Employee Share-Based Incentive Compensation Plans

White Mountains’s 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 White Mountains. White Mountains’s 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. Awards generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, 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, 2014 and 2013 for performance shares granted under the WTM Incentive Plan:



	Three Months Ended September 30,									Nine Months Ended September 30,
	2014				2013					2014					2013
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	127,537	$	50.5		118,976		$	34.9		119,220		$	60.2		119,357		$	29.4
Shares paid or expired⁽¹⁾	—	—			—		—			(37,130	)	(26.7		)	(47,310	)	(11.0		)
New grants	—	—			250		—			45,660		—			47,170		—
Assumed forfeitures and cancellations⁽²⁾	—	(.2		)	(6	)	(.2		)	(213	)	—			3		(.2		)
Expense recognized	—	6.8			—		7.1			—		23.6			—		23.6
Ending of period	127,537	$	57.1		119,220		$	41.8		127,537		$	57.1		119,220		$	41.8

⁽¹⁾WTM performance share payments in 2014 for the 2011-2013 performance cycle ranged from 88% to 131.5% of target. WTM performance share payments in 2013 for the 2010-2012 performance cycle ranged from 33% to 98% of target.

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

For the 2011-2013 performance cycle, the Company issued common shares for 3,570 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, 2014, the total additional compensation cost to be recognized would have been $38.6 million, based on accrual factors at September 30, 2014 (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, 2014 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2014 – 2016	45,660		$	7.2
2013 – 2015	47,170		21.6
2012 – 2014	37,977		29.8
Sub-total	130,807		58.6
Assumed forfeitures	(3,270	)	(1.5		)
Total at September 30, 2014	127,537		$	57.1

Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months ended September 30, 2014 and 2013:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2014				2013				2014					2013
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	81,325	$	20.9		95,380	$	24.5		94,130		$	17.0		69,910	$	16.8
Issued	—	—			250	.1			20,400		11.8			25,720	14.4
Vested	—	—			—	—			(33,205	)	—			—	—
Forfeited	—	—			—	—			—		—			—	—
Expense recognized	—	(3.3		)	—	(3.8		)	—		(11.2		)	—	(10.4		)
Non-vested at September 30,	81,325	$	17.6		95,630	$	20.8		81,325		$	17.6		95,630	$	20.8

During the first nine months of 2014, White Mountains issued 20,400 restricted shares that vest on January 1, 2017. During the first nine months of 2013, White Mountains issued 25,720 restricted shares that vest on January 1, 2016. The unrecognized compensation cost at September 30, 2014 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 to key employees of OneBeacon various types of share-based and non share-based incentive awards. 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 generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, 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, 2014 and 2013 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014					2013
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	512,938	$	4.4	489,867	$	2.4	493,421		$	4.0		563,190		$	1.2
Shares paid or expired⁽¹⁾	—	—		—	—		(142,138	)	(1.0		)	(238,658	)	—
New grants	—	—		—	—		165,800		—			179,000		—
Assumed forfeitures and cancellations⁽²⁾	—	—		—	—		(4,145	)	—			(13,665	)	(.1		)
Expense recognized	—	1.1		—	.1		—		2.5			—		1.4
Ending of period	512,938	$	5.5	489,867	$	2.5	512,938		$	5.5		489,867		$	2.5

⁽¹⁾ OneBeacon performance share payments in 2014 for the 2011-2013 performance cycle were at 37.1% of target. No payments were made in 2013 for the 2010-2012 OneBeacon performance cycle as the performance factor was zero.

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

If the outstanding OneBeacon performance shares had been vested on September 30, 2014, the total additional compensation cost to be recognized would have been $3.7 million, based on accrual factors at September 30, 2014 (common share price, accumulated dividends and payout assumptions).

The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at September 30, 2014 for each performance cycle:



Millions, except share amounts	Target Performance Shares Outstanding		Accrued Expense
Performance cycle:
2014 – 2016	165,800		$	.6
2013 – 2015	179,000		2.2
2012 – 2014	181,290		2.8
Sub-total	526,090		5.6
Assumed forfeitures	(13,152	)	(.1		)
Total at September 30, 2014	512,938		$	5.5

OneBeacon Restricted Shares

The following table summarizes the unrecognized compensation cost associated with the outstanding OneBeacon restricted stock awards for the three and nine months ended September 30, 2014 and 2013:



	Three Months Ended September 30,									Nine Months Ended September 30,
	2014				2013					2014					2013
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	612,500	$	4.9		918,000		$	8.0		915,000		$	6.5		927,000		$	9.6
Issued	—	—			—		—			—		—			—		—
Vested	—	—			—		—			(300,000	)	—			(9,000	)	—
Forfeited	—	—			(3,000	)	—			(2,500	)	—			(3,000	)	—
Expense recognized	—	(.7		)	—		(.7		)	—		(2.3		)	—		(2.3		)
Non-vested at September 30,	612,500	$	4.2		915,000		$	7.3		612,500		$	4.2		915,000		$	7.3

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

On May 25, 2011, OneBeacon issued 630,000 restricted shares to its CEO that vest in four equal annual installments. The first installment vested 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, 2014 is expected to be recognized ratably over the remaining vesting periods.