Employee Share-Based Incentive Compensation Plans

White Mountains’ Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees and service providers of the Company and certain of its subsidiaries. White Mountains’ share-based compensation incentive awards consist of performance shares, restricted shares and stock options.

Share-Based Compensation Based on White Mountains Common Shares

WTM Performance Shares

Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of common shares at the time awards are paid. The following table summarizes performance share activity for the three and nine months ended September 30, 2013 and 2012 for performance shares granted under the WTM Incentive Plan and phantom performance shares granted under the Sirius Group Performance Plan (the “WTM Phantom Share Plan”):



	Three Months Ended September 30,										Nine Months Ended September 30,
	2013					2012					2013					2012
Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	118,976		$	34.9		118,450		$	32.7		119,357		$	29.4		150,064		$	66.1
Shares paid or expired⁽¹⁾	—		—			—		—			(47,310	)	(11.0		)	(68,357	)	(48.4		)
New grants	250		—			2,500		—			47,170		—			38,432		—
Assumed forfeitures and cancellations⁽²⁾	(6	)	(.2		)	(1,359	)	(.4		)	3		(.2		)	(548	)	.4
Expense recognized	—		7.1			—		6.6			—		23.6			—		20.8
Ending September 30,	119,220		$	41.8		119,591		$	38.9		119,220		$	41.8		119,591		$	38.9

⁽¹⁾WTM performance share payments in 2013 for the 2010-2012 performance cycle ranged from 33% to 98% of target. WTM performance share payments in 2012 for the 2009-2011 performance cycle ranged from 147% to 155% of target.

⁽²⁾Amounts include changes in assumed forfeitures, as required under GAAP.

For the 2009-2011 performance cycle, the Company issued common shares for 9,577 performance shares earned and all other performance shares earned were settled in cash. For the 2010-2012 performance cycle, the Company settled all performance shares earned in cash.

If the outstanding WTM performance shares had vested on September 30, 2013, the total additional compensation cost to be recognized would have been $35.5 million, based on accrual factors at September 30, 2013 (common share price and payout assumptions).

Performance Shares granted under the WTM Incentive Plan

The following table summarizes performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at September 30, 2013 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2013 – 2015	47,170		$	8.0
2012 – 2014	37,977		15.8
2011 – 2013	37,130		19.1
Sub-total	122,277		42.9
Assumed forfeitures	(3,057	)	(1.1		)
Total at September 30, 2013	119,220		$	41.8

Restricted Shares

The following outlines the unrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,									Nine Months Ended September 30,
	2013				2012					2013				2012
Millions, except share amounts	Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	95,380	$	24.5		93,460		$	21.5		69,910	$	16.8		72,000		$	13.3
Issued	250	.1			3,700		2.0			25,720	14.4			32,160		15.7
Vested	—	—			—		—			—	—			(7,000	)	—
Forfeited	—	—			(1,065	)	(.2		)	—	—			(1,065	)	(.2		)
Expense recognized	—	(3.8		)	—		(3.2		)	—	(10.4		)	—		(8.7		)
Non-vested at September 30,	95,630	$	20.8		96,095		$	20.1		95,630	$	20.8		96,095		$	20.1

During the first nine months of 2013, White Mountains issued 25,720 restricted shares that vest on January 1, 2016. During the first nine months of 2012, White Mountains issued 27,960 restricted shares that vest on January 1, 2015, 1,200 restricted shares that vest on July 16, 2015 and 3,000 restricted shares that vest in two equal annual installments beginning in February 2014. The unrecognized compensation cost at September 30, 2013 is expected to be recognized ratably over the remaining vesting periods.

Share-Based Compensation Based on OneBeacon Ltd. Common Shares

The OneBeacon Long-Term Incentive Plan (the “OneBeacon Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees of OneBeacon Ltd. and certain of its subsidiaries. OneBeacon’s share-based incentive awards include OneBeacon performance shares and restricted shares.

OneBeacon Performance Shares

OneBeacon performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. OneBeacon performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of OneBeacon Ltd. common shares at the time awards are paid.

The following table summarizes performance share activity for the three and nine months ended September 30, 2013 and 2012 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2013			2012					2013					2012
Millions, except share amounts	Target Performance Shares Outstanding	Accrued Expense		Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	489,867	$	2.4	560,577		$	3.1		563,190		$	1.2		642,667		$	9.7
Shares paid or expired⁽¹⁾	—	—		—		—			(238,658	)	—			(258,901	)	(7.8		)
New awards	—	—		—		—			179,000		—			181,290		—
Assumed forfeitures and cancellations⁽²⁾	—	—		(3,354	)	—			(13,665	)	(.1		)	(7,833	)	—
Expense recognized	—	.1		—		(2.2		)	—		1.4			—		(1.0		)
Ending September 30,	489,867	$	2.5	557,223		$	.9		489,867		$	2.5		557,223		$	.9

⁽¹⁾ There were no payments made in 2013 for the 2010-2012 performance cycle; those performance shares did not meet the threshold performance goals and expired. OneBeacon performance share payments in 2012 for the 2009-2011 performance cycle were at 138.6% of target. Amounts include deposits into OneBeacon’s deferred compensation plan.

⁽²⁾ Amounts include changes in assumed forfeitures, as required under GAAP.

If the outstanding OneBeacon performance shares had been vested on September 30, 2013, the total additional compensation cost to be recognized would have been $3.1 million, based on accrual factors at September 30, 2013 (common share price and payout assumptions).

The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at September 30, 2013 for each performance cycle:



Millions, except share amounts	Target OneBeacon Performance Shares Outstanding		Accrued Expense
Performance cycle:
2013 – 2015	179,000		$	.7
2012 – 2014	181,290		1.4
2011 – 2013	142,138		.5
Sub-total	502,428		2.6
Assumed forfeitures	(12,561	)	(.1		)
Total at September 30, 2013	489,867		$	2.5

OneBeacon Restricted Shares

The following summarizes the unrecognized compensation cost associated with the outstanding OneBeacon restricted share awards for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,									Nine Months Ended September 30,
	2013					2012				2013					2012
Millions, except share amounts	Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares	Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	918,000		$	8.0		930,000	$	11.2		927,000		$	9.6		630,000	$	7.7
Issued	—		—			—	—			—		—			300,000	4.6
Vested	—		—			—	—			(9,000	)	—			—	—
Forfeited	(3,000	)	—			—	—			(3,000	)	—			—	—
Expense recognized	—		(.7		)	—	(.8		)	—		(2.3		)	—	(1.9		)
Non-vested at September 30,	915,000		$	7.3		930,000	$	10.4		915,000		$	7.3		930,000	$	10.4

On March 1, 2012, OneBeacon issued 300,000 restricted shares that vest in two equal annual installments beginning on February 28, 2014.

On May 25, 2011, OneBeacon issued 630,000 restricted shares to its CEO that vest in four equal annual installments beginning on February 22, 2014. Concurrently with the grant of the restricted shares, 35,000 OneBeacon performance shares issued to OneBeacon’s CEO for the 2011-2013 performance share cycle were forfeited and performance share awards to OneBeacon’s CEO for the subsequent five years have been or will also be reduced by 35,000 shares.

The unrecognized compensation cost at September 30, 2013 is expected to be recognized ratably over the remaining vesting periods.