Investments in Unconsolidated Affiliates

White Mountains’ investments in unconsolidated affiliates represent investments in other companies in which White Mountains has a significant voting and economic interest but does not control the entity.



Millions	September 30, 2013			December 31, 2012
Symetra common shares	$	350.7		$	288.4
Unrealized (losses) gains from Symetra’s fixed maturity portfolio	(25.5		)	62.8
Carrying value of Symetra common shares	325.2			351.2
Symetra warrants	—			30.3
Total investment in Symetra	325.2			381.5
Hamer	3.7			4.0
Bri-Mar	2.8			1.9
Pentelia Capital Management	—			.5
Total investments in unconsolidated affiliates	$	331.7		$	387.9

Symetra

At September 30, 2013 and December 31, 2012, White Mountains owned 20.05 million and 17.40 million common shares of Symetra Financial Corporation (“Symetra”) which represented an approximate 17% and 15% common share ownership. At December 31, 2012, White Mountains also owned warrants to acquire an additional 9.49 million common shares of Symetra. White Mountains accounts for its investment in common shares of Symetra using the equity method. White Mountains accounted for its Symetra warrants as derivatives with changes in fair value recognized through the income statement as a gain or loss recognized through other revenues. White Mountains used a Black Scholes valuation model to determine the fair value of the Symetra warrants.

On June 20, 2013, both White Mountains and Berkshire Hathaway Inc., which each owned warrants to purchase 9.49 million common shares of Symetra, exercised their warrants in a cashless transaction and each received 2.65 million common shares of Symetra in exchange for their warrants. In addition, Symetra repurchased 6.6 million of its common shares at an average price of $13.44 during the second quarter of 2013. The net effect of Symetra’s share repurchases and the warrant exercises resulted in a basis difference between the GAAP carrying value of White Mountains’ investment in Symetra common shares and the amount derived by multiplying the percentage of White Mountains common share ownership by Symetra’s total GAAP equity. This basis difference totaled $19.3 million, of which $0.4 million is attributable to equity in earnings of unconsolidated affiliates and $18.9 million is attributable to equity in net unrealized gains of unconsolidated affiliates.

At December 31, 2011, due to the prolonged low interest rate environment in which life insurance companies currently operate, White Mountains concluded that its investment in Symetra common shares was other-than-temporarily impaired and wrote down the GAAP book value of the investment to its estimated fair value of $261.0 million, or $15 per share at December 31, 2011. This impairment also resulted in a basis difference between the GAAP carrying value of White Mountains’ investment in Symetra common shares and the amount derived by multiplying the percentage of White Mountains common share ownership by Symetra’s total GAAP equity. White Mountains recorded $45.9 million of after-tax equity in losses of unconsolidated affiliates and $136.6 million of after-tax equity in net unrealized losses of unconsolidated affiliates.

As a result of the various basis adjustments, White Mountains’ carrying value of its investment in Symetra differs from the carrying value by applying its ownership share against Symetra’s GAAP equity as normally done under the equity method. The pre-tax basis difference is being amortized over a 30-year period pro rata based on estimated future cash flows associated with Symetra’s underlying assets and liabilities to which the basis differences have been attributed. White Mountains continues to record its equity in Symetra's earnings and net unrealized gains (losses). In addition, White Mountains recognizes the amortization of the basis difference through equity in earnings of unconsolidated affiliates and equity in net unrealized gains (losses) from investments in unconsolidated affiliates consistent with the original attribution of the basis differences between equity in earnings and equity in net unrealized gains (losses). For the three and nine months ended September 30, 2013, White Mountains recognized after-tax amortization of $0.7 million and $2.1 million through equity in earnings of unconsolidated affiliates and $2.9 million and $7.9 million through equity in net unrealized gains from investments in unconsolidated affiliates. At September 30, 2013, the pre-tax unamortized basis difference was $187.6 million, of which $39.8 million is attributable to equity in earnings of unconsolidated affiliates and $147.8 million is attributable to equity in net unrealized gains of unconsolidated affiliates.

Immediately prior to the exercise of the warrants, White Mountains recognized a $14.5 million increase in the value of the warrants through other revenues based on the final Black Scholes valuation that was agreed upon between Symetra and White Mountains. The major assumptions used in valuing the Symetra warrants at June 20, 2013 were a risk free rate of a 0.34%, volatility of 26.5%, an expected life of 1.11 years, a strike price of $11.49 per share and a share price of $15.53 per share. During the six months ended June 30, 2013, White Mountains also received dividends of $1.5 million from Symetra on its investment in Symetra warrants that was recorded in net investment income.

The following table summarizes amounts recorded by White Mountains relating to its investment in Symetra for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended								Three Months Ended
	September 30, 2013								September 30, 2012
Millions	Common Shares			Warrants		Total			Common Shares			Warrants			Total
Carrying value of investment in Symetra at beginning of period	$	326.0		$	—	$	326.0		$	305.9		$	29.8		$	335.7
Equity in earnings ⁽¹⁾⁽²⁾	8.7			—		8.7			8.8			—			8.8
Equity in net unrealized (losses) gains from Symetra’s fixed maturity portfolio⁽³⁾	(7.7		)	—		(7.7		)	35.2			—			35.2
Dividends received	(1.8		)	—		(1.8		)	(1.3		)	—			(1.3		)
Increase in value of warrants	—			—		—			—			(3.6		)	(3.6		)
Exercise of warrants	—			—		—			—			—			—
Carrying value of investment in Symetra at end of period⁽⁴⁾⁽⁵⁾	$	325.2		$	—	$	325.2		$	348.6		$	26.2		$	374.8

⁽¹⁾Equity in earnings excludes tax expense of $0.6 and $0.7.

⁽²⁾Equity in earnings includes $0.7 and $0.9 increase relating to the pre-tax amortization of the Symetra common share basis difference.

⁽³⁾Net unrealized gains includes $3.1 and $3.3 increase relating to the pre-tax amortization of the Symetra common share basis difference.

⁽⁴⁾Includes White Mountains’ equity in net unrealized (losses) gains from Symetra’s fixed maturity portfolio of $(7.7) and $35.2 as of September 30, 2013 and 2012, which exclude deferred tax assets (liabilities) of $0.5 and $2.8.

⁽⁵⁾The aggregate value of White Mountains’ investment in common shares of Symetra was $357.3 based upon the quoted market price of $17.82 per share at September 30, 2013.



	Nine Months Ended									Nine Months Ended
	September 30, 2013									September 30, 2012
Millions	Common Shares			Warrants			Total			Common Shares			Warrants		Total
Carrying value of investment in Symetra at beginning of period	$	351.2		$	30.3		$	381.5		$	261.0		$	12.6	$	273.6
Equity in earnings ⁽¹⁾⁽²⁾	25.7			—			25.7			26.7			—		26.7
Equity in net unrealized (losses) gains from Symetra’s fixed maturity portfolio⁽³⁾	(88.2		)	—			(88.2		)	64.6			—		64.6
Dividends received	(4.6		)	—			(4.6		)	(3.7		)	—		(3.7		)
Increase in value of warrants	—			10.8			10.8			—			13.6		13.6
Exercise of warrants	41.1			(41.1		)	—			—			—		—
Carrying value of investment in Symetra at end of period⁽⁴⁾⁽⁵⁾	$	325.2		$	—		$	325.2		$	348.6		$	26.2	$	374.8

⁽¹⁾Equity in earnings excludes tax expense of $2.0 and $2.2.

⁽²⁾Equity in earnings includes $2.2 and $0.9 increase relating to the pre-tax amortization of the Symetra common share basis difference.

⁽³⁾Net unrealized gains includes $8.6 and $9.9 increase relating to the pre-tax amortization of the Symetra common share basis difference.

⁽⁴⁾Includes White Mountains’ equity in net unrealized (losses) gains from Symetra’s fixed maturity portfolio of $(25.5) and $64.6 as of September 30, 2013 and 2012, which exclude deferred tax assets (liabilities) of $2.0 and $(5.2).

⁽⁵⁾The aggregate value of White Mountains’ investment in common shares of Symetra was $357.3 based upon the quoted market price of $17.82 per share at September 30, 2013.

During the three and nine months ended September 30, 2013, White Mountains received cash dividends from Symetra of $1.8 million and $4.6 million on its common share investment that were recorded as a reduction of White Mountains’ investment in Symetra.

Hamer and Bri-Mar

White Mountains received equity interests in Hamer and Bri-Mar, two small manufacturing companies distributed to White Mountains in connection with the dissolution of the Tuckerman Capital, LP fund. Effective October 1, 2012, these investments are accounted for under the equity method. For the three and nine months ended September 30, 2013, White Mountains recorded equity in earnings of $0.1 million and $0.5 million for Hamer. For the nine months ended September 30, 2013, White Mountains also received $0.8 million of cash dividends from Hamer. For the three and nine months ended September 30, 2013, White Mountains recorded equity in earnings of $0.4 million and $0.9 million for Bri-Mar. As of September 30, 2013, White Mountains’ investments in Hamer and Bri-Mar were $3.7 million and $2.8 million, respectively.