Municipal Bond Guarantee Insurance

In 2012, HG Global was capitalized with $594.5 million from White Mountains and $14.5 million from non-controlling interests to fund BAM, a newly formed mutual municipal bond insurer. As of March 31, 2013, White Mountains owned 97.3% of HG Global's preferred equity and 88.7% of its common equity. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of BAM surplus notes. Through HG Re, which had statutory capital of $417.7 million at March 31, 2013, HG Global provides first loss reinsurance protection for policies underwritten by BAM of up to 15% of par outstanding, on a per policy basis. HG Re’s obligations to BAM are collateralized in trusts, and there is an aggregate loss limit that is equal to the total assets in the collateral trusts at any point in time. For the three months ended March 31, 2013, HG Global had pre-tax income of $9.9 million, which included $10.1 million of interest income on the BAM surplus notes. For the three months ended March 31, 2013, BAM had a pre-tax loss of $18.4 million that was recorded in net loss attributable to non-controlling interests, which included $10.1 million of interest expense on the BAM surplus notes.

All of the contracts issued by BAM are accounted for as insurance contracts under ASC 944-605, Financial Guarantee Insurance Contracts. Premiums are received upfront and an unearned premium revenue liability, equal to the amount of the cash received, is established at contract inception. Premium revenues are recognized in revenue over the period of the contracts in proportion to the amount of insurance protection provided using a constant rate. The constant rate is calculated based on the relationship between the par outstanding in a given reporting period compared with the sum of each of the par amounts outstanding for all periods.

The following table provides a schedule of BAM's insured obligations:



	March 31, 2013		December 31, 2012
Contracts issued and outstanding	105		3
Remaining weighted average contract period (in years)	13.1		10.4
Contractual debt service outstanding (in millions):
Principal	$	698.6	$	25.8
Interest	$	497.6	$	8.9
Unearned premium revenue	$	2.0	$	.1