$
212.2

 
 
(1) 
Standard & Poor’s ratings as detailed above are:  “A+” (Strong, which is the fifth highest of twenty-one creditworthiness ratings),“A” (which is the sixth highest of twenty-one creditworthiness ratings), “A-” (which is the seventh highest of twenty-one creditworthiness ratings), and BBB+ (which is the eighth highest of twenty-one creditworthiness ratings).
(2) 
Collateral provided (held) calculated under master netting agreement.
The following table summarizes the notional amounts and the uncollateralized balances associated with forward currency contracts by counterparty:
 
 
December 31, 2012
 
 
Millions
 
Notional amount
 
Uncollateralized Balance
 
S&P Rating (1)
Deutsche Bank
 
$
11.1

 
$
—

 
A+
Barclays Bank London
 
7.7

 
(.1
)
 
A+
HSBC Bank plc
 
10.1

 
—

 
AA-
JP Morgan
 
1.9

 
—

 
A+
Goldman Sachs
 
.4

 
—

 
A-
Total
 
$
31.2

 
$
(.1
)
 
 
(1) Standard & Poor’s (“S&P”) ratings as detailed above are: “AA-” (Very Strong, which is the sixth highest of twenty-one creditworthiness ratings), “A+” (Strong, which is the seventh highest of twenty-one creditworthiness ratings) and “A” (Strong, which is the eighth highest
of twenty-one creditworthiness ratings).
Summary of additional collateral posted for variable reinsurance counterparties
The total collateral comprises the following:
 
 
Year Ended December 31,
Millions
 
2012
 
2011
Cash
 
$
249.8

 
$
453.5

Short-term investments
 
5.1

 
.6

Fixed maturity investments
 
138.7

 
31.2

Total
 
$
393.6

 
$
485.3