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EX-32.2 - EXHIBIT 32.2 - WHITE MOUNTAINS INSURANCE GROUP LTDwtm10-q63017ex322.htm
EX-32.1 - EXHIBIT 32.1 - WHITE MOUNTAINS INSURANCE GROUP LTDwtm10-q63017ex321.htm
EX-31.2 - EXHIBIT 31.2 - WHITE MOUNTAINS INSURANCE GROUP LTDwtm10-q63017ex312.htm
EX-31.1 - EXHIBIT 31.1 - WHITE MOUNTAINS INSURANCE GROUP LTDwtm10-q63017ex311.htm
EX-10.2 - EXHIBIT 10.2 - WHITE MOUNTAINS INSURANCE GROUP LTDwtm10-q63017ex102.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the period ended June 30, 2017
 
OR
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to         
 
Commission file number 1-8993

WHITE MOUNTAINS INSURANCE GROUP, LTD.
(Exact name of Registrant as specified in its charter)
Bermuda
 
94-2708455
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
80 South Main Street,
 
03755-2053
Hanover, New Hampshire
 
(Zip Code)
(Address of principal executive offices)
 
 
 
Registrant’s telephone number, including area code: (603) 640-2200
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes   ý   No   o
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes   ý    No   o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  ý

As of August 2, 2017, 4,336,625 common shares with a par value of $1.00 per share were outstanding (which includes 53,814 restricted common shares that were not vested at such date).




WHITE MOUNTAINS INSURANCE GROUP, LTD.

Table of Contents
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets, June 30, 2017 and December 31, 2016
 
 
 
 
 
 
     Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
Consolidated Statements of Changes in Equity, Six Months Ended June 30, 2017 and 2016
 
 
 
 
Consolidated Statements of Cash Flows, Six Months Ended June 30, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
Results of Operations for the Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I.FINANCIAL INFORMATION.
Item 1.
Financial Statements
WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Millions, except share amounts)
 
June 30,
2017
 
December 31,
2016
Assets
 
Unaudited
 
 

Fixed maturity investments, at fair value
 
$
1,566.9

 
$
2,081.1

Short-term investments, at amortized cost (which approximates fair value)
 
71.6

 
174.9

Common equity securities, at fair value
 
827.9

 
285.6

Other long-term investments
 
226.5

 
172.8

Total investments
 
2,692.9

 
2,714.4

Cash
 
53.3

 
80.2

Insurance premiums receivable
 
2.8

 
1.6

Deferred acquisition costs
 
13.0

 
10.6

Accrued investment income
 
16.0

 
14.8

Accounts receivable on unsettled investment sales
 
199.5

 
4.8

Goodwill and other intangible assets
 
49.5

 
54.7

Other assets
 
62.8

 
64.1

Assets held for sale
 
3,696.4

 
3,599.5

Total assets
 
$
6,786.2

 
$
6,544.7

Liabilities
 
 

 
 

Unearned insurance premiums
 
$
109.9

 
$
82.9

Debt
 
10.6

 
12.7

Accrued incentive compensation
 
63.3

 
95.7

Accounts payable on unsettled investment purchases
 
114.6

 

Other liabilities
 
44.9

 
46.9

Liabilities held for sale
 
2,678.8

 
2,569.3

Total liabilities
 
3,022.1

 
2,807.5

Equity
 
 

 
 

White Mountains’s common shareholders’ equity
 
 

 
 

White Mountains’s common shares at $1 par value per share - authorized 50,000,000 shares;
 
 

 
 

    issued and outstanding 4,571,625 and 4,563,814 shares
 
4.6

 
4.6

Paid-in surplus
 
810.5

 
806.1

Retained earnings
 
2,835.2

 
2,797.2

Accumulated other comprehensive loss, after tax:
 
 
 
 
Net unrealized foreign currency translation losses
 

 
(1.4
)
Accumulated other comprehensive loss from net change
     in benefit plan assets and obligations
 
(3.0
)
 
(3.2
)
Total White Mountains’s common shareholders’ equity
 
3,647.3

 
3,603.3

Non-controlling interests
 
116.8

 
133.9

Total equity
 
3,764.1

 
3,737.2

Total liabilities and equity
 
$
6,786.2

 
$
6,544.7


 See Notes to Consolidated Financial Statements

1


WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Unaudited
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(Millions, except per share amounts)
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Earned insurance premiums
 
$
2.2

 
$
3.3

 
$
5.2

 
$
6.8

Net investment income
 
14.7

 
6.1

 
27.5


8.6

Net realized and unrealized investment gains
 
33.7

 
3.4

 
70.0


16.3

Advertising and commission revenues
 
33.2

 
29.2

 
71.7

 
63.0

Other revenue
 
1.6

 
7.2

 
4.5

 
13.3

Total revenues
 
85.4

 
49.2

 
178.9

 
108.0

Expenses:
 
 
 
 
 
 

 
 

Loss and loss adjustment expenses
 

 
2.3

 
1.1

 
4.6

Insurance acquisition expenses
 
.9

 
1.4

 
2.2

 
3.1

Other underwriting expenses
 
.1

 
.1

 
.2

 
.2

Cost of sales
 
26.8

 
24.4

 
55.6

 
52.9

General and administrative expenses
 
57.5

 
45.2

 
117.9

 
99.9

Interest expense
 
.5

 
.9

 
.9

 
2.1

Total expenses
 
85.8

 
74.3

 
177.9

 
162.8

Pre-tax (loss) income from continuing operations
 
(.4
)
 
(25.1
)
 
1.0

 
(54.8
)
Income tax benefit
 
1.0

 
4.0

 
1.3

 
5.6

Net income (loss) from continuing operations
 
.6

 
(21.1
)
 
2.3

 
(49.2
)
(Loss) gain from sale of other discontinued operations, net of tax
 
(.6
)
 
366.6

 
(1.6
)
 
366.6

Net income from discontinued operations, net of tax
 
3.4

 
17.0

 
35.7

 
64.4

 
 
 
 
 
 
 
 
 
Net income
 
3.4

 
362.5

 
36.4

 
381.8

Net loss (income) attributable to non-controlling interests
 
12.1

 
(21.4
)
 
13.4

 
(27.7
)
Net income attributable to White Mountains’s common shareholders
 
15.5

 
341.1

 
49.8

 
354.1

Comprehensive income, net of tax:
 
 
 
 
 
 

 
 

Change in foreign currency translation
 
.6

 
(.2
)
 
1.4

 
(.1
)
Comprehensive income from discontinued operations, net of tax
 
.2

 
108.3

 
.3

 
145.5

Comprehensive income
 
16.3

 
449.2

 
51.5

 
499.5

Other comprehensive income attributable to non-controlling interests
 
(.1
)
 

 
(.1
)
 

Comprehensive income attributable to White Mountains’s
common shareholders
 
$
16.2

 
$
449.2

 
$
51.4

 
$
499.5

Income per share attributable to White Mountains’s common shareholders
 
 
 
 
 
 

 
 

Basic income (loss) per share
 
 
 
 
 
 
 
 
Continuing operations
 
$
2.78

 
$
(8.34
)
 
$
3.42

 
$
(14.47
)
Discontinued operations
 
.61

 
75.27

 
7.47

 
81.04

Total consolidated operations
 
$
3.39

 
$
66.93

 
$
10.89

 
$
66.57

Diluted income (loss) per share
 
 
 
 
 
 

 
 

Continuing operations
 
$
2.78

 
$
(8.32
)
 
$
3.42

 
$
(14.46
)
Discontinued operations
 
.61

 
75.11

 
7.47

 
80.96

Total consolidated operations
 
$
3.39

 
$
66.79

 
$
10.89

 
$
66.50

Dividends declared per White Mountains’s common share
 
$

 
$

 
$
1.00

 
$
1.00

 

See Notes to Consolidated Financial Statements

2


WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited
 
 
White Mountains’s Common Shareholders’ Equity
 
 
 
 
(Millions)
 
Common shares and paid-in surplus
 
Retained earnings
 
AOCI, after tax
 
Total
 
Non-controlling interest
 
Total Equity
Balance at January 1, 2017
 
$
810.7

 
$
2,797.2

 
$
(4.6
)
 
$
3,603.3

 
$
133.9

 
$
3,737.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
49.8

 

 
49.8

 
(13.4
)
 
36.4

Net change in foreign currency translation and
   benefit plan assets and obligations
 

 

 
1.6

 
1.6

 
.1

 
1.7

Total comprehensive income
 

 
49.8

 
1.6

 
51.4

 
(13.3
)
 
38.1

Dividends declared on common shares
 

 
(4.6
)
 

 
(4.6
)
 

 
(4.6
)
Dividends to non-controlling interests
 

 

 

 

 
(12.1
)
 
(12.1
)
Repurchases and retirements of common shares
 
(2.0
)
 
(7.2
)
 

 
(9.2
)
 
(5.2
)
 
(14.4
)
Issuances of common shares
 
1.6

 

 

 
1.6

 

 
1.6

Deconsolidation of non-controlling interests
   associated with the sale of Star & Shield
 

 

 

 

 
(4.4
)
 
(4.4
)
Issuance of shares to non-controlling interests
 
(4.8
)
 

 

 
(4.8
)
 
4.8

 

Net contributions from non-controlling interests
 

 

 

 

 
12.6

 
12.6

Amortization of restricted share awards
 
9.6

 

 

 
9.6

 
.5

 
10.1

Balance at June 30, 2017
 
$
815.1

 
$
2,835.2

 
$
(3.0
)
 
$
3,647.3

 
$
116.8

 
$
3,764.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
White Mountains’s Common Shareholders’ Equity
 
 
 
 
(Millions)
 
Common shares and paid-in surplus
 
Retained earnings
 
AOCI, after tax
 
Total
 
Non-controlling interest
 
Total Equity
Balance at January 1, 2016
 
$
978.2

 
$
3,084.9

 
$
(149.9
)
 
$
3,913.2

 
$
454.8

 
$
4,368.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
354.1

 

 
354.1

 
27.7

 
381.8

Net change in foreign currency translation and
   benefit plan assets and obligations
 

 

 
32.1

 
32.1

 

 
32.1

Recognition of foreign currency translation and
   other accumulated comprehensive items from
   the sale of Sirius Group
 

 

 
113.3

 
113.3

 

 
113.3

Total comprehensive income
 

 
354.1

 
145.4

 
499.5

 
27.7

 
527.2

Dividends declared on common shares
 

 
(5.4
)
 

 
(5.4
)
 

 
(5.4
)
Dividends to non-controlling interests
 

 

 

 

 
(12.1
)
 
(12.1
)
Repurchases and retirements of common shares
 
(120.4
)
 
(427.0
)
 

 
(547.4
)
 

 
(547.4
)
Issuance of common shares
 
9.1

 

 

 
9.1

 

 
9.1

Deconsolidation of non-controlling interests
   associated with the sale of Sirius Group
 

 

 

 

 
(250.0
)
 
(250.0
)
Acquisition from non-controlling interests -
   OneBeacon
 
(2.7
)
 

 

 
(2.7
)
 
(8.8
)
 
(11.5
)
Issuances of shares to non-controlling interests
 

 

 

 

 
.3

 
.3

Net contributions from non-controlling interests
 

 

 

 

 
11.9

 
11.9

Amortization of restricted share awards
 
8.9

 

 

 
8.9

 
.4

 
9.3

Balance at June 30, 2016
 
$
873.1

 
$
3,006.6

 
$
(4.5
)
 
$
3,875.2

 
$
224.2

 
$
4,099.4


See Notes to Consolidated Financial Statements

3



WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
 
Six Months Ended June 30,
(Millions)
 
2017
 
2016
Cash flows from operations:
 
 
 
 
Net income
 
$
36.4

 
$
381.8

Charges (credits) to reconcile net income to net cash used for operations:
 
 

 
 

Net realized and unrealized investment gains
 
(70.0
)
 
(16.3
)
Deferred income benefit
 
(4.8
)
 
(6.4
)
Net income from discontinued operations
 
(35.7
)
 
(64.4
)
Net loss (gain) from sale of discontinued operations, net of tax
 
1.6

 
(366.6
)
Amortization and depreciation
 
19.2

 
8.8

Other operating items:
 
 
 
 

Net change in unearned insurance premiums
 
27.6

 
12.8

Net change in deferred acquisition costs
 
(2.4
)
 
(1.8
)
Net change in restricted cash
 

 
5.8

Net change in other assets and liabilities, net
 
(38.1
)
 
(74.6
)
Net cash used for operations - continuing operations
 
(66.2
)
 
(120.9
)
Net cash provided from (used for) operations - discontinued operations
 
87.3

 
(61.2
)
Net cash provided from (used for) operations
 
21.1

 
(182.1
)
Cash flows from investing activities:
 
 

 
 

Net change in short-term investments
 
102.8

 
(162.3
)
Sales of fixed maturity and convertible investments
 
1,199.7

 
1,253.0

Maturities, calls and paydowns of fixed maturity and convertible investments
 
113.8

 
87.0

Sales of common equity securities
 
183.9

 
676.9

Distributions, settlements and redemptions of other long-term investments
 
1.9

 
3.0

Sales of unconsolidated affiliates and consolidated subsidiaries, net of cash sold
 

 
2,248.5

Net settlement of investment cash flows and contributions with discontinued operations
 

 
(409.7
)
Purchases of other long-term investments
 
(55.1
)
 
(12.9
)
Purchases of common equity securities
 
(681.9
)
 
(31.9
)
Purchases of fixed maturity and convertible investments
 
(777.3
)
 
(3,017.6
)
Purchases of unconsolidated affiliates and consolidated subsidiaries, net of cash acquired
 

 
(8.1
)
Net change in unsettled investment purchases and sales
 
(80.1
)
 
47.8

Net acquisitions of property and equipment
 
(.1
)
 
(1.6
)
Net cash provided from investing activities - continuing operations
 
7.6

 
672.1

Net cash (used for) provided from investing activities - discontinued operations
 
(43.6
)
 
276.8

Net cash (used for) provided from investing activities
 
(36.0
)
 
948.9

Cash flows from financing activities:
 
 

 
 

Draw down of debt and revolving line of credit
 
11.0

 
102.5

Repayment of debt and revolving line of credit
 
(13.3
)
 
(150.5
)
Proceeds from issuances of common shares
 

 
3.7

Cash dividends paid to the Company’s common shareholders
 
(4.6
)
 
(5.4
)
Common shares repurchased
 

 
(541.5
)
Distribution to non-controlling interest shareholders
 
(.5
)
 
(.7
)
Contributions from discontinued operations
 
30.1

 
27.1

Payments of contingent consideration related to purchases of consolidated subsidiaries
 

 
(7.8
)
Capital contributions from BAM members
 
17.3

 
16.7

Other financing activities, net
 
(9.2
)
 
(5.8
)
Net cash provided from (used for) financing activities - continuing operations
 
30.8

 
(561.7
)
Net cash used for financing activities - discontinued operations
 
(42.0
)
 
(43.1
)
Net cash used for financing activities
 
(11.2
)
 
(604.8
)
Net change in cash during the period - continuing operations
 
(27.8
)
 
(10.5
)
Cash balances at beginning of period (excludes restricted cash balances of $0.0 and $5.8 and discontinued operations cash balances of $70.5 and $245.4)
 
80.2

 
72.0

Add: cash held for sale, excluding discontinued operations, at the beginning of period
 
.9

 
1.2

Less: cash held for sale, excluding discontinued operations, at the end of period
 

 
.6

Cash balances at end of period (excludes restricted cash balances of $0.0 and $0.0 and discontinued operations cash balances of $71.3 and $74.2)
 
$
53.3

 
$
62.1

Supplemental cash flows information:
 
 

 


Interest paid
 
$
(.4
)
 
$
(.5
)
Net income tax refund from national governments
 
$

 
$


See Notes to Consolidated Financial Statements

4


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies
 
Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of White Mountains Insurance Group, Ltd. (the “Company” or the “Registrant”), its subsidiaries (collectively, with the Company, “White Mountains”) and other entities required to be consolidated under GAAP. The Company is an exempted Bermuda limited liability company whose principal businesses are conducted through its insurance subsidiaries and other affiliates. The Company’s headquarters is located at 26 Reid Street, Hamilton, Bermuda HM 11, its principal executive office is located at 80 South Main Street, Hanover, New Hampshire 03755-2053 and its registered office is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HM 11. White Mountains’s reportable segments are HG Global/BAM, MediaAlpha and Other Operations. 
The HG Global/BAM segment consists of HG Global Ltd. and its wholly-owned subsidiaries (“HG Global”) and the consolidated results of Build America Mutual Assurance Company (“BAM”). BAM is the first and only mutual bond insurance company in the United States. By insuring the timely payment of principal and interest, BAM provides market access to, and lowers interest expense for, issuers of municipal bonds used to finance essential public purposes such as schools, utilities and transportation facilities. BAM is owned by and operated for the benefit of its members, the municipalities that purchase BAM’s insurance for their debt issuances. HG Global was established to fund the startup of BAM and, through its wholly-owned subsidiary, HG Re Ltd. (“HG Re”), to provide 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of surplus notes issued by BAM (the “BAM Surplus Notes”). As of June 30, 2017 and December 31, 2016, White Mountains owned 96.9% of HG Global’s preferred equity and 88.4% of its common equity. White Mountains does not have an ownership interest in BAM. However, GAAP requires White Mountains to consolidate BAM’s results in its financial statements. BAM’s results are attributed to non-controlling interests.
The MediaAlpha segment consists of QL Holdings LLC and its wholly-owned subsidiary QuoteLab, LLC (collectively “MediaAlpha”). MediaAlpha is an advertising technology company that develops transparent and efficient platforms for the buying and selling of insurance and other vertical-specific performance media (i.e., clicks, calls and leads). MediaAlpha’s exchange technology, machine learning and analytical tools facilitate transparent, real-time transactions between advertisers (buyers of advertising inventory) and publishers (sellers of advertising inventory). MediaAlpha works with over 300 advertisers and 225 publishers across a number of insurance (auto, motorcycle, home, renter, health and life) and non-insurance (travel, education, personal finance and home services) verticals.
White Mountains’s Other Operations segment consists of the Company and its intermediate holding companies, its wholly-owned investment management subsidiary, White Mountains Advisors LLC (“WM Advisors”) and certain consolidated and unconsolidated private capital investments. The consolidated private capital investments consist of Wobi Insurance Agency Ltd. (“Wobi”) and Removal Stars Ltd. (“Buzzmove”). White Mountains’s Other Operations segment also includes its variable annuity reinsurance business, White Mountains Life Reinsurance (Bermuda) Ltd. (“Life Re Bermuda”), which completed its runoff with all of its contracts fully matured on June 30, 2016, and its U.S.-based service provider, White Mountains Financial Services LLC (collectively, “WM Life Re”).
On May 2, 2017, OneBeacon Insurance Group, Ltd. (“OneBeacon Ltd.”) entered into a definitive agreement to be acquired by Intact Financial Corporation (“Intact”), which is expected to close in the third or fourth quarter of 2017 (the “OneBeacon Transaction”). OneBeacon Ltd., an exempted Bermuda limited liability company that owns a family of property and casualty insurance companies (collectively, “OneBeacon”), offers a wide range of insurance products in the United States through independent agencies, regional and national brokers, wholesalers and managing general agencies. On July 21, 2016, White Mountains completed its sale of Tranzact Holdings, LLC (“Tranzact”) to an affiliate of Clayton, Dubilier & Rice, LLC. On April 18, 2016, White Mountains completed its sale of Sirius International Insurance Group, Ltd., and its subsidiaries (collectively, “Sirius Group”) to CM International Holding PTE Ltd. (“CMI”), the Singapore-based investment arm of China Minsheng Investment Corp., Ltd. White Mountains has presented the results of OneBeacon, Tranzact and Sirius Group as discontinued operations in the statement of operations and comprehensive income for all periods prior to each transaction’s completion date. White Mountains has presented OneBeacon’s assets and liabilities as held for sale as of June 30, 2017 and December 31, 2016. On March 7, 2017, White Mountains completed the sale of Star & Shield Services LLC, Star & Shield Risk Management LLC, and Star & Shield Claims Services LLC (collectively “Star & Shield”) and its investment in Star & Shield Insurance Exchange (“SSIE”) surplus notes to K2 Insurance Services, LLC. Star & Shield provides management services for a fee to SSIE, a reciprocal that is owned by its members, who are policyholders. White Mountains was required to consolidate SSIE in its GAAP financial statements until White Mountains completed the sale. White Mountains has presented Star & Shield’s and SSIE’s assets and liabilities as held for sale as of December 31, 2016. See Note 15 — “Held for Sale and Discontinued Operations”.


5


All significant intercompany transactions have been eliminated in consolidation. Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. These interim financial statements include all adjustments considered necessary by management to fairly state the financial position, results of operations and cash flows of White Mountains. These interim financial statements may not be indicative of financial results for the full year and should be read in conjunction with the Company’s 2016 Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Refer to the Company’s 2016 Annual Report on Form 10-K for a complete discussion regarding White Mountains’s significant accounting policies.

Recently Adopted Changes in Accounting Principles

Stock Compensation
Effective January 1, 2017, White Mountains adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASC 718) which simplifies certain aspects of the accounting for share-based compensation. The new guidance provides an accounting policy election to account for forfeitures by either applying an assumption, as required under existing guidance, or by recognizing forfeitures when they actually occur. At adoption, White Mountains did not change its accounting policy for forfeitures, which is to apply an assumed forfeiture rate. The new guidance has also changed the threshold for partial cash settlement to settle statutory withholding requirements for equity classified awards, increasing the threshold up to the maximum statutory tax rate. As a result of adoption, White Mountains reported $9.2 million and $5.8 million of statutory withholding tax payments made in connection with the settlement of restricted shares as financing cash flows for the six-month periods ended June 30, 2017 and 2016. Such payments were classified as operating cash flows prior to adoption.
In addition, the new guidance changed the treatment for excess tax benefits which arise from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting. Under the new guidance, a reporting entity will recognize excess tax benefits or expense in current period earnings, regardless of whether it is in a taxes payable position.

Business Combinations - Measurement Period Adjustments
Effective January 1, 2016, White Mountains adopted ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires adjustments to provisional amounts recorded in connection with a business combination that are identified during the measurement period to be recorded in the reporting period in which the adjustment amounts are determined, rather than as retroactive adjustments to prior periods. White Mountains has not recognized any adjustments to estimated purchase accounting amounts for the year to date period ended June 30, 2017 and accordingly, there was no effect to White Mountains’s financial statements upon adoption.

Amendments to Consolidation Analysis
On January 1, 2016, White Mountains adopted ASU 2015-02, Amendments to the Consolidation Analysis (ASC 810) which amends the guidance for determining whether an entity is a variable interest entity (“VIE”). ASU 2015-02 eliminates the separate consolidation guidance for limited partnerships and, with it, the presumption that a general partner should consolidate a limited partnership. In addition, ASU 2015-02 changes the guidance for determining if fee arrangements qualify as variable interests and the effect fee arrangements have on the determination of the primary beneficiary. Adoption of ASU 2015-02 did not affect the consolidation analysis for any of White Mountains’s investments.

Share-Based Compensation Awards
On January 1, 2016, White Mountains adopted ASU 2014-12, Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASC 718). The new guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. Compensation cost is to be recognized in the period when it becomes probable the performance target will be achieved in an amount equal to the compensation cost attributable to the periods for which service has been rendered. Adoption did not have any effect on White Mountains’s financial position, results of operations, cash flows, presentation or disclosures.


6


Debt Issuance Costs
On January 1, 2016, White Mountains adopted ASU 2015-03, Imputation of Interest (ASC 835), which requires debt issuance costs to be presented as a deduction from the carrying amount of the related debt, consistent with the treatment required for debt discounts. The new guidance requires amortization of debt issuance costs to be classified within interest expense and also requires disclosure to the debt’s effective interest rate. As of June 30, 2017, there was an insignificant amount of unamortized debt issuance costs included in debt.

Recently Issued Accounting Pronouncements

Stock Compensation
In May 2017, the FASB issued ASU 2017-09, Stock Compensation: Scope of Modification Accounting (ASC 718), which narrows the scope of transactions subject to modification accounting to changes in terms of an award that result in a change in the award’s fair value, vesting conditions or classification. The new guidance becomes effective for fiscal years beginning after December 15, 2017.

Cash Flow Statement
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASC 230), which addresses the classification and presentation of certain items, including debt prepayment and extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees, for which there was diversity in practice.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash (ASC 230). Under current guidance, restricted amounts of cash or cash equivalents are excluded from the cash flow statement. The new guidance requires restricted cash and restricted cash equivalents to be included in the reconciliation of beginning and end-of-period amounts presented on the statement of cash flows. In addition, the new guidance requires a description of the nature of the changes in restricted cash and cash equivalents during the periods presented.
The updated guidance in ASU 2016-15 and ASU 2016-18 are both effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. White Mountains is evaluating the expected impact of this new guidance.

Credit Losses
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASC 326), which establishes new guidance for the recognition of credit losses for financial assets measured at amortized cost. The new ASU requires reporting entities to estimate the credit losses expected over the life of a credit exposure using historical information, current information and reasonable and supportable forecasts that affect the collectability of the financial asset. This differs from current U.S. GAAP, which delays recognition until it is probable a loss has been incurred. The new guidance is expected to accelerate recognition of credit losses. The types of assets within the scope of the new guidance include premium receivables, reinsurance recoverables and loans. ASU 2016-13 is effective for annual periods beginning after January 1, 2020, including interim periods. White Mountains is evaluating the expected impact of this new guidance.

Leases
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). The new guidance requires lessees to recognize lease assets and liabilities on the balance sheet for both operating and financing leases, with the exception of leases with an original term of 12 months or less. Under existing guidance recognition of lease assets and liabilities is not required for operating leases. The lease assets and liabilities to be recognized are both measured initially based on the present value of the lease payments. Under the new guidance, a sale-leaseback transaction must meet the recognition criteria under ASC 606, Revenues in order to be accounted for as sale. The new guidance is effective for White Mountains for years beginning after December 15, 2018, including interim periods therein. White Mountains is evaluating the expected impact of this new guidance and available adoption methods.


7


Financial Instruments - Recognition and Measurement
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASC 825-10). The new ASU modifies the guidance for financial instruments, including investments in equity securities. Under the new guidance, all equity securities with readily determinable fair values are required to be measured at fair value with changes therein recognized through current period earnings. In addition, the new ASU requires a qualitative assessment for equity securities without readily determinable fair values to identify impairment, and for impaired equity securities to be measured at fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. White Mountains measures its portfolio of investment securities at fair value with changes therein recognized through current period earnings and accordingly, does not expect the adoption of ASU 2016-01 to have a significant impact on its financial statements.

Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which modifies the guidance for revenue recognition. Under ASU 2014-09, revenue is to be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for goods or services transferred to customers. The new guidance sets forth the steps to be followed to recognize revenue: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Subsequently, the FASB issued additional ASUs clarifying the guidance in and providing implementation guidance for ASU 2014-09.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which delays the effective date of ASU 2014-09 and all related ASUs to annual and interim reporting periods beginning after December 15, 2017. Revenue from insurance contracts, investment income and investments gains and losses are excluded from the scope of 2014-09. The new guidance is applicable to some of White Mountains’s revenue streams, including certain fee arrangements as well as commissions and other non-insurance revenues. White Mountains is evaluating the new guidance, but does not expect ASU 2014-09 to have a significant effect on recognition of White Mountains’s revenues from customers.

Note 2. Significant Transactions

Sale of OneBeacon
On May 2, 2017, OneBeacon Ltd. entered into a definitive agreement to be acquired by Intact in an all-cash transaction for $18.10 per share, or roughly 1.65x tangible book value. White Mountains owns 75.7% of OneBeacon’s outstanding common shares, representing 96.9% of the voting power as of June 30, 2017. On July 18, 2017, White Mountains voted its shares of OneBeacon Ltd. in favor of the OneBeacon Transaction. White Mountains expects to receive gross proceeds of $1.3 billion from the OneBeacon Transaction, which is expected to close in the third or fourth quarter of 2017 and is subject to regulatory approval and other customary closing conditions. The results of OneBeacon have been presented as discontinued operations in the statement of operations and comprehensive income for all periods and OneBeacon’s assets and liabilities have been presented as held for sale as of June 30, 2017 and December 31, 2016. As the OneBeacon Transaction was set at a fixed price, the results of OneBeacon do not impact White Mountains’s adjusted book value per share including the estimated gain from the transaction between signing and closing. See Note 15 — “Held for Sale and Discontinued Operations”.

Sale of Star & Shield
On March 7, 2017, White Mountains completed its sale of Star & Shield and its investment in SSIE surplus notes to K2 Insurances LLC. White Mountains did not recognize any gain or loss on the sale. Through December 31, 2016, Star & Shield’s assets and liabilities are reported as held for sale within White Mountains’s GAAP financial statements. See Note 15 — “Held for Sale and Discontinued Operations”.

Acquisition of Buzzmove
On August 4, 2016, White Mountains acquired a 70.9% ownership share in Buzzmove for a purchase price of GBP 6.1 million (approximately $8.1 million based upon the foreign exchange spot rate at the date of acquisition). White Mountains recognized total assets acquired related to Buzzmove of $11.5 million, including $7.6 million of goodwill and $1.1 million of intangible assets, and total liabilities assumed of $0.1 million, reflecting acquisition date fair values.


8


Sale of Tranzact
On July 21, 2016, White Mountains completed the sale of Tranzact to Clayton, Dubilier & Rice, LLC and received net proceeds of $221.3 million. In connection with the sale of Tranzact, the purchaser directly repaid $56.3 million for the portion of Tranzact’s debt attributable to White Mountains’s common shareholders. On October 5, 2016, White Mountains received additional proceeds of $1.2 million following the release of the post-closing purchase price adjustment escrow.
White Mountains recorded a $51.9 million gain from the sale of Tranzact in discontinued operations, which included a $30.2 million tax expense for the reversal of a tax valuation allowance that is offset by a tax benefit recorded in continuing operations. See Note 6 — “Income Taxes”. The increase to White Mountains’s book value from the sale of Tranzact was $82.1 million. A reconciliation of the gain reported in discontinued operations to the impact to White Mountains’s book value is as follows:
Gain from sale of Tranzact reported in discontinued operations
 
$
51.9

Add back reclassification from continuing operations for the release of a tax valuation allowance
 
30.2

Increase to White Mountains’s book value from sale of Tranzact
 
$
82.1


In the first quarter of 2017, White Mountains recorded a $1.0 million reduction to the gain from sale of Tranzact in discontinued operations as a result of state tax expense.
Through July 21, 2016, Tranzact’s results of operations are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements. See Note 15 — “Held for Sale and Discontinued Operations”.

Sale of Sirius Group
On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI for approximately $2.6 billion. $161.8 million of this amount was used to purchase certain assets to be retained by White Mountains out of Sirius Group, including shares of OneBeacon. The amount paid at closing was based on an estimate of Sirius Group’s closing date tangible common shareholder’s equity. During the third quarter of 2016, there was a final true-up to Sirius Group’s tangible common shareholder’s equity that resulted in a $4.0 million reduction to the gain. During 2016, White Mountains recorded $363.2 million of gain from sale of Sirius Group in discontinued operations and $113.3 million in other comprehensive income from discontinued operations from Sirius Group.
During the second quarter of 2017, White Mountains recorded a $0.6 million reduction to the gain from sale of Sirius Group as a result of a change to the valuation of the accrued incentive compensation payable to Sirius Group employees.
Through April 18, 2016, Sirius Group’s results are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements.
The transactions to purchase the investments in OneBeacon and the other investments held by Sirius Group prior to the closing are presented in the statement of cash flows as net settlement of investment cash flows within discontinued operations. See Note 15 — “Held for Sale and Discontinued Operations”.

Sale of Symetra
On February 1, 2016, Symetra Financial Corporation (“Symetra”) closed its merger agreement with Sumitomo Life Insurance Company (“Sumitomo Life”) and White Mountains received proceeds of $658.0 million, or $32.00 per common share. White Mountains also received a special dividend of $0.50 per share as part of the transaction that was paid in the third quarter of 2015. See Note 12 — “Investment in Symetra”.


9


Note 3.  Investments Securities

White Mountains’s portfolio of investment securities held for general investment purposes consists of fixed maturity investments, short-term investments, common equity securities, and other-long term investments, which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date.  Net realized and unrealized investment gains (losses) on trading securities are reported in pre-tax revenues.
White Mountains’s fixed maturity investments are generally valued using industry standard pricing methodologies. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life.
Realized investment gains (losses) resulting from sales of investment securities are accounted for using the specific identification method.  Premiums and discounts on all fixed maturity investments are amortized or accreted to income over the anticipated life of the investment.  Short-term investments consist of interest-bearing money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year.  Short-term investments are carried at amortized or accreted cost, which approximated fair value as of June 30, 2017 and December 31, 2016.
Other long-term investments consist primarily of hedge funds, private equity funds and unconsolidated private capital investments.

Net Investment Income
White Mountains’s net investment income is comprised primarily of interest income associated with White Mountains’s fixed maturity investments and short-term investments and dividend income from its common equity securities and other long- term investments.
Pre-tax net investment income for the three and six months ended June 30, 2017 and 2016 consisted of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2017
 
2016
 
2017
 
2016
Investment income:
 
 
 
 
 
 
 
 
Fixed maturity investments
 
$
11.2

 
$
5.7

 
$
23.1

 
$
8.1

Short-term investments
 
.2

 
.5

 
.3

 
.6

Common equity securities
 
3.7

 
.3

 
5.0

 
.5

Other long-term investments
 
.4

 
.1

 
.4

 
.4

Total investment income
 
15.5

 
6.6

 
28.8

 
9.6

Third-party investment expenses
 
(.8
)
 
(.5
)
 
(1.3
)
 
(1.0
)
Net investment income, pre-tax
 
$
14.7

 
$
6.1

 
$
27.5

 
$
8.6



10


Net Realized and Unrealized Investment Gains (Losses)
Net realized and unrealized investment gains (losses) for the three and six months ended June 30, 2017 and 2016 consisted of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2017
 
2016
 
2017
 
2016
Net realized investment gains, pre-tax
 
$
13.4

 
$
1.6

 
$
14.0

 
$
264.3

Net unrealized investment gains (losses), pre-tax
 
20.3

 
1.8

 
56.0

 
(248.0
)
Net realized and unrealized investment gains, pre-tax
 
33.7

 
3.4

 
70.0

 
16.3

Income tax expense attributable to net realized and
     unrealized investment gains
 
(1.7
)
 
(1.4
)
 
(5.5
)
 
(3.9
)
Net realized and unrealized investment gains, after tax
 
$
32.0

 
$
2.0

 
$
64.5

 
$
12.4


Net realized investment gains (losses)
Net realized investment gains (losses) for the three and six months ended June 30, 2017 and 2016 consisted of the following:
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2017
 
June 30, 2016
Millions
 
Net
realized gains
 
Net
foreign
currency gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
 
Net
realized gains
 
Net
foreign
currency gains (losses)
 
Total net realized
gains
reflected in
earnings
Fixed maturity investments
 
$
.1

 
$
1.3

 
$
1.4

 
$
1.4

 
$

 
$
1.4

Short-term investments
 

 

 

 
.1

 

 
.1

Common equity securities
 
12.8

 
.5

 
13.3

 
.1

 

 
.1

Other long-term investments
 
.4

 
(1.7
)
 
(1.3
)
 

 

 

Net realized investment gains, pre-tax
 
13.3

 
.1

 
13.4

 
1.6

 

 
1.6

Income tax expense attributable to
   net realized investment gains
 
(2.7
)
 

 
(2.7
)
 
(.1
)
 

 
(.1
)
Net realized investment
   gains, after tax
 
$
10.6

 
$
.1

 
$
10.7

 
$
1.5

 
$

 
$
1.5

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2017
 
June 30, 2016
Millions
 
Net
realized (losses)
gains
 
Net
foreign
currency gains (losses)
 
Total net realized
gains (losses)
reflected in
earnings
 
Net
realized gains
 
Net
foreign
currency gains (losses)
 
Total net realized
gains
reflected in
earnings
Fixed maturity investments
 
$
(1.0
)
 
$
1.4

 
$
.4

 
$
1.7

 
$

 
$
1.7

Short-term investments
 

 

 

 
.2

 

 
.2

Common equity securities
 
13.6

 
.6

 
14.2

 
262.4

 

 
262.4

Other long-term investments
 
1.1

 
(1.7
)
 
(.6
)
 

 

 

Net realized investment gains, pre-tax
 
13.7

 
.3

 
14.0

 
264.3

 

 
264.3

Income tax expense attributable to
   net realized investment gains
 
(2.9
)
 

 
(2.9
)
 
(44.9
)
 

 
(44.9
)
Net realized investment
   gains, after tax
 
$
10.8

 
$
.3

 
$
11.1

 
$
219.4

 
$

 
$
219.4



11


Net unrealized investment gains (losses)
Net unrealized investment gains (losses) and changes in the carrying value of investments measured at fair value for the three and six months ended June 30, 2017 and 2016 consisted of the following:
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2017
 
June 30, 2016
Millions
 
Net
unrealized
 gains
 
Net
foreign
currency
gains (losses)
 
Total net unrealized gains (losses)
reflected in
earnings
 
Net
unrealized gains (losses)
 
Net
foreign
currency losses
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
7.3

 
$
5.8

 
$
13.1

 
$
8.6

 
$

 
$
8.6

Common equity securities
 
7.8

 
2.6

 
10.4

 
(5.1
)
 

 
(5.1
)
Other long-term investments
 
4.7

 
(7.9
)
 
(3.2
)
 
(1.5
)
 
(.2
)
 
(1.7
)
Net unrealized investment gains (losses), pre-tax
 
19.8

 
.5

 
20.3

 
2.0

 
(.2
)
 
1.8

Income tax benefit (expense)
   attributable to net unrealized
   investment gains (losses)
 
1.0

 

 
1.0

 
(1.3
)
 

 
(1.3
)
Net unrealized investment
   gains (losses), after tax
 
$
20.8

 
$
.5

 
$
21.3

 
$
.7

 
$
(.2
)
 
$
.5


 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2017
 
June 30, 2016
Millions
 
Net
unrealized
 gains
 
Net
foreign
currency
gains (losses)
 
Total net unrealized gains (losses)
reflected in
earnings
 
Net
unrealized gains (losses)
 
Net
foreign
currency gains
 
Total net unrealized
gains (losses)
reflected in
earnings
Fixed maturity investments
 
$
17.5

 
$
7.4

 
$
24.9

 
$
15.3

 
$

 
$
15.3

Common equity securities
 
26.9

 
3.1

 
30.0

 
(264.6
)
 
2.4

 
(262.2
)
Other long-term investments
 
11.7

 
(10.6
)
 
1.1

 
(1.3
)
 
.2

 
(1.1
)
Net unrealized investment gains (losses), pre-tax
 
56.1

 
(.1
)
 
56.0

 
(250.6
)
 
2.6

 
(248.0
)
Income tax (expense) benefit
   attributable to net unrealized
   investment gains (losses)
 
(2.6
)
 

 
(2.6
)
 
41.0

 

 
41.0

Net unrealized investment
   gains (losses), after tax
 
$
53.5

 
$
(.1
)
 
$
53.4

 
$
(209.6
)
 
$
2.6

 
$
(207.0
)

Total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the three and six months ended June 30, 2017 and 2016 consisted of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Millions
 
2017
 
2016
 
2017
 
2016
Fixed maturity investments
 
$

 
$
.1

 
$

 
$
.1

Other long-term investments
 
(1.7
)
 
.9

 
(1.5
)
 
1.6

Total unrealized investment (losses) gains, pre-tax - Level 3 investments
 
$
(1.7
)
 
$
1.0

 
$
(1.5
)
 
$
1.7



12


Investment Holdings
The cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of White Mountains’s fixed maturity investments as of June 30, 2017 and December 31, 2016 were as follows: 
 
 
June 30, 2017
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations
 
$
59.5

 
$

 
$
(.3
)
 
$

 
$
59.2

Debt securities issued by corporations
 
705.4

 
4.9

 
(1.8
)
 
9.5

 
718.0

Mortgage and asset-backed securities
 
514.7

 
1.2

 
(4.5
)
 

 
511.4

Municipal obligations
 
272.6

 
2.6

 
(.8
)
 

 
274.4

Foreign government, agency and provincial obligations
 
3.9

 

 

 

 
3.9

   Total fixed maturity investments
 
$
1,556.1

 
$
8.7

 
$
(7.4
)
 
$
9.5

 
$
1,566.9


 
 
December 31, 2016
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations
 
$
112.1

 
$

 
$
(1.1
)
 
$

 
$
111.0

Debt securities issued by corporations
 
752.0

 
2.3

 
(10.1
)
 
2.1

 
746.3

Mortgage and asset-backed securities
 
986.9

 
.8

 
(7.9
)
 

 
979.8

Municipal obligations
 
238.7

 
1.1

 
(1.3
)
 

 
238.5

Foreign government, agency and provincial obligations
 
12.0

 
.1

 

 

 
12.1

Total fixed maturity investments
 
$
2,101.7

 
$
4.3

 
$
(20.4
)
 
$
2.1

 
$
2,087.7

Less: fixed maturity investments reclassified to assets
    held for sale related to SSIE
 
 
 
 
 
 
 
 
 
(6.6
)
Total fixed maturity investments
 
 
 
 
 
 
 
 
 
$
2,081.1


The cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of White Mountains’s common equity securities and other long-term investments as of June 30, 2017 and December 31, 2016 were as follows:
 
 
June 30, 2017
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains (losses)
 
Carrying
value
Common equity securities
 
$
770.8

 
$
57.2

 
$
(3.2
)
 
$
3.1

 
$
827.9

Other long-term investments
 
$
246.6

 
$
10.6

 
$
(16.3
)
 
$
(14.4
)
 
$
226.5

 
 
December 31, 2016
Millions
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
(losses)
 
Carrying
value
Common equity securities
 
$
258.6

 
$
29.0

 
$
(2.0
)
 
$

 
$
285.6

Other long-term investments
 
$
194.0

 
$
7.9

 
$
(25.2
)
 
$
(3.9
)
 
$
172.8



13


Other Long-term Investments
Other long-term investments consist of the following as of June 30, 2017 and December 31, 2016:
 
 
Carrying Value at
Millions
 
June 30, 2017
 
December 31, 2016
Hedge funds and private equity funds, at fair value
 
$
148.5

 
$
82.6

Private equity securities and limited liability companies, at fair value (1)(2)
 
58.5

 
57.6

Private convertible preferred securities, at fair value (1)
 
28.3

 
30.6

Forward Contracts
 
(12.5
)
 
(1.2
)
Other
 
3.7

 
3.2

Total other-long term investments
 
$
226.5

 
$
172.8

(1) See Fair Value Measurements by Level table.
(2) White Mountains holds a 20% ownership interest in OneTitle Holdings LLC (“OTH”) and has provided a $10.0 million surplus note facility under which OTH’s wholly-owned insurance subsidiary, OneTitle National Guaranty Company, Inc. may, under certain circumstances, draw funds. At June 30, 2017, no funds had been drawn on the surplus note facility.

Hedge Funds and Private Equity Funds
White Mountains holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments is generally estimated using the net asset value (“NAV”) of the funds. As of June 30, 2017, White Mountains held investments in two hedge funds and eight private equity funds.  The largest investment in a single fund was $53.8 million as of June 30, 2017 and $21.5 million as of December 31, 2016. The following table summarizes investments in hedge funds and private equity funds by investment objective and sector as of June 30, 2017 and December 31, 2016:
 
 
June 30, 2017
 
December 31, 2016
Millions
 
Fair Value
 
Unfunded
Commitments
 
Fair Value
 
Unfunded
Commitments
Hedge funds
 
 

 
 

 
 

 
 

Long/short banks and financials
 
$
53.8

 
$

 
$
21.5

 
$

Long/short equity REIT
 
18.3

 

 
19.9

 

Total hedge funds
 
72.1

 

 
41.4

 

 
 
 
 
 
 
 
 
 
Private equity funds
 
 

 
 

 
 

 
 

Manufacturing/Industrial
 
45.2

 
13.1

 
19.4

 
22.9

Aerospace/Defense/Government
 
24.6

 
23.6

 
19.4

 
25.9

Direct lending
 
5.1

 
25.0

 
1.4

 
28.6

Financial Services
 
1.5

 
4.5

 
1.0

 
5.0

Insurance
 

 
41.2

 

 
41.2

Total private equity funds
 
76.4

 
107.4

 
41.2

 
123.6

Total hedge funds and private equity funds
    included in other long-term investments
 
$
148.5

 
$
107.4

 
$
82.6

 
$
123.6

 

14


Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions.  Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. As of June 30, 2017, one hedge fund with a fair value of $53.8 million was subject to a lock-up period that expires on September 1, 2018.
The following summarizes the June 30, 2017 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
 
 
Notice Period
Millions
Redemption frequency
 
30-59 days
notice
 
60-89 days
notice
 
Total
Monthly
 
$

 
$

 
$

Quarterly
 

 

 

Semi-annual
 
53.8

 
18.3

 
72.1

Annual
 

 

 

Total
 
$
53.8

 
$
18.3

 
$
72.1

 

As of June 30, 2017, White Mountains did not have any redemption requests outstanding for investments in active hedge funds that would be subject to market fluctuations. Redemption requests are recorded as a receivable when the hedge fund investment is no longer subject to market fluctuations.
Investments in private equity funds are generally subject to a lock-up period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds provide an option to extend the lock-up period at either, the sole discretion of the fund manager or upon agreement between the fund and the investors.
As of June 30, 2017, investments in private equity funds were subject to lock-up periods as follows:
Millions
 
1-3 years
 
3 – 5 years
 
5 – 10 years
 
>10 years
 
Total
Private Equity Funds — expected lock-up period remaining
 
$3.6
 
$20.9
 
$29.7
 
$22.2
 
$76.4


15


Fair value measurements as of June 30, 2017
Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). Quoted prices in active markets for identical assets or liabilities have the highest priority (“Level 1”), followed by observable inputs other than quoted prices, including prices for similar but not identical assets or liabilities (“Level 2”) and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”). As of June 30, 2017 and December 31, 2016, White Mountains used quoted market prices or other observable inputs to determine fair value for approximately 91% and 94% of its investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, short-term investments, which include U.S. Treasury Bills and common equity securities. Investments valued using Level 2 inputs are primarily comprised of fixed maturity investments, which have been disaggregated into classes, including debt securities issued by corporations, mortgage and asset-backed securities, municipal obligations, and foreign government, agency and provincial obligations. Investments valued using Level 2 inputs also include certain passive exchange traded funds (“ETFs”) that track U.S. stock indices such as the S&P 500 but are traded on foreign exchanges and that management values using the fund manager’s published NAV to account for the difference in market close times. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains’s investments in certain fixed maturity investments, equity securities and other long-term investments where quoted market prices are unavailable or are not considered reasonable. Transfers between levels are based on investments held as of the beginning of the period.
White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services White Mountains uses have indicated that they will only provide prices where observable inputs are available. In circumstances where quoted market prices are unavailable or are not considered reasonable, White Mountains estimates the fair value using industry standard pricing methodologies and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, credit ratings, prepayment speeds, reference data including research publications and other relevant inputs. Given that many fixed maturity investments do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable fixed maturity investments vary by asset type and take into account market convention.
White Mountains’s process to assess the reasonableness of the market prices obtained from the outside pricing sources
covers substantially all of its fixed maturity investments and includes, but is not limited to, the evaluation of pricing methodologies and a review of the pricing services’ quality control processes and procedures on at least an annual basis, a comparison of its invested asset prices obtained from alternate independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices and a review of the underlying assumptions utilized by the pricing services for select measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1.0 million from the expected price based on these assessment procedures are considered outliers. Also considered outliers are prices that have not changed from period to period and prices that have trended unusually compared to market conditions. In circumstances where the results of White Mountains’s review process does not appear to support the market price provided by the pricing services, White Mountains challenges the vendor provided price. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question.
The valuation process described above is generally applicable to all of White Mountains’s fixed maturity investments. The techniques and inputs specific to asset classes within White Mountains’s fixed maturity investments for Level 2 securities that use observable inputs are as follows:

Debt securities issued by corporations: The fair value of debt securities issued by corporations is determined from a pricing evaluation technique that uses information from market sources and integrates relative credit information, observed market movements, and sector news. Key inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications.


16


Mortgage and asset-backed securities: The fair value of mortgage and asset-backed securities is determined from a pricing evaluation technique that uses information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data, collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings and market research publications.

Municipal obligations: The fair value of municipal obligations is determined from a pricing evaluation technique that uses information from market makers, brokers-dealers, buy-side firms, and analysts along with general market information. Key inputs include benchmark yields, reported trades, issuer financial statements, material event notices and new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including type, coupon, credit quality ratings, duration, credit enhancements, geographic location and market research publications.

Foreign government, agency and provincial obligations: The fair value of foreign government, agency and provincial obligations is determined from a pricing evaluation technique that uses feeds from data sources in each respective country, including active market makers and inter-dealer brokers. Key inputs include benchmark yields, reported trades, broker-dealer quotes, two-sided markets, benchmark securities, bids, offers, local exchange prices, foreign exchange rates and reference data including coupon, credit quality ratings, duration and market research publications.

Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect White Mountains’s assumptions that market participants would use in valuing the investment. Generally, certain securities may start out as Level 3 when they are originally issued but as observable inputs become available in the market, they may be reclassified to Level 2.
White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing periodic and audited annual financial statements of hedge funds and private equity funds and discussing each fund’s pricing with the fund manager throughout the year. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. The fair value of White Mountains’s investments in hedge funds and private equity funds has generally been determined using the fund manager’s NAV. In the event White Mountains believes that its estimate of NAV of a hedge fund or private equity fund differs from that reported by the fund manager due to illiquidity or other factors, White Mountains will adjust the reported NAV to more appropriately represent the fair value of its investment in the hedge fund or private equity fund. As of June 30, 2017 and December 31, 2016, White Mountains did not have any adjustments to the reported NAV of its investments in hedge funds and private equity funds.


17


Fair Value Measurements by Level
The following tables summarize White Mountains’s fair value measurements for investments as of June 30, 2017 and December 31, 2016 by level. The major security types were based on the legal form of the securities. White Mountains has disaggregated its fixed maturity investments based on the issuing entity type, which impacts credit quality, with debt securities issued by U.S. government entities carrying minimal credit risk, while the credit and other risks associated with other issuers, such as corporations, foreign governments, municipalities or entities issuing mortgage and asset-backed securities vary depending on the nature of the issuing entity type. White Mountains further disaggregates debt securities issued by corporations and common equity securities by industry sector because investors often reference commonly used benchmarks and their subsectors to monitor risk and performance. Accordingly, White Mountains has further disaggregated these asset classes into subclasses based on the similar sectors and industry classifications it uses to evaluate investment risk and performance against commonly used benchmarks, such as the Bloomberg Barclays U.S. Intermediate Aggregate and S&P 500 indices. The fair value measurements for derivative assets associated with White Mountains’s variable annuity business are presented in Note 7.
<
 
 
June 30, 2017
Millions
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Fixed maturity investments:
 
 

 
 

 
 

 
 

U.S. Government and agency obligations
 
$
59.2

 
$
49.7

 
$
9.5

 
$

 
 
 
 
 
 
 
 
 
Debt securities issued by corporations:
 
 

 
 
 
 
 
 
Utilities
 
155.1

 

 
155.1

 

Consumer
 
140.5

 

 
140.5

 

Health Care
 
106.0

 

 
106.0

 

Communications
 
84.2

 

 
84.2

 

Materials
 
79.7

 

 
79.7

 

Financials
 
61.6

 

 
61.6

 

Technology
 
51.2

 

 
51.2

 

Industrial
 
34.6

 

 
30.2

 
4.4

Energy
 
5.1

 

 
5.1

 

Total debt securities issued by corporations
 
718.0

 

 
713.6

 
4.4

 
 
 
 
 
 
 
 
 
Mortgage and asset-backed securities
 
511.4

 

 
501.7

 
9.7

Municipal obligations
 
274.4

 

 
274.4

 

Foreign government, agency and provincial obligations
 
3.9

 

 
3.9

 

Total fixed maturity investments
 
1,566.9

 
49.7

 
1,503.1

 
14.1

 
 
 
 
 
 
 
 
 
Short-term investments(1)
 
71.6

 
55.7

 
15.9

 

 
 
 
 
 
 
 
 
 
Common equity securities: