XML 44 R29.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivatives (Tables)
 3 Months Ended
Mar. 31, 2013
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 three months ended March 31, 2013 and 2012
 
 
Three Months Ended
 
 
March 31,
Millions
 
2013
 
2012
Fees, included in other revenues
 
$
6.8

 
$
8.0

Change in fair value of variable annuity liability, included in
   other revenues
 
184.3

 
211.2

Change in fair value of derivatives, included in other revenues
 
(181.8
)
 
(206.5
)
Foreign exchange, included in other revenues
 
(14.6
)
 
(23.0
)
Other investment income and gains (losses)
 
(4.0
)
 
(2.1
)
Total revenues
 
(9.3
)
 
(12.4
)
Change in fair value of variable annuity death benefit liabilities,
   included in other general and administrative expenses
 
5.6

 
8.8

Death benefit claims paid, included in general and
   administrative expenses
 
(1.1
)
 
(1.8
)
General and administrative expenses
 
(1.7
)
 
(1.3
)
Pre-tax loss
 
$
(6.5
)
 
$
(6.7
)
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument
The following summarizes realized and unrealized derivative gains (losses) recognized in other revenues for the three months ended March 31, 2013 and 2012 and the carrying values, included in other assets, at March 31, 2013 and December 31, 2012 by type of instrument:
 
 
 
 
Carrying Value
 
 
Three Months Ended
 
As of
 
 
March 31,
 
March 31,
2013
 
December 31, 2012
Millions
 
2013
 
2012
 
 
Fixed income/interest rate
 
$
(30.9
)
 
$
(79.0
)
 
$
(16.2
)
 
$
27.1

Foreign exchange
 
(53.6
)
 
(55.0
)
 
74.1

 
52.8

Equity
 
(97.3
)
 
(72.5
)
 
17.9

 
18.4

Total
 
$
(181.8
)
 
$
(206.5
)
 
$
75.8

 
$
98.3
Fair Value of Assets and Liabilities Measured on Recurring and Non-recurring Basis Table
The following tables summarize the changes in White Mountains’ variable annuity reinsurance liabilities and derivative instruments for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended March 31, 2013
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total
Beginning of period
 
$
(441.5
)
 
$
140.5

 
$
(20.5
)
 
$
(21.7
)
 
$
98.3

Purchases
 
—

 
36.1

 
—

 
—

 
36.1

Realized and unrealized gains (losses)
 
189.9

(4) 
(49.2
)
 
(85.5
)
 
(47.1
)
 
(181.8
)
Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
—

 
63.1

 
60.1

 
123.2

End of period
 
$
(251.6
)
 
$
127.4

 
$
(42.9
)
 
$
(8.7
)
 
$
75.8



 
 
Three Months Ended March 31, 2012
 
 
Variable Annuity
(Liabilities)
 
Derivative Instruments
Millions
 
Level 3
 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 
Total
Beginning of period
 
$
(768.5
)
 
$
247.1

 
$
39.2

 
$
4.1

 
$
290.4

Purchases
 
—

 
6.1

 
—

 
—

 
6.1

Realized and unrealized gains (losses)
 
220.0

(4) 
(60.3
)
 
(98.2
)
 
(48.0
)
 
(206.5
)
Transfers in
 
—

 
—

 
—

 
—

 
—

Sales/settlements
 
—

 
(9.1
)
 
58.9

 
34.5

 
84.3

End of period
 
$
(548.5
)
 
$
183.8

 
$
(.1
)
 
$
(9.4
)
 
$
174.3

(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) Includes $5.6 and $8.8 for the three months ended March 31, 2013 and 2012, respectively, related to the increase in the fair value of variable annuity death benefit liabilities, which are included in other general and administrative expenses
The following tables summarize the changes in White Mountains' forward contracts for the three months ended March 31, 2013:
Millions
 
March 31,
2013
Beginning of period
 
$
(.1
)
    Purchases
 
—

    Net realized and unrealized gains
 
.4

    Sales/settlements
 
(.5
)
End of period
 
$
(.2
)
Summary of additional collateral posted for variable reinsurance counterparties
In addition to derivative instruments, WM Life Re held cash, short-term and fixed maturity investments posted as collateral to its variable annuity reinsurance counterparties.  The total collateral comprises the following:
Millions
 
March 31, 2013
 
December 31, 2012
 
March 31, 2012
Cash
 
$
188.5

 
$
249.8

 
$
360.1

Short-term investments
 
15.6

 
5.1

 
1.5

Fixed maturity investments
 
25.7

 
138.7

 
29.3

Total
 
$
229.8

 
$
393.6

 
$
390.9
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:
 
 ($ in Millions)
 
March 31, 2013
Description
 
Fair 
Value
 
Valuation Technique(s)
 
Unobservable Input
 
Range
 
Weighted
Average
Variable annuity benefit guarantee liabilities
 
$
251.6

 
Discounted cash flows
 
Surrenders
 
 
 
 
 
 
 
 
 
 
     1 year
 
0.3
 %
-
3.0%
 
0.7
 %
 
 
 
 
     2 year
 
0.2
 %
-
3.0%
 
0.8
 %
 

 
 
 
     3 and more years
 
0.1
 %
-
3.0%
 
0.7
 %
 

 
 
 
Mortality
 
0.0
 %
-
5.3%
 
0.9
 %
 

 
 
 
Foreign exchange volatilities
 
 
 
 
 
 
 
 
 
 
 
 
     1 year
 
11.2
 %
-
13.3%
 
12.2
 %
 
 
 
 
 
 
     2 year
 
11.7
 %
-
14.0%
 
12.6
 %
 
 
 
 
 
 
     3 and more years
 
12.3
 %
-
14.6%
 
13.2
 %
 
 
 
 
 
 
Index volatilities
 
 
 
 
 
 
 
 
 
 
 
 
     1 year
 
11.9
 %
-
17.9%
 
13.3
 %
 
 
 
 
 
 
     2 year
 
16.5
 %
-
20.7%
 
18.0
 %
 
 
 
 
 
 
     3 and more years
 
18.6
 %
-
22.3%
 
20.9
 %
Foreign exchange options
 
$
74.2

 
Counterparty valuations, adjusted for unwind quote discount
 
Adjustment to counterparty valuations
 
(0.1
)%
-
(3.2)%
 
(2.1
)%
 

 
 
 
 
 
 
 
Equity index options
$
53.2

 
Counterparty valuations, adjusted for unwind quote discount
 
Adjustment to counterparty valuations
 
(1.7
)%
-
(3.0)%
 
(2.5
)%
 
 
 
 
 
 
 
 
 
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments
The following summarizes amounts offset under master netting agreements:
 
 
March 31, 2013
 
December 31, 2012
Millions
 
Gross asset amounts before offsets(1)
 
Gross liability amounts offset under master netting arrangements
 
Net amounts recognized in Other Assets
 
Gross asset amounts before offsets(1)
 
Gross liability amounts offset under master netting arrangements
 
Net amounts recognized in Other Assets
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
OTC
 
$
—

 
$
(15.6
)
 
$
(15.6
)
 
$
52.6

 
$
(26.9
)
 
$
25.7

Exchange traded
 
1.0

 
(1.6
)
 
(.6
)
 
1.6

 
(.2
)
 
1.4

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
OTC
 
89.6

 
(15.5
)
 
74.1

 
87.8

 
(34.4
)
 
53.4

Exchange traded
 
.6

 
(.6
)
 
—

 
.8

 
(1.4
)
 
(.6
)
Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
OTC
 
53.2

 
(27.2
)
 
26.0

 
63.6

 
(22.9
)
 
40.7

Exchange traded
 
.4

 
(8.5
)
 
(8.1
)
 
.1

 
(22.4
)
 
(22.3
)
Total(2)
 
$
144.8

 
$
(69.0
)
 
$
75.8

 
$
206.5

 
$
(108.2
)
 
$
98.3

(1) Amount equal to fair value of instrument as recognized in other assets.
(2) All derivative instruments held by WM Life Re are subject to master netting arrangements.
Schedule of Uncollateralized Amounts Due
The following summarizes the value, collateral held or provided by WM Life Re and net exposure to credit losses on OTC and exchange traded derivative instruments by counterparty recorded within other assets:
 
 
March 31, 2013
Millions
 
Net amount of assets reflected in Balance Sheet
 
Collateral provided - Financial Instruments
 
Collateral held - Financial Instruments
 
Collateral provided - Cash
 
Collateral held - Cash
 
Net amount of exposure after effect of collateral held
 
Standard
& Poor's
Rating(1)
Bank of America
 
$
60.0

 
$
—

 
$
—

 
$
—

 
$
10.8

 
$
49.2

 
A
 
Barclays
 
6.5

 
—

 
—

 
—

 
—

 
6.5

 
A
+
JP Morgan
 
3.1

 
—

 
—

 
31.3

 
—

 
34.4

 
A
+
Royal Bank of Scotland
 
26.4

 
—

 
—

 
—

 
—

 
26.4

 
A
 
Nomura
 
(6.2
)
 
25.6

 
—

 
8.2

 
—

 
27.6

 
BBB
+
Goldman Sachs
 
—

 
—

 
—

 
—

 
—

 
—

 
A
-
Citigroup - OTC
 
(5.3
)
 
—

 
—

 
25.3

 
—

 
20.0

 
A
 
Citigroup - Exchange Traded
 
(8.7
)
 
—

 
—

 
24.7

 
—

 
16.0

 
A
 
   Total
 
$
75.8

 
$
25.6

 
$
—

 
$
89.5

 
$
10.8

 
$
180.1

 
 
 

 
 
December 31, 2012
 
Millions
 
Net amount of assets reflected in Balance Sheet
 
Collateral provided - Financial Instruments
 
Collateral held - Financial Instruments
 
Collateral provided - Cash
 
Collateral held - Cash
 
Net amount of exposure after effect of collateral held
 
Standard
& Poor's
Rating(1)
Bank of America
 
$
78.5

 
$
—

 
$
—

 
$
—

 
$
30.6

 
$
47.9

 
A
 
Barclays
 
11.6

 
—

 
—

 
—

 
—

 
11.6

 
A
+
JP Morgan
 
(22.8
)
 
—

 
—

 
55.6

 
—

 
32.8

 
A
+
Royal Bank of Scotland
 
33.6

 
—

 
—

 
—

 
—

 
33.6

 
A
 
Nomura
 
(0.9
)
 
28.1

 
—

 
1.7

 
—

 
28.9

 
BBB
+
Goldman Sachs
 
(0.1
)
 
—

 
—

 
3.2

 
—

 
3.1

 
A
-
Citigroup - OTC
 
19.9

 
—

 
—

 
30.8

 
—

 
50.7

 
A
 
Citigroup - Exchange Traded
 
(21.5
)
 
—

 
—

 
35.0

 
—

 
13.5

 
A
 
   Total
 
$
98.3

 
$
28.1

 
$
—

 
$
126.3

 
$
30.6

 
$
222.1

 
 
 
(1) Standard & Poor’s (“S&P”) ratings as detailed above are: “A+” (Strong, which is the fifth highest of twenty-one creditworthiness ratings), “A” (Strong, which is the sixth highest of twenty-one creditworthiness ratings), “A-” (Strong, which is the seventh highest of twenty-one creditworthiness ratings) and “BBB+” (Adequate, which is the eighth highest of twenty-one creditworthiness ratings).
The following summarizes amounts offset under master netting agreements:
 
 
March 31, 2013
 
December 31, 2012
Millions
 
Gross asset
amounts before
offsets(1)
 
Gross liability amounts offset under master netting arrangements
 
Net amounts recognized in Other assets
 
Gross asset
amounts before
offsets(1)
 
Gross liability amounts offset under master netting arrangements
 
Net amounts recognized in Other assets
USD
 
$
.1

 
$
(.4
)
 
$
(.3
)
 
$
—

 
$
—

 
$
—

EUR
 
—

 
—

 
—

 
—

 
(.1
)
 
(.1
)
GBP
 
.2

 
(.1
)
 
.1

 
—

 
—

 
—

Total
 
$
.3

 
$
(.5
)
 
$
(.2
)
 
$
—

 
$
(.1
)
 
$
(.1
)
(1) Amount equal to fair value of instrument as recognized in other assets.
Unrealized derivative gains and losses
The following summarizes realized and unrealized derivative gains (losses) recognized in net realized and unrealized investment gains for the three months ended March 31, 2013 and the carrying values, included in other long-term investments, at March 31, 2013 by type of currency:
 
 
March 31, 2013
Millions
 
Gains (Losses)
 
Carrying Value
USD
 
$
(.3
)
 
$
(.3
)
SEK
 
—

 
—

EUR
 
—

 
—

GBP
 
.7

 
.1

Total
 
$
.4

 
$
(.2
)
Schedule of uncollateralized amounts due
The following table summarizes the notional amounts and uncollateralized balances associated with forward currency contracts:
 
 
March 31, 2013
 
December 31, 2012
Millions
 
Notional Amount
 
Carrying Value
 
Standard & Poor's
 Rating(1)
 
Notional Amount
 
Carrying Value
Barclays
 
24.7

 
.1

 
A+
 
7.7

 
(.1
)
Deutsche Bank
 
13.8

 
(.2
)
 
A+
 
11.1

 
—

Goldman Sachs
 
1.1

 
—

 
A-
 
.4

 
—

HSBC
 
.1

 
—

 
AA-
 
10.1

 
—

JP Morgan
 
22.1

 
.1

 
A+
 
1.9

 
—

Royal Bank of Canada
 
17.5

 
(.2
)
 
AA-
 
—

 
—

   Total
 
$
79.3

 
$
(.2
)
 
 
 
$
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).