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Investment Securities
 3 Months Ended
Mar. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities
 
White Mountains’ invested assets consist of securities and other long-term investments held for general investment purposes.  The portfolio of investment securities includes short-term investments, fixed maturity investments, convertible fixed maturity investments and equity securities which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date.  Realized and unrealized investment gains and losses on trading securities are reported in pre-tax revenues. White Mountains’ investments in debt securities, including mortgage-backed and asset-backed securities, are generally valued using industry standard 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 prospectively over the remaining economic life.
Realized investment gains and losses resulting from sales of investment securities are accounted for using the specific identification method.  Premiums and discounts on all fixed maturity investments are amortized or accreted to income over the anticipated life of the investment.  Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year.  Short-term investments are carried at amortized or accreted cost, which approximated fair value as of March 31, 2013 and December 31, 2012.
Other long-term investments primarily comprise White Mountains’ investments in hedge funds and private equity funds.

Net Investment Income
Pre-tax net investment income for the three months ended March 31, 2013 and 2012 consisted of the following:
 
 
Three Months Ended
 
 
March 31,
Millions
 
2013
 
2012
Investment income:
 
 
 
 
Fixed maturity investments
 
$
26.0

 
$
36.7

Short-term investments
 
.8

 
1.0

Common equity securities
 
4.7

 
4.4

Convertible fixed maturity investments
 
.8

 
1.9

Other long-term investments
 
.7

 
.8

Interest on funds held under reinsurance treaties
 
—

 
—

Total investment income
 
33.0

 
44.8

Less third-party investment expenses
 
(4.5
)
 
(3.0
)
Net investment income, pre-tax
 
$
28.5

 
$
41.8



Net Realized and Unrealized Investment Gains and Losses

The following table summarizes net realized and unrealized investment gains (losses) for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2013
 
March 31, 2012
Millions
 
Net
realized and unrealized
gains
(losses)
 
Net
foreign
exchange
gains
(losses)
 
Total net realized
and unrealized gains (losses)
reflected in
earnings
 
Net
realized and unrealized
gains
(losses)
 
Net
foreign
currency
gains
(losses)
 
Total net realized
and unrealized gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
(8.0
)
 
$
(10.0
)
 
$
(18.0
)
 
$
30.7

 
$
(21.4
)
 
$
9.3

Short-term investments
 
—

 
.1

 
.1

 
—

 
(.3
)
 
(.3
)
Common equity securities
 
84.5

 
(.2
)
 
84.3

 
36.6

 
—

 
36.6

Convertible fixed maturity investments
 
1.6

 
(.2
)
 
1.4

 
6.2

 
—

 
6.2

Other long-term investments
 
6.5

 
.5

 
7.0

 
10.2

 
(3.4
)
 
6.8

Forward Contracts
 
.4

 
—

 
.4

 
—

 
—

 
—

Net realized and unrealized
   investment gains (losses), pre-tax
 
85.0

 
(9.8
)
 
75.2

 
83.7

 
(25.1
)
 
58.6

Income tax expense attributable to
   net realized and unrealized
   investment (losses) gains
 
(15.9
)
 
2.2

 
(13.7
)
 
(20.6
)
 
6.6

 
(14.0
)
Net realized and unrealized
   investment gains (losses), after tax
 
$
69.1

 
$
(7.6
)
 
$
61.5

 
$
63.1

 
$
(18.5
)
 
$
44.6



The following table summarizes the amount of total pre-tax gains included in earnings attributable to unrealized investment gains for Level 3 investments for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended
 
 
March 31,
Millions
 
2013
 
2012
Fixed maturity investments
 
$
.2

 
$
7.8

Common equity securities
 
(.1
)
 
.5

Other long-term investments
 
6.4

 
7.2

Total unrealized investment gains, pre-tax - Level 3 investments
 
$
6.5

 
$
15.5



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 March 31, 2013 and December 31, 2012 were as follows: 
 
 
March 31, 2013
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
U.S. Government and agency obligations
 
$
435.9

 
$
.9

 
$
(.1
)
 
$
(1.2
)
 
$
435.5

Debt securities issued by corporations
 
2,361.2

 
75.7

 
(2.6
)
 
(24.6
)
 
2,409.7

Municipal obligations
 
5.3

 
—

 
(.1
)
 
—

 
5.2

Mortgage-backed and asset-backed securities
 
1,698.7

 
12.6

 
(1.9
)
 
(2.1
)
 
1,707.3

Foreign government, agency and provincial obligations
 
516.4

 
5.4

 
(6.3
)
 
(9.4
)
 
506.1

Preferred stocks
 
79.9

 
7.7

 
—

 
(.1
)
 
87.5

Total fixed maturity investments including assets
    held for sale
 
$
5,097.4

 
$
102.3

 
$
(11.0
)
 
$
(37.4
)
 
$
5,151.3

Fixed maturity investments reclassified to assets
    held for sale related to the Runoff Transaction
 
 
 
 
 
 
 
 
 
(296.9
)
Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
4,854.4

 
 
 
December 31, 2012
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
U.S. Government and agency obligations
 
$
440.4

 
$
1.0

 
$
(.1
)
 
$
(1.2
)
 
$
440.1

Debt securities issued by corporations
 
2,321.4

 
88.3

 
(1.6
)
 
(23.0
)
 
2,385.1

Municipal obligations
 
5.3

 
—

 
(.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

 
—

 
(.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 related to the Runoff Transaction
 
 

 
 

 
 

 
 

 
(338.1
)
Total fixed maturity investments
 
 

 
 

 
 

 
 

 
$
5,196.2


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 maturities and other long-term investments as of March 31, 2013 and December 31, 2012 were as follows:
 
 
March 31, 2013
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
losses
 
Carrying
value
Common equity securities
 
$
876.8

 
$
201.7

 
$
(5.2
)
 
$
(.1
)
 
$
1,073.2

Convertible fixed maturity investments
 
$
91.2

 
$
5.9

 
$
(1.3
)
 
$
(.2
)
 
$
95.6

Other long-term investments
 
$
254.5

 
$
57.0

 
$
(10.3
)
 
$
(6.0
)
 
$
295.2


 
 
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

Hedge Funds and Private Equity Funds
 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 March 31, 2013, White Mountains held investments in 15 hedge funds and 38 private equity funds.  The largest investment in a single fund was $16.7 million at March 31, 2013. The following table summarizes investments in hedge funds and private equity interests by investment objective and sector at March 31, 2013 and December 31, 2012:
 
 
March 31, 2013
 
December 31, 2012
Millions
 
Fair Value
 
Unfunded
Commitments
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short equity
 
$
60.0

 
$
—

 
$
60.3

 
$
—

Long/short credit & distressed
 
24.5

 
—

 
22.7

 
—

Long diversified strategies
 
1.7

 
—

 
1.7

 
—

Long/short equity REIT
 
16.7

 
—

 
16.0

 
—

Long/short equity activist
 
14.5

 
—

 
13.6

 
—

Long bank loan
 
.3

 
—

 
.3

 
—

Total hedge funds
 
117.7

 
—

 
114.6

 
—

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Multi-sector
 
25.9

 
8.9

 
23.3

 
5.4

Energy infrastructure & services
 
35.0

 
14.8

 
36.3

 
15.6

Distressed residential real estate
 
14.6

 
—

 
15.8

 
—

Real estate
 
10.9

 
3.3

 
11.6

 
3.3

Private equity secondaries
 
10.6

 
3.1

 
10.5

 
3.1

International multi-sector, Europe
 
4.2

 
5.0

 
5.1

 
5.0

Manufacturing/Industrial
 
9.0

 
28.7

 
9.9

 
29.1

Healthcare
 
4.2

 
5.0

 
4.3

 
5.4

International multi-sector, Asia
 
—

 
2.7

 
.4

 
2.7

Insurance
 
2.5

 
41.3

 
3.0

 
41.3

Aerospace/Defense/Government
 
3.0

 
21.8

 
2.8

 
22.2

Venture capital
 
2.2

 
.3

 
2.2

 
.3

Total private equity funds
 
122.1

 
134.9

 
125.2

 
133.4

 
 
 
 
 
 
 
 
 
Total hedge and private equity funds included in
   other long-term investments(1)
 
$
239.8

 
$
134.9

 
$
239.8

 
$
133.4


(1)  Excludes carrying value of $35.0 and $34.9 at January 1, 2013 and March 31, 2013 associated with hedge funds and private equity funds accounted for using the equity method.
 
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 March 31, 2013 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
 
$
—

 
$
—

 
$
—

 
$
6.8

 
$
6.8

Quarterly
 
27.9

 
31.2

 
9.0

 
9.6

 
77.7

Semi-annual
 
—

 
22.7

 
—

 
—

 
22.7

Annual
 
1.7

 
—

 
8.5

 
.3

 
10.5

Total
 
$
29.6

 
$
53.9

 
$
17.5

 
$
16.7

 
$
117.7


 
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 March 31, 2013, distributions of $2.6 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 March 31, 2013.
White Mountains has also submitted redemption requests for certain of its investments in active hedge funds.  At March 31, 2013, redemptions of $7.1 million are outstanding and are subject to market fluctuations. The majority of such remittances are expected to be received in the second quarter of 2013.  Redemptions are recorded as receivables when the investment is 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 March 31, 2013, 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
$21.6
$34.0
$57.4
$9.1
$122.1

 
Fair value measurements at March 31, 2013
White Mountains’ invested assets that are measured at fair value include fixed maturity investments, common and preferred equity securities, convertible fixed maturity securities and other long-term investments, such as interests in hedge funds and private equity funds. Fair value measurements reflect management’s best estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements fall into a hierarchy with three levels based on the nature of the inputs. Fair value measurements based on quoted prices in active markets for identical assets are at the top of the hierarchy (“Level 1”), followed by fair value measurements based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar, but not identical instruments (“Level 2”). Measurements based on unobservable inputs, including a reporting entity’s estimates of the assumptions that market participants would use are at the bottom of the hierarchy (“Level 3”).
White Mountains uses quoted market prices or other observable inputs to determine fair value for the vast majority 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 and equity 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% 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 values of White Mountains’ investments in hedge funds and private equity funds have 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 $79.4 million and $79.7 million of investment-related liabilities recorded at fair value and included in other liabilities as of March 31, 2013 and December 31, 2012.  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 March 31, 2013 and December 31, 2012, by level:
 
 
March 31, 2013
Millions
 
Fair value
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
435.5

 
$
364.6

 
$
70.9

 
$
—

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Consumer
 
735.5

 
—

 
735.5

 
—

Financials
 
378.4

 
—

 
378.4

 
—

Communications
 
331.6

 
—

 
331.6

 
—

Industrial
 
308.0

 
—

 
308.0

 
—

Basic Materials
 
211.6

 
—

 
211.6

 
—

Utilities
 
202.3

 
—

 
202.3

 
—

Energy
 
183.2

 
—

 
183.2

 
—

Technology
 
53.0

 
—

 
53.0

 
—

Other
 
6.1

 
—

 
6.1

 
—

Total debt securities issued by corporations:
 
2,409.7

 
—

 
2,409.7

 
—

 
 
 
 
 
 
 
 
 
Mortgage-backed and asset-backed securities
 
1,707.3

 
—

 
1,677.2

 
30.1

Foreign government, agency and provincial obligations
 
506.1

 
48.5

 
457.6

 
—

Preferred stocks
 
87.5

 
—

 
16.6

 
70.9

Municipal obligations
 
5.2

 
—

 
5.2

 
—

Total fixed maturity investments (1)
 
5,151.3

 
413.1

 
4,637.2

 
101.0

 
 
 
 
 
 
 
 
 
Short-term investments
 
654.4

 
654.4

 
—

 
—

 
 
 
 
 
 
 
 
 
Common equity securities:
 
 

 
 

 
 

 
 

Financials
 
320.1

 
283.3

 
—

 
36.8

Consumer
 
305.8

 
305.8

 
—

 
—

Energy
 
86.2

 
86.2

 
—

 
—

Basic materials
 
77.6

 
77.6

 
—

 
—

Technology
 
76.9

 
76.9

 
—

 
—

Communications
 
39.9

 
39.9

 
—

 
—

Utilities
 
39.7

 
39.6

 
.1

 
—

Other
 
127.0

 
64.0

 
63.0

 
—

Total common equity securities
 
1,073.2

 
973.3

 
63.1

 
36.8

 
 
 
 
 
 
 
 
 
Convertible fixed maturity investments
 
95.6

 
—

 
95.6

 
—

Other long-term investments (2) 
 
260.5

 
—

 
—

 
260.5

Total investments
 
$
7,235.0

 
$
2,040.8

 
$
4,795.9

 
$
398.3

(1) Carrying value includes $296.9 that is classified as assets held for sale relating to discontinued operations.
(2) Excludes carrying value of $34.9 associated with other long-term investment limited partnerships accounted for using the equity method and $(0.2) related to forward contracts.
 
 
 
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

 
—

Financials
 
401.4

 
1.0

 
400.4

 
—

Industrial
 
330.8

 
—

 
330.8

 
—

Communications
 
276.1

 
—

 
276.1

 
—

Utilities
 
204.2

 
—

 
204.2

 
—

Basic materials
 
189.1

 
—

 
189.1

 
—

Energy
 
181.5

 
—

 
181.5

 
—

Technology
 
54.0

 
—

 
54.0

 
—

Other
 
20.9

 
—

 
20.9

 
—

Total debt securities issued by corporations:
 
2,385.1

 
1.0

 
2,384.1

 
—

 
 
 
 
 
 
 
 
 
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

Municipal obligations
 
5.2

 
—

 
5.2

 
—

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

 
—

 
—

Technology
 
55.0

 
55.0

 
—

 
—

Utilities
 
43.6

 
43.4

 
.2

 
—

Communications
 
35.2

 
35.2

 
—

 
—

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.


Debt securities issued by corporations
The following table summarizes the ratings of the corporate debt securities held in White Mountains’ investment portfolio as of March 31, 2013 and December 31, 2012:
 
 
Fair Value at
Millions
 
March 31, 2013
 
December 31, 2012
AAA
 
$
—

 
$
—

AA
 
164.4

 
193.4

A
 
1,132.3

 
1,061.0

BBB
 
1,099.4

 
1,116.9

BB
 
7.0

 
7.0

Other
 
8.0

 
6.8

Debt securities issued by corporations (1)
 
$
2,411.1

 
$
2,385.1

(1) Credit ratings are assigned based on the following hierarchy: 1) Standard and 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 30 points of subordination on average for floating rate CMBS as of March 31, 2013.  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 March 31, 2013, on average less than 1% 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 March 31, 2013. White Mountains’ investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities at March 31, 2013. 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 loan obligations or collateralized debt obligations, including residential mortgage-backed collateralized debt obligations.
The following table summarizes mortgage and asset-backed securities as of March 31, 2013 and December 31, 2012:
 
 
March 31, 2013
 
December 31, 2012
Millions
 
Fair Value
 
Level 2
 
Level 3
 
Fair Value
 
Level 2
 
Level 3
Mortgage-backed securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency:
 
 

 
 

 
 

 
 

 
 

 
 

GNMA
 
$
805.5

 
$
805.5

 
$
—

 
$
1,013.4

 
$
1,013.4

 
$
—

FNMA
 
140.2

 
140.2

 
—

 
74.6

 
74.6

 
—

FHLMC
 
55.6

 
55.6

 
—

 
55.8

 
55.8

 
—

Total Agency(1)
 
1,001.3

 
1,001.3

 
—

 
1,143.8

 
1,143.8

 
—

Non-agency:
 
 

 
 

 
 

 
 

 
 

 
 

Residential
 
55.6

 
55.6

 
—

 
160.6

 
160.6

 
—

Commercial
 
284.9

 
276.9

 
8.0

 
334.1

 
334.1

 
—

Total Non-agency
 
340.5

 
332.5

 
8.0

 
494.7

 
494.7

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage-backed securities
 
1,341.8

 
1,333.8

 
8.0

 
1,638.5

 
1,638.5

 
—

Other asset-backed securities:
 
 

 
 
 
 
 
 

 
 
 
 
Credit card receivables
 
132.3

 
110.2

 
22.1

 
173.5

 
151.4

 
22.1

Vehicle receivables
 
210.3

 
210.3

 
—

 
265.1

 
265.1

 
—

Other
 
22.9

 
22.9

 
—

 
18.5

 
18.5

 
—

Total other asset-backed securities
 
365.5

 
343.4

 
22.1

 
457.1

 
435.0

 
22.1

Total mortgage and asset-backed
   securities
 
$
1,707.3

 
$
1,677.2

 
$
30.1

 
$
2,095.6

 
$
2,073.5

 
$
22.1

(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 March 31, 2013 are as follows:
 
 
 
 
Security Issuance Year
 
 
Millions
 
Fair Value
 
2005
 
2006
 
2007
 
2008
 
2010
 
2011
 
2012
 
2013
Non-agency RMBS
 
$
55.6

 
$
34.9

 
$
11.0

 
$
4.8

 
$
—

 
$
4.9

 
$
—

 
$
—

 
$
—

Non-agency CMBS
 
284.9

 
—

 
8.7

 
15.0

 
35.0

 
12.9

 
39.8

 
122.5

 
51.0

Total
 
$
340.5

 
$
34.9

 
$
19.7

 
$
19.8

 
$
35.0

 
$
17.8

 
$
39.8

 
$
122.5

 
$
51.0


 
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 March 31, 2013:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Prime
 
$
55.6

 
$
4.9

 
$
50.7

 
$
—

Non-prime
 
—

 
—

 
—

 
—

Sub-prime
 
—

 
—

 
—

 
—

Total
 
$
55.6

 
$
4.9

 
$
50.7

 
$
—

(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. 

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 March 31, 2013:
Millions
 
Fair Value
 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Fixed rate CMBS
 
$
206.5

 
$
128.0

 
$
60.7

 
$
17.8

Floating rate CMBS
 
78.4

 
14.9

 
36.4

 
27.1

Total
 
$
284.9

 
$
142.9

 
$
97.1

 
$
44.9

(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. 

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 March 31, 2013 and 2012 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 three months ended March 31, 2013 and 2012:
 
 
 
Level 3 Investments
 
 
 
Millions
Level 1 (3)
Investments
Level 2 
Investments
Fixed
Maturities
Common
equity
securities
Convertible
fixed
maturities
Other long-term
investments
 
Total
 
Balance at January 1, 2013
$
1,355.1

$
5,206.1

$
92.9

$
37.3

$
—

$
259.3

 
$
6,950.7

(1)(2) 
Total realized and unrealized
   gains (losses)
80.1

(10.8
)
.1

(.1
)
—

5.8

 
75.1

  
Foreign currency losses
   through OCI
(.4
)
(4.8
)
—

—

—

(.4
)
 
(5.6
)
  
Amortization/Accretion
(.4
)
(14.0
)
—

—

—

—

 
(14.4
)
 
Purchases
318.6

1,445.8

8.0

—

—

18.9

 
1,791.3

 
Sales
(382.3
)
(1,828.3
)
—

—

—

(23.1
)
 
(2,233.7
)
 
Net change in investments related to purchases and sales of consolidated affiliates
14.5

2.7

—

—

—

—

 
17.2

 
Transfers in
1.2

—

—

—

—

—

 
1.2

  
Transfers out
—

(.8
)
—

(.4
)
—

—

 
(1.2
)
  
Balance at March 31, 2013
$
1,386.4

$
4,795.9

$
101.0

$
36.8

$
—

$
260.5

 
$
6,580.6

(1)(2) 
(1)  Excludes carrying value of $35.0 and $34.9 at January 1, 2013 and March 31, 2013 associated with other long-term investments accounted for using the equity method and $(0.1) and $(0.2) at January 1, 2013 and March 31, 2013 related to forward contracts.
(2)  Carrying value includes $338.1 and $296.9 at January 1, 2013 and March 31, 2013 that is classified as assets held for sale relating to discontinued operations.
(3)  Excludes carrying value of $630.6 and $654.4 at January 1, 2013 and March 31, 2013 and realized and unrealized gain for the period of $0.1 associated with short-term investments classified as level 1.

 
 
 
Level 3 Investments
 
 
 
 
Millions
Level 1(3)
Investments
Level 2
Investments
Fixed
Maturities
Common
equity
securities
Convertible
fixed
maturities
Other long-term
investments
 
 
Total
 
Balance at January 1, 2012
$
1,033.1

$
6,088.2

$
78.9

$
32.3

$
—

$
268.3

(1) 
 
$
7,500.8

(1)(2) 
Total realized and unrealized
   gains
34.7

10.1

7.1

.5

—

6.5

  
 
58.9

 
Foreign currency gains
   through OCI
.7

50.4

.7

—

—

2.7

  
 
54.5

 
Amortization/Accretion
(.3
)
(12.5
)
(1.1
)
—

—

 

  
 
(13.9
)
 
Purchases
166.6

1,708.2

97.7

—

—

5.7

  
 
1,978.2

 
Sales
(129.0
)
(2,729.4
)
(4.1
)
—

—

(9.7
)
 
 
(2,872.2
)
 
Transfers in
—

—

—

—

—

—

  
 
—

 
Transfers out
—

—

—

—

—

—

  
 
—

 
Balance at March 31, 2012
$
1,105.8

$
5,115.0

$
179.2

$
32.8

$
—

$
273.5

(1) 
 
$
6,706.3

(1)(2) 
(1) Excludes carrying value of $33.0 and $33.2 at March 31, 2012 and January 1, 2012 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 discontinued operations.
(3) Excludes carrying value of $877.5 and $846.0 at March 31, 2012 and January 1, 2012 and realized and unrealized loss for the period of $0.3 associated with short-term investments classified as level 1.
 
Fair Value Measurements — transfers between levels - Three-month period ended March 31, 2013 and 2012
During the first three months of 2013 and 2012, no fixed income 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 March 31, 2013.
 

Significant Unobservable Inputs
The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3 other than hedge funds and private equity funds at March 31, 2013. The fair value of investments in hedge funds and private equity funds, which are classified within Level 3, are estimated using the net asset value of the funds.
($ in Millions)
 
March 31, 2013
Description
 
Fair Value
 
Rating (2)
 
Valuation Technique(s)
 
Unobservable Input
Preferred Stock (1)
 
$70.9
 
NR
 
Discounted cash flow
 
Discount yield
 
7.4
%
 
Asset-backed securities
 
$8.0
 
BBB-
 
Broker pricing
 
Broker quote
 
 
 
 
 
$22.1
 
AA+
 
Broker pricing
 
Broker quote
 
 
 
Private equity securities
 
$36.8
 
NR
 
Multiple of GAAP book value
 
Book value multiple
 
1.0

x
(1) As of March 31, 2013 asset type consists of one security.
(2) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's Financial Services LLC (“Standard & Poor’s”) and 2) Moody’s Investor Service (“Moody's”).