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.



	December 31,
Millions	2013			2012
Symetra common shares	$	360.9		$	288.4
Unrealized (losses) gains from Symetra’s fixed maturity portfolio	(43.6		)	62.8
Carrying value of Symetra common shares	317.3			351.2
Symetra warrants	—			30.3
Total investment in Symetra	317.3			381.5

Hamer⁽¹⁾	4.1			4.0
Bri-Mar⁽¹⁾	—			1.9
Pentelia Capital Management	—			0.5
Total investments in unconsolidated affiliates	$	321.4		$	387.9

⁽¹⁾ As of October 1, 2012, Hamer and Bri-Mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates.

Symetra

At December 31, 2013 and 2012, White Mountains owned 20.05 million and 17.40 million common shares of Symetra, which represented 17.03% and 14.60% of Symetra’s 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 as a gain or loss through other revenue in the income statement. White Mountains used a Black Scholes valuation model to determine the fair value of the Symetra warrants.

In January 2010, Symetra completed an initial public offering at a price of $12.00 per share, with 25.3 million shares sold by Symetra and 9.7 million shares sold by existing shareholders. White Mountains did not sell any of its shares in the offering. As a result of the offering, White Mountains’ fully converted ownership in Symetra decreased from 24% to approximately 20% during the first quarter of 2010. The issuance of the new Symetra shares at a price below its adjusted book value per share diluted White Mountains’ investment in Symetra’s common shares, resulting in a $16.0 million decrease to White Mountains’ carrying value in Symetra.

On June 20, 2013, White Mountains exercised its warrants in a cashless transaction and received 2.65 million common shares of Symetra in exchange for the 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.

During the three and six months ended June 30, 2013, White Mountains recognized a $14.5 million and $10.8 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 were recorded in net investment income.

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.

Under GAAP, a decline in the fair value of an investment is considered to be other-than-temporary when the fair value of the investment is not expected to recover to its GAAP carrying value in the near term. Declines in the fair value of an investment that are considered to be other-than-temporary are recognized as a write-down to the GAAP carrying value of the investment. The GAAP fair value of an investment is the price that would be paid by a market participant to acquire it in the investment’s principal (or most advantageous) market. For investments that are publicly traded, quoted market prices generally provide the best measurement of GAAP fair value. However, a decline in the quoted market price of an investment below its GAAP carrying value is not necessarily indicative of a loss in value that is other-than-temporary, and in circumstances where the characteristics of the investment being measured are not the same as those for which quoted market prices are available, unadjusted quoted market prices do not represent GAAP fair value. White Mountains’ investment in Symetra common shares is different than the shares that are traded on the public stock exchange, principally due to the size of its position and its representation on Symetra’s Board of Directors. In circumstances like this, GAAP requires that fair value be determined giving consideration to multiple valuation techniques. Management considered three different valuation techniques to determine the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011.

Valuation techniques based on actuarial appraisal

When determining the value of life insurance holding companies that are acquisition targets, market participants commonly utilize an approach that values the company as the sum of (A) adjusted statutory net worth of any regulated life insurance companies (i.e. statutory surplus plus asset valuation reserve) plus the GAAP net assets of any non-life businesses, less holding company debt and (B) the present value of future earnings related to business in force as of the valuation date plus the present value of future earnings related to business written after the valuation date. Part A of the calculation can be performed using observable inputs from the statutory and GAAP financial statements. Part B of the calculation requires a large number of actuarial calculations including assumptions such as discount rates, mortality, persistency and future investment results that, while based on historical data and are supportable, are nonetheless judgmental and largely unobservable. For Symetra, part A was approximately $15 per share as of December 31, 2011. Symetra management provided White Mountains with an actuarial appraisal that demonstrates that part B would be a meaningful positive value in most reasonable scenarios. When determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011, management ascribed the greatest weight to part A, as it is observable and less subjective.

Valuation techniques based on multiples from recent transactions

White Mountains uses growth in adjusted book value to assess Symetra’s financial performance. Adjusted book value excludes unrealized gains and losses from Symetra’s fixed maturity investment portfolio. Life insurance industry analysts and market participants commonly use multiples of adjusted book value per share to determine relative values of companies in the life insurance industry. Applying this approach to Symetra at December 31, 2011, utilizing multiples which were observed in a recently announced transaction within the life insurance industry provides an estimated fair value range from $16 to $30 per share. However, the range of fair value estimates generated by applying the adjusted book value per share multiple and market premium observed in the recently announced transaction is wide, and there have been no other significant acquisitions of life insurance companies in 2011. Therefore, management did not ascribe significant weight to valuations determined using the adjusted book value per share multiple or market price premium observed in recent acquisition activity when determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011.

Valuation techniques based on quoted market prices

White Mountains’ representation on Symetra’s Board of Directors gives it the ability to exercise significant influence over Symetra’s operations and policies. Generally, market participants are willing to pay a premium to obtain the ability to exert influence over the operations and policies of an investee, which is not reflected in the quoted market price of Symetra’s common shares. There is no reliable means to calculate the value of this premium for an investment in a life insurance company. The actuarial appraisals used by market participants described above implicitly consider the ability to influence an investee’s operations and policies in the actuarial assumptions underlying projected future earnings, but the value associated with the ability to exert influence is not explicitly calculated separately from other components of value. As a result, management did not ascribe significant weight to valuations based on quoted market prices when determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011, as the premium associated with the ability to exert influence over the operations and policies of Symetra is unobservable and highly subjective.

After considering these valuation techniques, management determined that the best estimate of the GAAP fair value of White Mountains’ investment in Symetra’s common shares at December 31, 2011 was $15 per share. Given the scarcity of relevant observable inputs and the wide range of estimates developed under the approaches used, the estimated GAAP fair value of White Mountains’ investment in Symetra’s common shares involved a significant degree of judgment, is very subjective in nature and, accordingly, is considered a Level 3 fair value measurement.

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 differences are being amortized over a 30-year period with a weighted average 29 years remaining. The amortization is 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 differences 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 year ended December 31, 2013, White Mountains recognized after-tax amortization of $2.7 million through equity in earnings of unconsolidated affiliates and $10.8 million through equity in net unrealized gains from investments in unconsolidated affiliates. At December 31, 2013, the pre-tax unamortized basis difference was $183.7 million. Management does not believe that the investment in Symetra’s common shares is other-than-temporarily impaired at December 31, 2013.

During 2013, White Mountains received cash dividends from Symetra of $6.4 million on its common share investment which is accounted for as a reduction of White Mountains’ investment in Symetra in accordance with equity accounting.

The following table summarizes amounts recorded by White Mountains relating to its investment in Symetra:



Millions	Common shares			Warrants			Total
Carrying value of investment in Symetra as of December 31, 2010	$	350.4		$	37.1		$	387.5
Equity in earnings⁽¹⁾⁽⁸⁾	28.2			—			28.2
Impairment of equity in earnings of Symetra⁽³⁾	(50.0		)	—			(50.0		)
Equity in net unrealized gains from Symetra’s fixed maturity portfolio⁽⁷⁾	85.0			—			85.0
Impairment of net unrealized gains from Symetra’s fixed maturity portfolio⁽⁴⁾	(148.6		)	—			(148.6		)
Dividends received	(4.0		)	—			(4.0		)
Decrease in value of warrants	—			(24.5		)	(24.5		)
Carrying value of investment in Symetra as of December 31, 2011⁽²⁾	261.0			12.6			273.6
Equity in earnings^(1)(5)(8)	32.3			—			32.3
Equity in net unrealized gains from Symetra’s fixed maturity portfolio⁽⁶⁾⁽⁷⁾	62.8			—			62.8
Dividends received	(4.9		)	—			(4.9		)
Increase in value of warrants	—			17.7			17.7
Carrying value of investment in Symetra as of December 31, 2012⁽²⁾	351.2			30.3			381.5
Equity in earnings^(1)(5)(8)	37.8			—			37.8
Equity in net unrealized losses from Symetra’s fixed maturity portfolio⁽⁶⁾⁽⁷⁾	(106.4		)	—			(106.4		)
Dividends received	(6.4		)	—			(6.4		)
Increase in value of warrants	—			10.8			10.8
Exercise of warrants	41.1			(41.1		)	—
Carrying value of investment in Symetra as of December 31, 2013⁽²⁾⁽⁹⁾	$	317.3		$	—		$	317.3


⁽¹⁾	Equity in earnings for the years end December 31, 2013, 2012 and 2011 excludes tax expense of $2.8, $2.6, and $2.3


⁽²⁾	Includes White Mountains’ equity in net unrealized (losses) gains from Symetra’s fixed maturity portfolio of $(43.6), $62.8, and $0 as of December 31, 2013, 2012 and 2011, which excludes tax benefit (expense) of $3.2, $(5.1) and $0


⁽³⁾	Impairment of equity in earnings of Symetra excludes tax benefit of $4.1


⁽⁴⁾	Impairment of net unrealized gains from Symetra’s fixed maturity portfolio excludes tax benefit$12.0


⁽⁵⁾	Equity in earnings for the years ended December 31, 2013 and 2012 includes $3.0 and $3.5 increases relating to the pre-tax amortization of the Symetra common share basis difference.


⁽⁶⁾	Net unrealized gains for the years ended December 31, 2013 and 2012 includes $11.8 and $13.1 increases relating to the pre-tax amortization of the Symetra common share basis difference.


⁽⁷⁾	Net unrealized (losses) gains from Symetra’s fixed maturity portfolio excludes tax benefit (expense) of $8.3, $(5.1) and $(6.9) for the years ended December 31, 2013, 2012 and 2011.


⁽⁸⁾	Equity in earnings for the years end December 31, 2013, 2012 and 2011 includes $.2, $1.3, and $1.0 loss from the dilutive effect of Symetra’s yearly dividend and the issuance of restricted shares by Symetra


⁽⁹⁾	The aggregate value of White Mountains’ investment in common shares of Symetra was $380.1 based upon the quoted market price of $18.96 per share at December 31, 2013.

The following table summarizes financial information for Symetra as of December 31, 2013 and 2012:



	December 31,
Millions	2013		2012
Symetra balance sheet data:
Total investments	$	27,901.1	$	27,556.4
Separate account assets	978.4		807.7
Total assets	30,129.5		29,460.9
Policyholder liabilities	25,328.8		23,735.2
Long-term debt	449.5		449.4
Separate account liabilities	978.4		807.7
Total liabilities	27,187.6		25,830.8
Common shareholders’ equity	2,941.9		3,630.1

The following table summarizes financial information for Symetra for the years ended December 31, 2013, 2012 and 2011:



	Years ended December 31,
Millions	2013			2012		2011
Symetra income statement data:
Net premiums earned	$	627.2		$	605.0	$	540.5
Net investment income	1,285.0			1,275.2		1,270.9
Total revenues⁽¹⁾	2,103.9			2,101.2		1,999.3
Policy benefits	1,394.9			1,371.8		1,307.3
Total expenses⁽¹⁾	1,865.3			1,831.1		1,726.1
Net income⁽¹⁾	220.7			205.4		195.8
Comprehensive net income	(777.6		)	549.3		785.5


⁽¹⁾	Amounts for the years ended December 31, 2011 have been restated for the effect of Symetra’s adoption of ASU 2010-26.

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 (see Note 16). Effective October 1, 2012, these investments are accounted for under the equity method. For the years ended December 31, 2013 and 2012, White Mountains recorded equity in earnings of $0.9 million and $0.4 million for Hamer. For December 31, 2013, White Mountains also received $0.8 million of cash dividends from Hamer. As of December 31, 2013, White Mountains’ investments in Hamer was $4.1 million.

On October 10, 2013, White Mountains sold its interest in Bri-Mar under an asset purchase agreement. For the year ended December 31, 2013, White Mountains recorded $1.1 million of cash proceeds from the sale and a $1.7 million loss on sale. Prior to the sale, White Mountains recorded equity in earnings of $0.9 million for Bri-Mar for the nine months ended September 31, 2013. Bri-Mar did not have any equity in earnings for December 31, 2012.

Pentelia

White Mountains obtained an equity interest of 33% in Pentelia Capital Management (“PCM”) for $1.6 million in April 2007. This investment is accounted for under the equity method. During the years ended December 31, 2013, 2012 and 2011, White Mountains recorded $0.1 million, $(1.3) million and $(0.2) million of equity in earnings in PCM. During the year ended December 31, 2013, White Mountains received $.4 million of cash dividends from PCM which liquidated White Mountains equity interest. As of December 31, 2012, White Mountains investment in PCM was $0.5 million.