Discontinued Operations

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.

Runoff Transaction

On October 17, 2012, OneBeacon entered into an agreement to sell its runoff business to Armour. During three months ended March 31, 2013 and 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 March 31, 2013 and 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.

During the three months ended March 31, 2013 and 2012, OneBeacon recorded $0.5 million in income and a $9.4 million loss from operations related to the Runoff Transaction.

Loss and LAE reserve development

OneBeacon experienced $0.2 million of favorable loss reserve development and $12.4 million of unfavorable loss reserve development in the runoff business during the three months ended March 31, 2013 and 2012. The unfavorable development in 2012 was primarily driven by case incurred development on a small number of claims related to multiple peril liability lines and general liability lines and also the impact of an adverse court ruling in Mississippi regarding a disputed assessment from an involuntary pool for hurricane Katrina claims.

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 (the "OneBeacon Acquisition"): 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 (the “GRC Cover”) in addition to $170.0 million of reserves ceded as of the date of the OneBeacon Acquisition. 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 March 31, 2013 and December 31, 2012, the total reinsurance recoverables on paid and unpaid losses of $1,381.0 million and $1,401.9 million related to both the NICO cover and the GRC cover have 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 sixteen ratings.

The total reinsurance recoverables on paid and unpaid losses in assets held for sale were $14.1 million and $1,960.9 million as of March 31, 2012. The reinsurance recoverable on unpaid amount is gross of $146.8 million in purchase accounting adjustments that will become recoverable if claims are paid in accordance with current reserve estimates.

Net Assets Held for Sale

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



Millions	March 31, 2013		December 31, 2012
Assets held for sale
Fixed maturity investments, at fair value	$	296.9	$	338.1
Cash	—		—
Reinsurance recoverable on unpaid losses	1,814.1		1,840.8
Reinsurance recoverable on paid losses	14.1		15.6
Insurance premiums receivable	9.9		11.0
Deferred acquisition costs	—		—
Deferred tax asset	4.2		5.1
Other assets	16.0		16.2
Total assets held for sale	$	2,155.2	$	2,226.8
Liabilities held for sale
Loss and loss adjustment expense reserves	$	1,980.2	$	2,052.6
Unearned insurance premiums	.5		.5
Ceded reinsurance payable	23.5		21.9
Other liabilities	151.0		151.8
Total liabilities held for sale	2,155.2		2,226.8
Net assets held for sale	$	—	$	—

Net Income (Loss) from Discontinued Operations

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



	Three Months Ended March 31,
Millions	2013			2012
Revenues
Earned insurance premiums	$	.9		$	8.8
Net investment income	—			—
Net realized and unrealized investment gains (losses)	—			—
Other revenue	—			—
Total revenues	.9			8.8
Expenses
Loss and loss adjustment expenses	—			19.6
Insurance and reinsurance acquisition expenses	.1			.3
Other underwriting expenses	.1			1.5
General and administrative expenses	—			—
Total expenses	.2			21.4
Pre-tax income (loss)	.7			(12.6		)
Income tax (expense) benefit	(.2		)	3.3
Income (loss) from discontinued operations	.5			(9.3		)
Loss from sale of discontinued operations	—			—
Net income (loss) from discontinued operations	$	.5		$	(9.3	)

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 three months ended March 31, 2013 and 2012:



	Three Months Ended March 31,
	2013			2012
Basic and diluted earnings (loss) per share numerators (in millions):
Net income (loss) attributable to White Mountains’ common shareholders	$	.5		$	(9.3	)
Allocation of income for participating unvested restricted common shares ⁽¹⁾	—			.1
Net income (loss) attributable to White Mountains’ common shareholders, net of restricted common share amounts⁽²⁾	$	.5		$	(9.2	)
Basic earnings (loss) per share denominators (in thousands):
Total average common shares outstanding during the period	6,273.5			7,431.7
Average unvested restricted common shares⁽³⁾	(79.0		)	(78.3		)
Basic earnings (loss) per share denominator	6,194.5			7,353.4
Diluted earnings (loss) per share denominator (in thousands):
Total average common shares outstanding during the period	6,273.5			7,431.7
Average unvested restricted common shares⁽³⁾	(79.0		)	(78.3		)
Average outstanding dilutive options to acquire common shares⁽⁴⁾	—			—
Diluted earnings (loss) per share denominator	6,194.5			7,353.4
Basic and diluted earnings (loss) per share (in dollars):	$	.07		$	(1.25	)

⁽¹⁾Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities.

⁽²⁾Net earnings (loss) attributable to White Mountains’ common shareholders, net of restricted share amounts, is equal to undistributed earnings (loss) for the three months ended March 31, 2013 and 2012.

⁽³⁾ Restricted common shares outstanding vest either in equal annual installments or upon a stated date (see Note 13).

⁽⁴⁾The diluted earnings per share denominator for the three months ended March 31, 2013 and 2012 do not include common shares issuable upon exercise of the Non-Qualified Options as they are anti-dilutive to the calculation.