NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The Company is an exempted Bermuda limited liability company whose principal businesses are conducted through its 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 23 South Main Street, Suite 3B, Hanover, New Hampshire 03755-2053 and its registered office is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HM 11. The Company’s website is located at www.whitemountains.com. The information contained on White Mountains’s website is not incorporated by reference into, and is not a part of, this report.
The accompanying 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.
Consolidation Principles
Under GAAP, the Company is required to consolidate any entity in which it holds a controlling financial interest. A controlling financial interest is usually in the form of an investment representing the majority of the subsidiary’s voting interests. However, a controlling financial interest may also arise from a financial interest in a variable interest entity (“VIE”) through arrangements that do not involve ownership of voting interests. The Company consolidates a VIE if it determines that it is the primary beneficiary. The primary beneficiary is defined as the entity who holds a variable interest that gives it both the power to direct the VIE’s activities that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive returns from, the VIE that could potentially be significant to the VIE.
Intercompany transactions have been eliminated in consolidation. 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 2020 Annual Report on Form 10-K.
Business Combinations
White Mountains accounts for purchases of businesses using the acquisition method, which requires the measurement of assets acquired, including goodwill and other intangible assets, and liabilities assumed, including contingent liabilities, at their estimated fair values as of the acquisition date. The acquisition date fair values represent management’s best estimates and are based upon established valuation techniques, reasonable assumptions and, where appropriate, valuations performed by independent third parties. In circumstances where additional information is required in order to determine the acquisition date fair value of balance sheet amounts, provisional amounts may be recorded as of the acquisition date and may be subject to subsequent adjustment throughout the measurement period, which is up to one year from the acquisition date. Measurement period adjustments are recognized in the period in which they are determined. The results of operations and cash flows of businesses acquired are included in the consolidated financial statements from the date of acquisition. White Mountains accounts for purchases of other intangible assets that do not meet the definition of a business as asset acquisitions. Asset acquisitions are recognized at the amount of consideration paid, which is deemed to equal fair value.
Use of Estimates
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.
Fair Value Measurements
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”).
Reportable Segments
White Mountains has determined its reportable segments based on the nature of the underlying businesses, the manner in which the Company’s subsidiaries and affiliates are organized and managed and the organization of the financial information provided to the chief operating decision maker to assess performance and make decisions regarding allocation of resources. As of September 30, 2021, White Mountains’s reportable segments were HG Global/BAM, Ark, NSM, Kudu 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”) (collectively, “HG Global/BAM”). BAM is the first and only mutual municipal 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 up to 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds. HG Global, together with its subsidiaries, funded the initial capitalization of BAM through the purchase of $503.0 million of surplus notes issued by BAM, consisting of $203.0 million of Series A Notes and $300.0 million of Series B Notes (the “BAM Surplus Notes”). As of September 30, 2021 and December 31, 2020, 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, White Mountains is required to consolidate BAM’s results in its financial statements because BAM is a VIE for which White Mountains is the primary beneficiary. BAM’s results are all attributed to non-controlling interests.
The Ark segment consists of Ark Insurance Holdings Limited and its subsidiaries (collectively, “Ark”). Ark writes a diversified portfolio of reinsurance and insurance, including property, marine & energy, specialty, accident & health and casualty, through Lloyd’s of London (“Lloyd’s”) Syndicates 4020 and 3902 (the “Syndicates”). Beginning in January 2021, Ark began writing certain classes of its business through Group Ark Insurance Limited (“GAIL”), Ark’s wholly-owned Class 4 Bermuda-based insurance and reinsurance company.
As of September 30, 2021, White Mountains owned 72.0% of Ark on a basic shares outstanding basis (63.0% on a fully-diluted, fully-converted basis, taking account of management’s equity incentives). The remaining shares are owned by employees. In the future, management rollover shareholders could earn additional shares in the company if and to the extent that White Mountains achieves certain multiple of invested capital return thresholds. If fully earned, these additional shares would represent 12.5% of the shares outstanding at closing. See Note 2 — “Significant Transactions”.
The NSM segment consists of NSM Insurance HoldCo, LLC and its subsidiaries (collectively, “NSM”). NSM is a full-service managing general underwriting agency (“MGU”) and program administrator for specialty property and casualty insurance. The company places insurance in niche sectors such as specialty transportation, real estate, social services and pet. On behalf of its insurance carrier partners, NSM typically manages all aspects of the placement process, including product development, marketing, underwriting, policy issuance and claims. NSM earns commissions based on the volume and, in some cases, profitability of the insurance that it places. NSM does not take insurance risk. As of September 30, 2021 and December 31, 2020, White Mountains owned 96.6% and 96.5% of the basic units outstanding of NSM (87.3% and 89.6% on a fully diluted, fully converted basis). See Note 2 — “Significant Transactions”.
The Kudu segment consists of Kudu Investment Management, LLC and its subsidiaries (collectively “Kudu”). Kudu provides capital solutions for boutique asset managers for a variety of purposes including generational ownership transfers, management buyouts, acquisition and growth finance and legacy partner liquidity. Kudu also provides strategic assistance to investees from time to time. Kudu’s capital solutions typically are structured as minority preferred equity stakes with distribution rights, generally tied to gross revenues and designed to generate immediate strong, stable cash yields. As of September 30, 2021 and December 31, 2020, White Mountains owned 99.3% and 99.1% of the basic units outstanding (84.7% and 85.4% on a fully diluted, fully converted basis).
The Other Operations segment consists of the Company and its wholly-owned subsidiary, White Mountains Capital, LLC, (“WM Capital”) its other intermediate holding companies, its wholly-owned investment management subsidiary, White Mountains Advisors LLC (“WM Advisors”), investment assets managed by WM Advisors, its interests in MediaAlpha, Inc. (“MediaAlpha”), PassportCard Limited (“PassportCard”) and DavidShield Life Insurance Agency (2000) Ltd. (“DavidShield”) (collectively, “PassportCard/ DavidShield”), Elementum Holdings LP (“Elementum”), and certain other consolidated and unconsolidated entities and certain other assets. See Note 2 — “Significant Transactions”.
Discontinued Operations and Assets Held for Sale
In the first quarter of 2021, White Mountains recorded a gain on sale of discontinued operations as a result of reversing a liability arising from the tax indemnification provided in connection with the sale of Sirius International Insurance Group, Ltd. (“Sirius Group”) in 2016.
On April 12, 2021, NSM sold the Fresh Insurance Services Group Limited (“Fresh Insurance”) motor business, which was classified as held for sale at March 31, 2021. The transaction did not meet the criteria to be classified as discontinued operations. See Note 19 — “Held for Sale and Discontinued Operations”.
Significant Accounting Policies
In addition to the following, refer to the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K for a complete discussion regarding White Mountains’s significant accounting policies.
Ark Insurance Operations
Ark writes a diversified portfolio of reinsurance and insurance, including property, marine & energy, specialty, accident & health and casualty, through the Syndicates. Beginning in January 2021, Ark began writing certain classes of its business through GAIL.
For the years of account prior to White Mountains’s transaction with Ark, a significant proportion of the Syndicates’ underwriting capital was provided by other third-party insurance and reinsurance groups (“TPC Providers”) using whole account reinsurance contracts through Ark’s corporate member. The TPC Providers’ economic participation in the Syndicates for the remaining open years of account prior to White Mountains’s transaction with Ark is approximately 51% of the total net result of the Syndicates. Captions within results of operations and other comprehensive income are shown net of amounts relating to the TPC Providers share of the Syndicates’ results, including investment results.
Ark’s premiums written comprise premiums on insurance contracts incepted during the year as well as premium adjustments related to prior years of account. Insurance premiums are recognized as revenues over the loss exposure or coverage period in proportion to the level of insurance protection provided. In most cases, premiums are earned ratably over the term of the contract with unearned premiums calculated on a monthly pro-rata basis. Catastrophe premiums are earned in proportion to the level of insurance protection provided. Premiums earned are presented net of amounts ceded to reinsurers. Premiums receivable, representing amounts due from insureds, are presented net of an allowance for uncollectible premiums, including expected credit losses, both dispute and credit related. The allowance is based upon Ark’s ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions and other relevant factors. Credit risk is partially mitigated by Ark’s ability to cancel the policy if the policyholder does not pay the premium.
Deferred acquisition costs comprise brokerage and taxes which are directly attributable to and vary with the production of business. These costs are deferred and amortized to the extent they related to successful contract acquisitions over the applicable premium recognition period.
Losses and loss adjustment expenses (“LAE”) are charged against income as incurred. Unpaid losses and LAE, including estimates for amounts incurred but not reported (“IBNR”) are based on estimates of the ultimate costs of settling claims, including the effects of inflation and other societal and economic factors. Unpaid loss and LAE reserves represent management’s best estimate of ultimate losses and LAE, net of estimated salvage and subrogation recoveries, if applicable. Such estimates are regularly reviewed and updated and any resulting adjustments are reflected in current results of operations. The process of estimating loss and LAE involves a considerable degree of judgment by management and the ultimate amount of expense to be incurred could be considerably greater than or less than the amounts currently reflected in the financial statements.
Reinsurance recoverables represent amounts of paid losses and loss adjustment expenses, case reserves and IBNR amounts ceded to reinsurers under reinsurance treaties. Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. Ark reports its reinsurance recoverables net of an allowance for estimated uncollectible reinsurance, including expected credit losses. The allowance is based upon its ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes, applicable coverage defenses and other relevant factors.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the amount paid to acquire subsidiaries over the fair value of identifiable net assets at the date of acquisition. Other intangible assets consist primarily of underwriting capacity, customer relationships, renewal rights and trade names.
Derivatives
From time to time, White Mountains holds derivative financial instruments for risk management purposes. White Mountains recognizes all derivatives as either assets or liabilities, measured at fair value, on the consolidated balance sheet. Changes in the fair value of derivative instruments that meet the criteria for hedge accounting are recognized in other comprehensive income and reclassified into current period pre-tax income when the hedged items are recognized therein. Changes in the fair value of derivative instruments that do not meet the criteria for hedge accounting are recognized in current period pre-tax income.
As of September 30, 2021 and December 31, 2020, NSM holds an interest rate swap derivative instrument that meets the criteria for hedge accounting. See Note 9 — “Derivatives”.
Reinsurance Contracts Accounted for as Deposits
Reinsurance contracts that do not meet the risk transfer requirements necessary to be accounted for as reinsurance are accounted for using the deposit method. Under the deposit method, ceded premiums paid are not recognized through income but rather treated as a deposit. BAM entered into ceded reinsurance agreements with Fidus Re Ltd. (“Fidus Re”) during the second quarter of 2018 and the first quarter of 2021, which are both accounted for using the deposit method. See Note 10 — “Municipal Bond Guarantee Insurance”. The nonrefundable consideration paid by BAM to Fidus Re is charged to financing expense within general and administrative expenses.
Ark has an aggregate excess of loss contract with SiriusPoint Ltd. (“SiriusPoint”), formerly Third Point Reinsurance Ltd., which is accounted for using the deposit method and recorded within other assets. Ark earns an annual crediting rate of 3.0%, which is recorded within other revenue. During the three months ended June 30, 2021, Ark negotiated a reduction of $31.7 million, including accrued interest, to the aggregate excess of loss contract with SiriusPoint. As of September 30, 2021, the carrying value of Ark’s deposit in SiriusPoint, including accrued interest, was $20.3 million.
Cash and Restricted Cash
Cash includes amounts on hand and demand deposits with banks and other financial institutions. Amounts presented in the statement of cash flows are shown net of balances acquired and sold in the purchase or sale of the Company’s consolidated subsidiaries.
Cash balances that are not immediately available for general corporate purposes, including fiduciary accounts held by NSM on behalf of insurance carriers and the interest reserve account that Kudu maintains under its credit facility, are classified as restricted.
Note 2. Significant Transactions
MediaAlpha
On October 30, 2020, MediaAlpha completed an initial public offering (the “MediaAlpha IPO”). In the offering, White Mountains sold 3.6 million shares at $19.00 per share ($17.67 per share net of underwriting fees) and received total proceeds of $63.8 million. White Mountains also received $55.0 million of net proceeds related to a dividend recapitalization at MediaAlpha.
Subsequent to the MediaAlpha IPO, White Mountains’s investment in MediaAlpha is accounted for at fair value based on the publicly traded share price of MediaAlpha’s common stock and White Mountains presents its investment in MediaAlpha as a separate line item on the balance sheet.
As of December 31, 2020, White Mountains owned 20.5 million MediaAlpha shares, representing a 35.0% ownership interest (32.3% on a fully-diluted, fully converted basis). At the December 31, 2020 closing price of $39.07 per share, the fair value of White Mountains’s remaining investment in MediaAlpha was $802.2 million.
On March 23, 2021, MediaAlpha completed a secondary offering of 8.05 million shares. In the secondary offering, White Mountains sold 3.6 million shares at $46.00 per share ($44.62 per share net of underwriting fees) for net proceeds of $160.3 million.
As of September 30, 2021, White Mountains owned 16.9 million shares, representing a 28.4% basic ownership interest (26.3% fully-diluted/fully-converted basis). At the September 30, 2021 closing price of $18.68 per share, the fair value of White Mountains’s investment in MediaAlpha was $316.4 million. At this level of ownership, each $1.00 per share increase or decrease in the share price of MediaAlpha will result in an approximate $5.60 per share increase or decrease in White Mountains’s book value per share. At the October 2021 month-end closing price of $17.53 per share, the fair value of White Mountains’s investment in MediaAlpha was $297.0 million. See Note 16 — “Equity-Method Eligible Investments”.
Ark
On October 1, 2020, White Mountains entered into a subscription and purchase agreement (the “Ark SPA”) with Ark and certain selling shareholders (collectively with Ark, the “Ark Sellers”). Certain Ark Sellers also entered into a related management warranty deed (together with the Ark SPA, the “Ark Acquisition Agreement”) pursuant to which they made certain warranties about the Ark business (collectively the “Ark Transaction”). Under the terms of the Ark SPA, White Mountains agreed to contribute $605.4 million of equity capital to Ark, at a pre-money valuation of $300.0 million, and purchase $40.9 million of shares from the Ark Sellers. White Mountains also agreed to contribute up to an additional $200.0 million of equity capital to Ark in 2021. In accordance with the Ark SPA, in the fourth quarter of 2020, White Mountains pre-funded/placed in escrow a total of $646.3 million in preparation for closing the Ark Transaction, including $280.0 million funded directly to Lloyd’s on behalf of Ark under the terms of a Deposit Trust Deed and $366.3 million placed in escrow, which is reflected on the balance sheet within the Other Operations segment as of December 31, 2020.
On January 1, 2021, White Mountains completed the Ark Transaction in accordance with the terms of the Ark SPA. As of September 30, 2021, White Mountains owned 72.0% of Ark on a basic shares outstanding basis (63.0% on a fully-diluted, fully-converted basis, taking account of management’s equity incentives). The remaining shares are owned by employees. In the future, management rollover shareholders could earn additional shares in the company if and to the extent that White Mountains achieves certain multiple of invested capital return thresholds. If fully earned, these additional shares would represent 12.5% of the shares outstanding at closing.
White Mountains recognized total assets acquired related to the Ark Transaction of $2.5 billion, including goodwill and other intangible assets of $292.5 million, and total liabilities of $1.7 billion, including contingent consideration of $22.5 million and non-controlling interest of $220.2 million. Ark incurred transaction costs of $25.3 million in the first quarter of 2021.
In the third quarter of 2021, Ark issued $163.3 million of floating rate unsecured subordinated notes (the “Ark 2021 Subordinated Notes”) in three separate transactions. See Note 7 — “Debt”. In connection with the issuance of the Ark 2021 Subordinated Notes, White Mountains and Ark terminated White Mountains’s commitment to provide up to $200.0 million of additional equity capital to Ark in 2021.
The following presents additional details of the assets acquired and liabilities assumed as of the January 1, 2021 acquisition date:
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Millions
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As of January 1, 2021
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Investments
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$
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594.3
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Cash
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52.0
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(1)
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Reinsurance recoverables
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433.4
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Insurance premiums receivable
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236.7
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Ceded unearned premiums
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170.2
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Value of in-force business acquired
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71.7
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Other assets
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88.9
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Loss and loss adjustment expense reserves
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(696.0)
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Unearned insurance premiums
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(326.1)
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Debt
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(46.4)
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Ceded reinsurance payable
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(528.3)
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Other liabilities
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(25.9)
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Net tangible assets acquired
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24.5
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Goodwill
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116.8
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Other intangible assets - syndicate underwriting capacity
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175.7
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Deferred tax liability on other intangible assets
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(33.4)
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Net assets acquired
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$
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283.6
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(1) Cash excludes the White Mountains cash contribution of $605.4 as part of the Ark transaction.
The acquisition date fair values of assets and liabilities, including insurance reserves and intangible assets, are provisional and are subject to revision within one year of the acquisition date.
The values of net tangible assets acquired and the resulting goodwill, other intangible assets and contingent consideration were recorded at fair value using Level 3 inputs. The majority of the tangible assets acquired and liabilities assumed were recorded at their carrying values, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill, other intangible assets and the contingent consideration liability were internally estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. White Mountains developed internal estimates for the expected future cash flows and discount rates used in the present value calculations.
The value of in-force business acquired represents the estimated profits relating to the unexpired contracts, net of related prepaid reinsurance at the acquisition date through the expiration date of the contracts. The value of the syndicate underwriting capacity intangible asset was estimated using net cash flows attributable to Ark’s rights to write business in the Lloyd’s market. The value of the in-force business acquired and the syndicate underwriting capacity were estimated using a discounted cash flow method. Significant inputs to the valuation models include estimates of growth in premium revenues, investment returns, claim costs, expenses and discount rates based on a weighted average cost of capital.
In evaluating the fair value of Ark’s loss and loss adjustment expense reserves, White Mountains determined that the risk-free rate of interest was approximately equal to the risk factor reflecting the uncertainty within the reserves and that no adjustment was necessary.
Ark’s segment income and expenses for the three and nine months ended September 30, 2021 are presented in Note 15 - “Segment Information.” Pro forma financial information for Ark for the three and nine months ended September 30, 2020 has not been presented because as a private U.K. domiciled company Ark does not have quarterly financial reporting requirements and therefore quarterly financial information is not available for periods prior to the January 1, 2021 acquisition date.
NSM
On May 18, 2018, NSM acquired 100% of Fresh Insurance, which is an insurance broker that offers non-standard personal lines products in the United Kingdom. NSM paid $49.6 million of upfront cash consideration for Fresh Insurance. NSM borrowed $51.0 million to fund the transaction. During the nine months ended September 30, 2019, NSM paid a purchase price adjustment of an additional $0.7 million of consideration. The purchase price is subject to additional adjustments based upon growth in EBITDA during two earnout periods, one which ended in February 2020 and one ending in February 2022. NSM did not make any payments related to the first Fresh Insurance earnout period.
On April 12, 2021, NSM sold Fresh Insurance’s motor business for net proceeds of £1.1 million ($1.5 million based upon the foreign exchange spot rate as of the transaction date). As of March 31, 2021, the Fresh Insurance motor business was classified as held for sale and NSM recognized a loss of $28.7 million in the first quarter of 2021. See Note 19 — “Held for Sale and Discontinued Operations”.
On December 3, 2018, NSM acquired all the net assets of KBK Insurance Group, Inc. (“KBK”), a specialized MGU focused on the towing and transportation space. NSM paid $60.0 million of upfront cash consideration for KBK. White Mountains contributed $29.0 million to NSM and NSM borrowed $30.1 million to fund the transaction. As of March 31, 2019, White Mountains determined that the relative values of goodwill and other intangible assets from the KBK transaction were $32.6 million and $32.7 million, reflecting acquisition date fair values, and recorded a liability of $5.9 million relating to the fair value of contingent consideration made in connection with the acquisition. The purchase price is subject to adjustments based upon growth in EBITDA during three earnout periods, one which ended in December 2019, one which ended in December 2020 and one ending in December 2021. In the first quarter of 2021 and 2020, NSM paid $6.7 million and $6.4 million related to the first and second KBK earnout periods. As of September 30, 2021, the KBK contingent consideration liability was $6.6 million.
On April 7, 2020, NSM acquired 100% of Kingsbridge Group Limited (“Kingsbridge”), a leading provider of commercial lines insurance and consulting services for the professional contractor and freelancer markets in the United Kingdom. NSM paid £107.2 million ($132.2 million based upon the foreign exchange spot rate at the date of acquisition) of upfront cash consideration for Kingsbridge. White Mountains contributed $80.3 million to NSM and NSM borrowed £42.5 million ($52.4 million based upon the foreign exchange spot rate at the date of acquisition) to fund the transaction. During 2020, NSM determined that the relative values of goodwill and other intangible assets recorded in connection with the Kingsbridge transaction were $111.5 million and $20.2 million, reflecting acquisition date fair values. The purchase price is subject to adjustment based upon growth in EBITDA during an earnout period ending in January 2022. During 2020, NSM initially recorded a liability relating to the fair value of the Kingsbridge contingent consideration of $4.1 million. During the fourth quarter of 2020, NSM recognized pre-tax income of $4.1 million for the change in fair value of the Kingsbridge contingent consideration liability and a foreign currency translation unrealized gain of $0.3 million. As of September 30, 2021, the Kingsbridge contingent consideration liability was $0.1 million.
On August 6, 2021, NSM acquired 100% of J.C. Taylor Insurance (“J.C. Taylor”), a managing general agent (“MGA”) offering classic and antique collector car insurance. NSM paid $49.6 million of upfront cash consideration for J.C. Taylor. NSM borrowed $35.0 million under its credit facility to fund the acquisition. NSM recognized total assets acquired related to the J.C. transaction of $60.3 million, including goodwill and other intangible assets of $55.7 million, and total liabilities of $10.7 million. The relative fair values of goodwill and of other intangible assets recognized in connection with the acquisition of J.C. Taylor had not yet been finalized as of September 30, 2021.
The contingent consideration liabilities related to NSM’s acquisitions are subject to adjustments based upon EBITDA, EBITDA projections, and present value factors for acquired entities. For the three and nine months ended September 30, 2021, NSM recognized pre-tax loss of $0.6 million and $0.8 million for the change in the fair value of its contingent consideration liabilities. For the three and nine months ended September 30, 2020, NSM recognized pre-tax loss (income) of $0.7 million and $(1.6) million for the change in the fair value of its contingent consideration liabilities. Any future adjustments to contingent consideration liabilities under the agreements will be recognized through pre-tax income. As of September 30, 2021 and December 31, 2020, NSM recorded total contingent consideration liabilities of $6.7 million and $14.6 million.
PassportCard/DavidShield
On January 24, 2018, White Mountains acquired a 50.0% ownership interest in DavidShield, its joint venture partner in PassportCard. DavidShield is a managing general agency that is the leading provider of expatriate medical insurance in Israel and uses the same card-based delivery system as PassportCard. As part of the transaction, White Mountains reorganized its equity stake in PassportCard so that White Mountains and its partner in DavidShield would each own 50.0% of both businesses. To facilitate the transaction, White Mountains provided financing to its partner in the form of a non-interest bearing loan that is secured by the partner’s equity in PassportCard and DavidShield. The gross purchase price for the 50.0% interest in DavidShield was $41.8 million, or $28.3 million net of the financing provided for the restructuring.
On May 7, 2020, White Mountains made an additional $15.0 million investment in PassportCard/DavidShield to support operations through the ongoing COVID-19 pandemic. The transaction increased White Mountains’s ownership interest from 50.0% to 53.8%, but had no impact on the governance structure of the companies, including White Mountains’s board representation or other investor rights. The governance structures for both PassportCard and DavidShield were designed to give White Mountains and its co-investor equal power to make the decisions that most significantly impact the operations of PassportCard and DavidShield.
As a result of the transaction, White Mountains’s re-evaluated its accounting treatment for PassportCard and DavidShield. Because White Mountains does not have the unilateral power to direct the operations of PassportCard or DavidShield, White Mountains does not hold a controlling financial interest in either PassportCard or DavidShield and does not consolidate either entity. White Mountains’s ownership interest gives White Mountains the opportunity to exert significant influence over the significant financial and operating activities of PassportCard and DavidShield. Accordingly, PassportCard and DavidShield meet the criteria to be accounted for under the equity method. White Mountains has taken the fair value option for its investment in PassportCard and DavidShield. Changes in the fair value of PassportCard and DavidShield are recorded in realized and unrealized investment gains. White Mountains’s maximum exposure to loss on its equity investment in PassportCard/DavidShield and the non-interest bearing loan to its partner is limited to the total carrying value of $114.4 million.
Note 3. Investment Securities
White Mountains’s portfolio of investment securities held for general investment purposes consists of fixed maturity investments, short-term investments, common equity securities, its investment in MediaAlpha and other long-term investments, which are 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 fair value, which approximated amortized cost, as of September 30, 2021 and December 31, 2020.
Other long-term investments consist primarily of unconsolidated entities, including Kudu’s Participation Contracts, private equity funds, a hedge fund, Lloyd’s trust deposits, a bank loan fund, insurance-linked securities funds (“ILS funds”) and private debt 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, dividend income from common equity securities, distributions from its investment in MediaAlpha and distributions from other long-term investments.
The following table presents pre-tax net investment income for the three and nine months ended September 30, 2021 and 2020:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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Millions
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2021
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2020
|
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2021
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2020
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Fixed maturity investments
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$
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8.2
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|
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$
|
7.0
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$
|
21.9
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$
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22.4
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Short-term investments
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—
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.1
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.5
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|
|
1.0
|
|
Common equity securities
|
|
.1
|
|
|
.5
|
|
|
.1
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
Investment in MediaAlpha
|
|
—
|
|
|
55.0
|
|
|
—
|
|
|
60.0
|
|
Other long-term investments
|
|
12.0
|
|
|
8.9
|
|
|
37.1
|
|
|
24.7
|
|
Amount attributable to TPC Providers
|
|
(.2)
|
|
|
—
|
|
|
(.8)
|
|
|
—
|
|
Total investment income
|
|
20.1
|
|
|
71.5
|
|
|
58.8
|
|
|
114.6
|
|
Third-party investment expenses
|
|
(.6)
|
|
|
(.3)
|
|
|
(1.6)
|
|
|
(.9)
|
|
Net investment income, pre-tax
|
|
$
|
19.5
|
|
|
$
|
71.2
|
|
|
$
|
57.2
|
|
|
$
|
113.7
|
|
Net Realized and Unrealized Investment Gains (Losses)
The following table presents net realized and unrealized investment gains (losses) for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
Millions
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Fixed maturity investments
|
|
|
$
|
(6.8)
|
|
|
$
|
3.6
|
|
|
$
|
(23.2)
|
|
|
$
|
35.8
|
|
Short-term investments
|
|
|
(.3)
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
Common equity securities
|
|
|
1.6
|
|
|
48.4
|
|
|
7.7
|
|
|
5.9
|
|
Investment in MediaAlpha
|
|
|
(396.8)
|
|
|
250.0
|
|
|
(325.5)
|
|
|
295.0
|
|
Other long-term investments
|
|
|
37.7
|
|
|
4.6
|
|
|
113.2
|
|
|
(34.3)
|
|
Amount attributable to TPC Providers
|
|
|
(1.7)
|
|
|
—
|
|
|
(6.5)
|
|
|
—
|
|
Net realized and unrealized investment (losses) gains(1)
|
|
|
(366.3)
|
|
|
306.6
|
|
|
(234.3)
|
|
|
302.8
|
|
Less: net (losses) gains on investment securities sold during the period
|
|
|
(4.8)
|
|
|
36.1
|
|
|
(5.1)
|
|
|
29.6
|
|
Net realized and unrealized investment (losses) gains on investment securities held at the end of the period
|
|
|
$
|
(361.5)
|
|
|
$
|
270.5
|
|
|
$
|
(229.2)
|
|
|
$
|
273.2
|
|
(1) For the three months ended September 30, 2021 and 2020, includes $(7.0) and $0.8 of realized and unrealized investment gains (losses) related to foreign currency exchange. For the nine months ended September 30, 2021 and 2020, includes $(7.4) and $(0.8) of realized and unrealized investment gains (losses) related to foreign currency exchange.
The following table presents total gains included in earnings attributable to net unrealized investment gains for Level 3 investments for the three and nine months ended September 30, 2021 and 2020 for investments still held at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
Millions
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
$
|
26.5
|
|
|
$
|
260.1
|
|
|
|
$
|
75.5
|
|
|
$
|
276.0
|
|
Total net unrealized investment gains, pre-tax - Level 3 investments
|
|
$
|
26.5
|
|
|
$
|
260.1
|
|
|
|
$
|
75.5
|
|
|
$
|
276.0
|
|
Investment Holdings
The following tables present the cost or amortized cost, gross unrealized investment gains (losses) and carrying values of White Mountains’s fixed maturity investments as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
Millions
|
|
Cost or
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Net Foreign
Currency Gains (Losses)
|
|
Carrying
Value
|
U.S. Government and agency obligations
|
|
$
|
207.4
|
|
|
$
|
.8
|
|
|
$
|
(.6)
|
|
|
$
|
—
|
|
|
$
|
207.6
|
|
Debt securities issued by corporations
|
|
945.2
|
|
|
13.1
|
|
|
(3.4)
|
|
|
(.7)
|
|
|
954.2
|
|
Municipal obligations
|
|
276.1
|
|
|
18.0
|
|
|
(.7)
|
|
|
—
|
|
|
293.4
|
|
Mortgage and asset-backed securities
|
|
247.3
|
|
|
4.2
|
|
|
(1.4)
|
|
|
—
|
|
|
250.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized loan obligations
|
|
128.5
|
|
|
—
|
|
|
(.4)
|
|
|
(.5)
|
|
|
127.6
|
|
Total fixed maturity investments
|
|
$
|
1,804.5
|
|
|
$
|
36.1
|
|
|
$
|
(6.5)
|
|
|
$
|
(1.2)
|
|
|
$
|
1,832.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Millions
|
|
Cost or
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized Gains
(Losses)
|
|
|
|
Carrying
Value
|
U.S. Government and agency obligations
|
|
$
|
173.2
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
|
|
$
|
176.3
|
|
Debt securities issued by corporations
|
|
522.8
|
|
|
24.7
|
|
|
(.1)
|
|
|
|
|
547.4
|
|
Municipal obligations
|
|
244.0
|
|
|
21.0
|
|
|
—
|
|
|
|
|
265.0
|
|
Mortgage and asset-backed securities
|
|
211.7
|
|
|
6.8
|
|
|
—
|
|
|
|
|
218.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
$
|
1,151.7
|
|
|
$
|
55.6
|
|
|
$
|
(.1)
|
|
|
|
|
$
|
1,207.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the cost or amortized cost and carrying value of White Mountains’s fixed maturity investments by contractual maturity as of September 30, 2021. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
Millions
|
|
Cost or Amortized Cost
|
|
Carrying Value
|
Due in one year or less
|
|
$
|
111.9
|
|
|
$
|
112.7
|
|
Due after one year through five years
|
|
836.1
|
|
|
843.4
|
|
Due after five years through ten years
|
|
368.5
|
|
|
377.3
|
|
Due after ten years
|
|
112.2
|
|
|
121.8
|
|
Mortgage and asset-backed securities and collateralized loan obligations
|
|
375.8
|
|
|
377.7
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
$
|
1,804.5
|
|
|
$
|
1,832.9
|
|
The following tables present the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of common equity securities, White Mountains’s investment in MediaAlpha and other long-term investments as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
Millions
|
|
Cost or
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Net Foreign
Currency Gains (Losses)
|
|
Carrying
Value
|
Common equity securities
|
|
$
|
152.5
|
|
|
$
|
8.8
|
|
|
$
|
(.5)
|
|
|
$
|
(1.2)
|
|
|
$
|
159.6
|
|
Investment in MediaAlpha
|
|
$
|
—
|
|
|
$
|
316.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
316.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
$
|
1,154.7
|
|
|
$
|
197.6
|
|
|
$
|
(62.9)
|
|
|
$
|
(3.9)
|
|
|
$
|
1,285.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Millions
|
|
Cost or
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Net Foreign
Currency
Gains (Losses)
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
Investment in MediaAlpha
|
|
$
|
—
|
|
|
$
|
802.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
802.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
$
|
767.4
|
|
|
$
|
95.8
|
|
|
$
|
(78.1)
|
|
|
$
|
1.7
|
|
|
$
|
786.8
|
|
Fair Value Measurements
As of September 30, 2021 and December 31, 2020, White Mountains used quoted market prices or other observable inputs to determine fair value for approximately 69% and 73% of the investment portfolio.
Fair Value Measurements by Level
The following tables present White Mountains’s fair value measurements for investments as of September 30, 2021 and December 31, 2020 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, 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 by industry sector because investors often reference commonly used benchmarks and their subsectors to monitor risk and performance. Accordingly, White Mountains has further disaggregated this asset class 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
Millions
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Fixed maturity investments:
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
207.6
|
|
|
$
|
207.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued by corporations:
|
|
|
|
|
|
|
|
|
Financials
|
|
246.5
|
|
|
—
|
|
|
246.5
|
|
|
—
|
|
Consumer
|
|
180.5
|
|
|
—
|
|
|
180.5
|
|
|
—
|
|
Industrial
|
|
114.8
|
|
|
—
|
|
|
114.8
|
|
|
—
|
|
Technology
|
|
110.8
|
|
|
—
|
|
|
110.8
|
|
|
—
|
|
Healthcare
|
|
98.2
|
|
|
—
|
|
|
98.2
|
|
|
—
|
|
Utilities
|
|
69.9
|
|
|
—
|
|
|
69.9
|
|
|
—
|
|
Communications
|
|
53.2
|
|
|
—
|
|
|
53.2
|
|
|
—
|
|
Energy
|
|
47.0
|
|
|
—
|
|
|
47.0
|
|
|
—
|
|
Materials
|
|
33.3
|
|
|
—
|
|
|
33.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total debt securities issued by corporations
|
|
954.2
|
|
|
—
|
|
|
954.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
293.4
|
|
|
—
|
|
|
293.4
|
|
|
—
|
|
Mortgage and asset-backed securities
|
|
250.1
|
|
|
—
|
|
|
250.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Collateralized loan obligations
|
|
127.6
|
|
|
—
|
|
|
127.6
|
|
|
—
|
|
Total fixed maturity investments
|
|
1,832.9
|
|
|
207.6
|
|
|
1,625.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
609.5
|
|
|
601.6
|
|
|
7.9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Common equity securities (1)
|
|
159.6
|
|
|
—
|
|
|
159.6
|
|
|
—
|
|
Investment in MediaAlpha
|
|
316.4
|
|
|
316.4
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
814.5
|
|
|
—
|
|
|
—
|
|
|
814.5
|
|
Other long-term investments — NAV (2)
|
|
471.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total other long-term investments
|
|
1,285.5
|
|
|
—
|
|
|
—
|
|
|
814.5
|
|
Total investments
|
|
$
|
4,203.9
|
|
|
$
|
1,125.6
|
|
|
$
|
1,792.8
|
|
|
$
|
814.5
|
|
(1) Consist of investments in listed funds that predominantly invest in international equities.
(2) Consists of private equity funds, a hedge fund, Lloyd’s trust deposits, a bank loan fund and ILS funds for which fair value is measured at NAV using the practical expedient. Investments for which fair value is measured at NAV are not classified within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Millions
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Fixed maturity investments:
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
176.3
|
|
|
$
|
176.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued by corporations:
|
|
|
|
|
|
|
|
|
Financials
|
|
133.9
|
|
|
—
|
|
|
133.9
|
|
|
—
|
|
Consumer
|
|
81.9
|
|
|
—
|
|
|
81.9
|
|
|
—
|
|
Industrial
|
|
66.9
|
|
|
—
|
|
|
66.9
|
|
|
—
|
|
Technology
|
|
66.7
|
|
|
—
|
|
|
66.7
|
|
|
—
|
|
Healthcare
|
|
51.5
|
|
|
—
|
|
|
51.5
|
|
|
—
|
|
Communications
|
|
44.5
|
|
|
—
|
|
|
44.5
|
|
|
—
|
|
Energy
|
|
35.8
|
|
|
—
|
|
|
35.8
|
|
|
—
|
|
Materials
|
|
33.9
|
|
|
—
|
|
|
33.9
|
|
|
—
|
|
Utilities
|
|
32.3
|
|
|
—
|
|
|
32.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total debt securities issued by corporations
|
|
547.4
|
|
|
—
|
|
|
547.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
265.0
|
|
|
—
|
|
|
265.0
|
|
|
—
|
|
Mortgage and asset-backed securities
|
|
218.5
|
|
|
—
|
|
|
218.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
1,207.2
|
|
|
176.3
|
|
|
1,030.9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
142.9
|
|
|
142.9
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Investment in MediaAlpha
|
|
802.2
|
|
|
802.2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
614.2
|
|
|
—
|
|
|
—
|
|
|
614.2
|
|
Other long-term investments — NAV (1)
|
|
172.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total other long-term investments
|
|
786.8
|
|
|
—
|
|
|
—
|
|
|
614.2
|
|
Total investments
|
|
$
|
2,939.1
|
|
|
$
|
1,121.4
|
|
|
$
|
1,030.9
|
|
|
$
|
614.2
|
|
(1) Consists of private equity funds and ILS funds for which fair value is measured at NAV using the practical expedient. Investments for which fair value is measured at NAV are not classified within the fair value hierarchy.
Debt Securities Issued by Corporations
The following table presents the credit ratings of debt securities issued by corporations held in White Mountains’s investment portfolio as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
Millions
|
|
September 30, 2021
|
|
December 31, 2020
|
AAA
|
|
$
|
12.7
|
|
|
$
|
10.6
|
|
AA
|
|
85.7
|
|
|
57.9
|
|
A
|
|
473.3
|
|
|
318.3
|
|
BBB
|
|
373.7
|
|
|
159.6
|
|
BB
|
|
—
|
|
|
1.0
|
|
|
|
|
|
|
Other
|
|
8.8
|
|
|
—
|
|
Debt securities issued by corporations (1)
|
|
$
|
954.2
|
|
|
$
|
547.4
|
|
(1) Credit ratings are based upon issuer credit ratings provided by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”), or if unrated by Standard & Poor’s, long-term obligation ratings provided by Moody’s Investor Service, Inc.
Mortgage and Asset-backed Securities and Collateralized Loan Obligations
The following table presents the fair value of White Mountains’s mortgage and asset-backed securities and collateralized loan obligations as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Millions
|
|
Fair Value
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Level 2
|
|
Level 3
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency:
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
$
|
125.3
|
|
|
$
|
125.3
|
|
|
$
|
—
|
|
|
$
|
88.7
|
|
|
$
|
88.7
|
|
|
$
|
—
|
|
FHLMC
|
|
76.5
|
|
|
76.5
|
|
|
—
|
|
|
70.1
|
|
|
70.1
|
|
|
—
|
|
GNMA
|
|
29.4
|
|
|
29.4
|
|
|
—
|
|
|
40.6
|
|
|
40.6
|
|
|
—
|
|
Total agency (1)
|
|
231.2
|
|
|
231.2
|
|
|
—
|
|
|
199.4
|
|
|
199.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency: Residential
|
|
.6
|
|
|
.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency
|
|
.6
|
|
|
.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total mortgage-backed securities
|
|
231.8
|
|
|
231.8
|
|
|
—
|
|
|
199.4
|
|
|
199.4
|
|
|
—
|
|
Other asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables
|
|
11.2
|
|
|
11.2
|
|
|
—
|
|
|
11.3
|
|
|
11.3
|
|
|
—
|
|
Vehicle receivables
|
|
7.1
|
|
|
7.1
|
|
|
—
|
|
|
7.8
|
|
|
7.8
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other asset-backed securities
|
|
18.3
|
|
|
18.3
|
|
|
—
|
|
|
19.1
|
|
|
19.1
|
|
|
—
|
|
Total mortgage and asset-backed securities
|
|
250.1
|
|
250.1
|
|
—
|
|
|
218.5
|
|
|
218.5
|
|
|
—
|
|
Collateralized loan obligations
|
|
127.6
|
|
|
127.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total mortgage and asset-backed securities and collateralized loan obligations
|
|
$
|
377.7
|
|
|
$
|
377.7
|
|
|
$
|
—
|
|
|
$
|
218.5
|
|
|
$
|
218.5
|
|
|
$
|
—
|
|
(1) Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. Government (i.e., GNMA) or are guaranteed
by a government sponsored entity (i.e., FNMA, FHLMC).
As of September 30, 2021, White Mountains’s investment portfolio included $127.6 million of collateralized loan obligations that are within the senior tranches of their respective fund securitization structures. All of White Mountains’s collateral loan obligations were rated AAA or AA as of September 30, 2021.
Investment in MediaAlpha
Subsequent to the MediaAlpha IPO, White Mountains’s investment in MediaAlpha is accounted for at fair value based on the publicly traded share price of MediaAlpha’s common stock and is presented as a separate line item on the balance sheet.
At the September 30, 2021 closing price of $18.68 per share, the fair value of White Mountains’s investment in MediaAlpha was $316.4 million. See Note 2 — “Significant Transactions”.
Other Long-Term Investments
The following table presents the carrying values of White Mountains’s other long-term investments as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
Millions
|
|
September 30, 2021
|
|
December 31, 2020
|
Kudu’s Participation Contracts
|
|
$
|
604.7
|
|
|
$
|
400.6
|
|
PassportCard/DavidShield
|
|
105.0
|
|
|
95.0
|
|
Elementum Holdings L.P.
|
|
56.7
|
|
|
55.1
|
|
Other unconsolidated entities (1)
|
|
27.0
|
|
|
42.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated entities
|
|
793.4
|
|
|
593.1
|
|
Private equity funds and hedge funds
|
|
144.2
|
|
|
121.2
|
|
|
|
|
|
|
Bank loan fund
|
|
161.7
|
|
|
—
|
|
Lloyd’s trust deposits
|
|
111.2
|
|
|
—
|
|
ILS funds
|
|
53.9
|
|
|
51.4
|
|
Private debt investments
|
|
13.3
|
|
|
21.1
|
|
Other
|
|
7.8
|
|
|
—
|
|
Total other long-term investments
|
|
$
|
1,285.5
|
|
|
$
|
786.8
|
|
(1) Includes White Mountains’s non-controlling equity interests in certain private common equity securities, limited liability companies and convertible preferred securities and Simple Agreement for Future Equity (“SAFE”) investments.
Private Equity Funds and Hedge Funds
White Mountains invests in private equity funds and hedge 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 September 30, 2021, White Mountains held investments in fourteen private equity funds and one hedge fund. The largest investment in a single private equity fund or hedge fund was $27.4 million as of September 30, 2021 and $29.1 million as of December 31, 2020.
The following table presents the fair value of investments and unfunded commitments in private equity funds and hedge funds by investment objective and sector as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Millions
|
|
Fair Value
|
|
Unfunded
Commitments
|
|
Fair Value
|
|
Unfunded
Commitments
|
Private equity funds
|
|
|
|
|
|
|
|
|
Aerospace/Defense/Government
|
|
$
|
63.9
|
|
|
$
|
14.0
|
|
|
$
|
69.1
|
|
|
$
|
15.3
|
|
Financial services
|
|
63.2
|
|
|
29.6
|
|
|
23.5
|
|
|
30.4
|
|
Real estate
|
|
4.8
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
Manufacturing/Industrial
|
|
.1
|
|
|
—
|
|
|
28.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total private equity funds
|
|
132.0
|
|
|
46.5
|
|
|
121.2
|
|
|
45.7
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European small/mid cap
|
|
12.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hedge funds
|
|
12.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total private equity funds and hedge funds
included in other long-term investments
|
|
$
|
144.2
|
|
|
$
|
46.5
|
|
|
$
|
121.2
|
|
|
$
|
45.7
|
|
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 have the option to extend the lock-up period.
The following table presents investments in private equity funds that were subject to lock-up periods as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
|
1 – 3 years
|
|
3 – 5 years
|
|
5 – 10 years
|
|
>10 years
|
|
Total
|
Private equity funds — expected lock-up period remaining
|
|
$.3
|
|
$14.0
|
|
$109.0
|
|
$8.7
|
|
$132.0
|
Investors in private equity funds are generally subject to indemnification obligations outside of the capital commitment period and prior to the winding up of the fund. As of September 30, 2021 and December 31, 2020, White Mountains is not aware of any indemnification claims relating to its investments in private equity funds.
Redemption of investments in most 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. White Mountains’s hedge fund investment is subject to a perpetual two-year restriction on redemption frequency from the initial investment in the fund and a 90-days advanced notice period requirement.
Lloyd’s Trust Deposits
White Mountains’s other long-term investments include Lloyd’s trust deposits, which consists of overseas deposits and Canadian comingled pooled funds. The Lloyd’s trust deposits invest primarily in short-term government securities, agency securities and corporate bonds held in trusts that are managed by Lloyd's of London. These investments are required of Lloyd's syndicates to protect policyholders in overseas markets and are pledged into Lloyd’s trust accounts to provide a portion of the capital needed to support obligations at Lloyd’s. The fair value of the Lloyd’s trust deposits is generally estimated using the NAV of the funds. As of September 30, 2021, White Mountains held Lloyd’s trust deposits with a fair value of $111.2 million.
Bank Loan Fund
White Mountains’s other long-term investments include a bank loan fund with a fair value of $161.7 million as of September 30, 2021. The fair value of this investment is estimated using the NAV of the fund. The bank loan fund’s investment objective is to provide, on an unleveraged basis, high current income consistent with preservation of capital and low duration. The bank loan fund primarily invests in a broad portfolio of U.S. dollar-denominated, non-investment grade, floating-rate senior secured loans and may invest in other financial instruments, such as secured and unsecured corporate debt, credit default swaps, reverse repurchase agreements and synthetic indices and cash and cash equivalents.
The investment in the bank loan fund is subject to 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. White Mountains may redeem all or a portion of its bank loan fund investment as of any calendar month-end upon 15 calendar days advanced written notice.
Insurance-Linked Securities Funds
White Mountains’s other long-term investments include ILS fund investments. The fair value of these investments is generally estimated using the NAV of the funds. As of September 30, 2021, White Mountains held investments in ILS funds with a fair value of $53.9 million.
Investments in ILS funds are generally subject to restrictions, including lock-up periods where no redemptions or withdrawals are allowed, non-renewal clauses, restrictions on redemption frequency and advance notice periods for redemptions. From time to time, natural catastrophe, liquidity, market or other events will occur that make the determination of fair value for underlying investments in ILS funds less certain due to the potential for loss development. In such circumstances, the impacted investments may be subject to additional lock-up provisions.
ILS funds are typically subject to monthly and annual restrictions on redemptions and advance redemption notice period requirements that range between 30 and 90 days. Amounts requested for redemption remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period.
One of the ILS funds in White Mountains’s portfolio requires shareholders to provide advance redemption notice on or before September 15 of each calendar year. Amounts requested for redemption in this fund remain subject to market fluctuation until the underlying investment has fully matured or been commuted, which may be up to a period of three years from the start of each calendar year.
Rollforward of Fair Value Measurements by Level
White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities and other long-term investments as of September 30, 2021 and 2020 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.
The following tables present the changes in White Mountains’s fair value measurements by level for the nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
Investments
|
Other Long-term Investments Measured at NAV (1)
|
|
|
|
Millions
|
Level 1 Investments
|
Level 2
Investments
|
|
|
Other Long-term
Investments
|
|
Total
|
|
Balance at December 31, 2020
|
$
|
978.5
|
|
$
|
1,030.9
|
|
|
|
$
|
614.2
|
|
$
|
172.6
|
|
|
$
|
2,796.2
|
|
(2)
|
Net realized and unrealized gains (losses)
|
(327.6)
|
|
(13.1)
|
|
|
|
79.0
|
|
33.9
|
|
|
(227.8)
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Amortization/Accretion
|
(.1)
|
|
(5.9)
|
|
|
|
—
|
|
—
|
|
|
(6.0)
|
|
|
Purchases
|
130.9
|
|
989.7
|
|
|
|
143.6
|
|
199.6
|
|
|
1,463.8
|
|
|
Sales
|
(257.7)
|
|
(284.9)
|
|
|
|
(31.9)
|
|
(70.9)
|
|
|
(645.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Ark Transaction
|
—
|
|
68.2
|
|
|
|
9.6
|
|
135.8
|
|
|
213.6
|
|
|
Transfers in
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Transfers out
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Balance at September 30, 2021
|
$
|
524.0
|
|
$
|
1,784.9
|
|
|
|
$
|
814.5
|
|
$
|
471.0
|
|
|
$
|
3,594.4
|
|
(2)
|
(1) Consists of private equity funds, a hedge fund, Lloyd’s trust deposits, a bank loan fund, and ILS funds for which fair value is measured at NAV using the practical expedient. Investments for which fair value is measured at NAV are not classified within the fair value hierarchy. See Note 1 — “Basis of Presentation and Significant Accounting Policies”.
(2) Excludes carrying value of $609.5 and $142.9 as of September 30, 2021 and December 31, 2020 classified as short-term investments.
(3) Includes amounts attributable to TPC Providers of $6.5 for the nine months ended September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
Investments
|
Other Long-term Investments Measured at NAV (1)
|
|
|
Millions
|
Level 1 Investments
|
Level 2
Investments
|
|
Common
Equity
Securities
|
|
Other Long-term
Investments and
Investment in
MediaAlpha
Pre-IPO
|
Total
|
|
Balance at December 31, 2019
|
$
|
780.0
|
|
$
|
1,109.6
|
|
|
$
|
.1
|
|
|
$
|
654.0
|
|
$
|
202.3
|
|
$
|
2,746.0
|
|
(2)
|
Net realized and unrealized gains (losses)
|
29.2
|
|
12.5
|
|
|
—
|
|
|
275.6
|
|
(14.9)
|
|
302.4
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Amortization/Accretion
|
—
|
|
(3.0)
|
|
|
—
|
|
|
—
|
|
—
|
|
(3.0)
|
|
|
Purchases
|
128.8
|
|
316.2
|
|
|
—
|
|
|
78.8
|
|
39.8
|
|
563.6
|
|
|
Sales
|
(642.7)
|
|
(368.5)
|
|
|
—
|
|
|
(8.1)
|
|
(56.3)
|
|
(1,075.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers in
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
Transfers out
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
Balance at September 30, 2020
|
$
|
295.3
|
|
$
|
1,066.8
|
|
|
$
|
.1
|
|
|
$
|
1,000.3
|
|
$
|
170.9
|
|
$
|
2,533.4
|
|
(2)
|
(1) Includes private equity funds, a hedge fund and ILS funds for which fair value is measured at NAV using the practical expedient are no longer classified within the fair value hierarchy. See Note 1 — “Basis of Presentation and Significant Accounting Policies”.
(2) Excludes carrying value of $571.8 and $201.2 as of September 30, 2020 and December 31, 2019 classified as short-term investments.
(3) Excludes realized and unrealized gains associated with short-term investments of $0.4 for the nine months ended September 30, 2020.
Fair Value Measurements — Transfers Between Levels - Nine-months ended September 30, 2021 and 2020
Transfers between levels are recorded using the fair value measurement as of the end of the quarterly period in which the event or change in circumstance giving rise to the transfer occurred.
During the nine months ended September 30, 2021 and 2020, there were no fixed maturity investments or other long-term investments classified as Level 3 measurements in the prior period that were transferred to Level 2 measurements.
During the nine months ended September 30, 2021 and 2020, there were no fixed maturity investments or other long-term investments classified as Level 2 measurements in the prior period that were transferred to Level 3 measurements.
Significant Unobservable Inputs
The following tables present significant unobservable inputs used in estimating the fair value of White Mountains’s other long-term investments, classified within Level 3 as of September 30, 2021 and December 31, 2020. The tables below exclude $14.9 million and $27.6 million of Level 3 other long-term investments generally valued based on recent or expected transaction prices. The fair value of investments in private equity funds, hedge funds, Lloyd’s trust deposits, bank loans funds and ILS funds are generally estimated using the NAV of the funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in Millions
|
|
September 30, 2021
|
Description
|
|
Valuation Technique(s) (1)
|
|
Fair Value (2)
|
|
Unobservable Inputs
|
|
|
|
|
|
|
Discount Rate (3)(4)
|
|
Terminal Cash Flow Exit Multiple (x) or Terminal Revenue Growth Rate (%) (4)
|
|
|
|
|
|
|
|
|
|
Kudu’s Participation Contracts (5)(6)
|
|
Discounted cash flow
|
|
$604.7
|
|
18% - 23%
|
|
7x - 13x
|
PassportCard/DavidShield
|
|
Discounted cash flow
|
|
$105.0
|
|
23%
|
|
4%
|
Elementum Holdings, L.P.
|
|
Discounted cash flow
|
|
$56.7
|
|
17%
|
|
4%
|
Private debt investments
|
|
Discounted cash flow
|
|
$11.2
|
|
4% - 8%
|
|
N/A
|
Other
|
|
Discounted cash flow
|
|
$22.0
|
|
20% - 24%
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Key inputs to the discounted cash flow analysis generally include projections of future revenue and earnings, discount rates and terminal exit multiples or growth rates.
(2) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.
(3) Since Kudu’s Participation Contracts are not subject to corporate taxes within Kudu Investment Management, LLC, pre-tax discount rates are applied to pre-tax cash flows in determining fair values.
(4) Increases (decreases) to the discount rates in isolation would result in lower (higher) fair value measurements, while increases (decreases) to the terminal cash flow exit multiples or terminal revenue growth rates in isolation would result in higher (lower) fair value measurements.
(5) For the nine months ended September 30, 2021, Kudu deployed a total of $141.6 in new and existing Kudu Participation Contracts, including TIG Advisors, TK Partners, Third Eye Capital Management and Douglass Winthrop Advisors.
(6) As of September 30, 2021, certain Kudu Participation Contracts with a total fair value of $121.0 were valued using a probability weighted expected return method, which was based on a discounted cash flow analysis and an expected sale transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in Millions
|
|
December 31, 2020
|
Description
|
|
Valuation Technique(s) (1)
|
|
Fair Value (2)
|
|
Unobservable Inputs
|
|
|
|
|
|
|
Discount Rate (3)(4)
|
|
Terminal Cash Flow Exit Multiple (x) or Terminal Revenue Growth Rate (%) (4)
|
Kudu’s Participation Contracts (5)
|
|
Discounted cash flow
|
|
$400.6
|
|
18% - 23%
|
|
7x - 12x
|
PassportCard/DavidShield (6)
|
|
Discounted cash flow
|
|
$95.0
|
|
23%
|
|
4%
|
Elementum Holdings, L.P.
|
|
Discounted cash flow
|
|
$55.1
|
|
17%
|
|
4%
|
Private debt investments
|
|
Discounted cash flow
|
|
$17.1
|
|
4% - 8%
|
|
N/A
|
Other
|
|
Discounted cash flow
|
|
$18.8
|
|
20% - 24%
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Key inputs to the discounted cash flow analysis generally include projections of future revenue and earnings, discount rates and terminal exit multiples or growth rates.
(2) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.
(3) Since Kudu’s Participation Contracts are not subject to corporate taxes within Kudu Investment Management, LLC, pre-tax discount rates are applied to pre-tax cash flows in determining fair values.
(4) Increases (decreases) to the discount rates in isolation would result in lower (higher) fair value measurements, while increases (decreases) to the terminal cash flow exit multiples or terminal revenue growth rates in isolation would result in higher (lower) fair value measurements.
(5) In 2020, Kudu deployed a total of $118.2 in new Kudu Participation Contracts, including Creation Investments Capital, Sequoia Financial Group, Channel Capital and Ranger Investment Management.
(6) In 2020, White Mountains made an additional $15.0 investment in PassportCard/DavidShield. See Note 2 — “Significant Transactions”.
Note 4. Goodwill and Other Intangible Assets
White Mountains accounts for purchases of businesses using the acquisition method. Under the acquisition method, White Mountains recognizes and measures the assets acquired, liabilities assumed and any non-controlling interest in the acquired entities at their acquisition date fair values. The acquisition date fair values of certain assets and liabilities, generally consisting of intangible assets and liabilities for contingent consideration, may be recorded at provisional amounts in circumstances where the information necessary to complete the acquisition accounting is not available at the reporting date. Any such provisional amounts are finalized as measurement period adjustments within one year of the acquisition date.
The following table presents the acquisition date fair values, accumulated amortization and net carrying values for other intangible assets and goodwill, by segment as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in Millions
|
|
Weighted Average Economic
Life
(in years)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Acquisition Date Fair Value
|
|
Accumulated Amortization
|
|
Impairments and Amounts Allocated to Held for Sale
|
|
Net Carrying Value
|
|
Acquisition Date Fair Value
|
|
Accumulated Amortization
|
|
Impairments
|
|
Net Carrying Value
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ark
|
|
N/A
|
|
$
|
116.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
116.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NSM (1)
|
|
N/A
|
|
559.8
|
|
|
—
|
|
|
30.2
|
|
|
529.6
|
|
|
506.4
|
|
|
—
|
|
|
—
|
|
|
506.4
|
|
Kudu
|
|
N/A
|
|
7.6
|
|
|
—
|
|
|
—
|
|
|
7.6
|
|
|
7.6
|
|
|
—
|
|
|
—
|
|
|
7.6
|
|
Other Operations
|
|
N/A
|
|
17.4
|
|
|
—
|
|
|
—
|
|
|
17.4
|
|
|
11.5
|
|
|
—
|
|
|
—
|
|
|
11.5
|
|
Total goodwill
|
|
|
|
701.6
|
|
|
—
|
|
|
30.2
|
|
|
671.4
|
|
|
525.5
|
|
|
—
|
|
|
—
|
|
|
525.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Capacity
|
N/A
|
|
175.7
|
|
|
—
|
|
|
—
|
|
|
175.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NSM (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
8.9
|
|
136.0
|
|
|
50.6
|
|
|
3.5
|
|
|
81.9
|
|
|
136.2
|
|
|
36.7
|
|
|
3.5
|
|
|
96.0
|
|
Trade names
|
|
16
|
|
65.3
|
|
|
10.9
|
|
|
1.0
|
|
|
53.4
|
|
|
65.4
|
|
|
8.3
|
|
|
1.0
|
|
|
56.1
|
|
Information
technology
platform
|
|
0
|
|
3.1
|
|
|
1.4
|
|
|
1.7
|
|
|
—
|
|
|
3.1
|
|
|
1.4
|
|
|
1.7
|
|
|
—
|
|
Renewal rights
|
|
12
|
|
82.5
|
|
|
13.1
|
|
|
—
|
|
|
69.4
|
|
|
82.5
|
|
|
4.9
|
|
|
—
|
|
|
77.6
|
|
Other
|
|
3.4
|
|
1.1
|
|
|
.6
|
|
|
—
|
|
|
.5
|
|
|
1.7
|
|
|
1.0
|
|
|
—
|
|
|
.7
|
|
Subtotal
|
|
|
|
288.0
|
|
|
76.6
|
|
|
6.2
|
|
|
205.2
|
|
|
288.9
|
|
|
52.3
|
|
|
6.2
|
|
|
230.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kudu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
7
|
|
2.2
|
|
|
.8
|
|
|
—
|
|
|
1.4
|
|
|
2.2
|
|
|
.6
|
|
|
—
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
18.1
|
|
8.2
|
|
|
1.0
|
|
|
—
|
|
|
7.2
|
|
|
3.6
|
|
|
.3
|
|
|
—
|
|
|
3.3
|
|
Customer
relationships
|
|
13.3
|
|
18.9
|
|
|
3.5
|
|
|
—
|
|
|
15.4
|
|
|
14.2
|
|
|
1.4
|
|
|
—
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
Licenses
|
|
N/A
|
|
8.6
|
|
|
—
|
|
|
—
|
|
|
8.6
|
|
|
8.6
|
|
|
—
|
|
|
—
|
|
|
8.6
|
|
Other
|
|
5.4
|
|
.3
|
|
|
.2
|
|
|
—
|
|
|
.1
|
|
|
.3
|
|
|
.1
|
|
|
—
|
|
|
.2
|
|
Subtotal
|
|
|
|
36.0
|
|
|
4.7
|
|
|
—
|
|
|
31.3
|
|
|
26.7
|
|
|
1.8
|
|
|
—
|
|
|
24.9
|
|
Total other intangible assets
|
501.9
|
|
|
82.1
|
|
|
6.2
|
|
|
413.6
|
|
|
317.8
|
|
|
54.7
|
|
|
6.2
|
|
|
256.9
|
|
Total goodwill and other
intangible assets
|
$
|
1,203.5
|
|
|
$
|
82.1
|
|
|
$
|
36.4
|
|
|
1,085.0
|
|
|
$
|
843.3
|
|
|
$
|
54.7
|
|
|
6.2
|
|
|
782.4
|
|
Goodwill and other intangible assets attributed to non-controlling interests
|
|
(118.0)
|
|
|
|
|
|
|
|
|
(28.1)
|
|
Goodwill and other intangible assets included in White Mountains’s
common shareholders’ equity
|
|
$
|
967.0
|
|
|
|
|
|
|
|
|
$
|
754.3
|
|
(1) As of September 30, 2021, NSM’s goodwill and intangible assets included $(2.3) and $(0.2) of the effect of foreign currency translation. As of December 31, 2020, NSM’s goodwill and intangible assets included $13.4 and $1.6 of the effect of foreign currency translation.
The goodwill recognized for the entities shown above is attributed to expected future cash flows. The acquisition date fair values of other intangible assets with finite lives are estimated using income approach techniques, which use future expected cash flows to develop a discounted present value amount.
The multi-period-excess-earnings method estimates fair value using the present value of the incremental after-tax cash flows attributable solely to the other intangible asset over its remaining life. This approach was used to estimate the fair value of other intangible assets associated with the underwriting capacity, trade names, customer relationships and contracts and information technology.
The relief-from-royalty method was used to estimate fair value for other intangible assets that relate to rights that could be obtained via a license from a third-party owner. Under this method, the fair value is estimated using the present value of license fees avoided by owning rather than leasing the asset. This technique was used to estimate the fair value of domain names, certain trademarks and brand names.
The with-or-without method estimates the fair value of an other intangible asset that provides an incremental benefit. Under this method, the fair value of the other intangible asset is calculated by comparing the value of the entity with and without the other intangible asset. This approach was used to estimate the fair value of favorable lease terms.
The following table presents a summary of the acquisition date fair values of goodwill and other intangible assets for acquisitions completed from January 1, 2020 through September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in Millions
|
|
|
|
|
Acquisition of subsidiary/ asset
|
|
Goodwill and
Other intangible asset (1)
|
|
Acquisition Date
|
|
|
|
|
|
|
|
|
|
|
Kingsbridge
|
|
$
|
131.7
|
|
|
April 7, 2020
|
J.C. Taylor
|
|
55.7
|
|
|
August 6, 2021
|
Total NSM segment
|
|
$
|
187.4
|
|
|
|
Ark
|
|
$
|
292.5
|
|
|
January 1, 2021
|
|
|
|
|
|
Other Operations
|
|
$
|
30.6
|
|
|
Various
|
(1) Acquisition date fair values include the effect of adjustments during the measurement period and excludes the effect of foreign currency translation subsequent to the acquisition date.
On at least an annual basis beginning no later than the interim period included in the one-year anniversary of an acquisition, White Mountains evaluates goodwill and other intangible assets for potential impairment. Between annual evaluations, White Mountains considers changes in circumstances or events subsequent to the most recent evaluation that may indicate that an impairment may exist and, if necessary will perform an interim review for potential impairment.
On April 12, 2021, NSM sold Fresh Insurance’s motor business. In connection with the sale, White Mountains recognized a loss of $28.7 million during the three months ended March 31, 2021. See Note 19 — “Held for Sale and Discontinued Operations”. During the three months ended June 30, 2020, White Mountains recognized impairments of other intangible assets of $6.2 million. The impairments related to NSM’s write-off of intangible assets in its U.K. vertical. The impairments related to lower premium volumes, including due to the impact of the COVID-19 pandemic, and certain reorganization initiatives in the U.K. vertical. There were no other impairments of other intangible assets and no impairments of goodwill for the three and nine months ended September 30, 2021 and 2020.
The following tables present the change in goodwill and other intangible assets for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2021
|
|
2020
|
Millions
|
|
Goodwill
|
|
Other Intangible Assets
|
|
Total Goodwill and Other Intangible Assets
|
|
Goodwill
|
|
Other Intangible Assets
|
|
Total Goodwill and Other Intangible Assets
|
Beginning balance
|
|
$
|
629.4
|
|
|
$
|
414.8
|
|
|
$
|
1,044.2
|
|
|
$
|
518.2
|
|
|
$
|
241.7
|
|
|
$
|
759.9
|
|
Acquisition of businesses
|
|
55.7
|
|
(1)
|
—
|
|
|
55.7
|
|
|
14.9
|
|
(2)
|
—
|
|
|
14.9
|
|
Attribution of acquisition date fair value
estimates between goodwill and other
intangible assets (3)
|
|
(9.3)
|
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
(4.0)
|
|
|
(.3)
|
|
|
(4.3)
|
|
|
7.0
|
|
|
(.1)
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement period adjustments (4)
|
|
(.4)
|
|
|
—
|
|
|
(.4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization
|
|
—
|
|
|
(10.2)
|
|
|
(10.2)
|
|
|
—
|
|
|
(5.4)
|
|
|
(5.4)
|
|
Ending balance
|
|
$
|
671.4
|
|
|
$
|
413.6
|
|
|
$
|
1,085.0
|
|
|
$
|
540.1
|
|
|
$
|
236.2
|
|
|
$
|
776.3
|
|
(1) The relative fair values of goodwill and other intangible assets recognized in connection with the acquisition of J.C. Taylor had not yet been finalized at September 30, 2021.
(2) The relative fair values of goodwill and other intangible assets recognized in connection with an acquisition within Other Operations had not yet been finalized at September 30, 2020.
(3) Relates to an acquisition within the Other Operations segment.
(4) Measurement period adjustments relate to updated information about acquisition date fair values of assets acquired and liabilities assumed. During the nine months ended September 30, 2021, adjustments relate to an acquisition within the Other Operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
Millions
|
|
Goodwill
|
|
Other Intangible Assets
|
|
Total Goodwill and Other Intangible Assets
|
|
Goodwill
|
|
Other Intangible Assets
|
|
Total Goodwill and Other Intangible Assets
|
Beginning balance
|
|
$
|
525.5
|
|
|
$
|
256.9
|
|
|
$
|
782.4
|
|
|
$
|
394.7
|
|
|
$
|
260.0
|
|
|
$
|
654.7
|
|
Attribution of acquisition date fair value
estimates between goodwill and other
intangible assets (1)
|
|
(9.3)
|
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ark Transaction
|
|
116.8
|
|
|
175.7
|
|
|
292.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of businesses
|
|
71.5
|
|
(2)
|
—
|
|
|
71.5
|
|
|
140.0
|
|
(3)
|
—
|
|
|
140.0
|
|
Foreign currency translation
|
|
(2.3)
|
|
|
(.2)
|
|
|
(2.5)
|
|
|
5.2
|
|
|
(.5)
|
|
|
4.7
|
|
Impairments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.2)
|
|
|
(6.2)
|
|
Loss on assets held for sale (4)
|
|
(30.2)
|
|
|
—
|
|
|
(30.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Measurement period adjustments (5)
|
|
(.6)
|
|
|
—
|
|
|
(.6)
|
|
|
.2
|
|
|
—
|
|
|
.2
|
|
Amortization
|
|
—
|
|
|
(28.1)
|
|
|
(28.1)
|
|
|
—
|
|
|
(17.1)
|
|
|
(17.1)
|
|
Ending balance
|
|
$
|
671.4
|
|
|
$
|
413.6
|
|
|
$
|
1,085.0
|
|
|
$
|
540.1
|
|
|
$
|
236.2
|
|
|
$
|
776.3
|
|
(1) Relates to an acquisition within the Other Operations segment.
(2) The relative fair values of goodwill and other intangible assets of $55.7 recognized in connection with the acquisition of J.C. Taylor had not yet been finalized at September 30, 2021. The remaining $15.8 relates to the relative fair values of goodwill and other intangible assets recognized in connection with an acquisition within the Other Operations segment.
(3) The relative fair values of goodwill and other intangible assets recognized in connection with the acquisition of Kingsbridge and an acquisition within Other Operations had not yet been finalized at September 30, 2020.
(4) Relates to the sale of NSM’s Fresh Insurance’s motor business recorded in the first quarter of 2021. This amount excludes $1.5 of net proceeds related to the sale.
(5) Measurement period adjustments relate to updated information about acquisition date fair values of assets acquired and liabilities assumed. During the nine months ended September 30, 2021, adjustments relate to acquisitions within the Other Operations segment.
Note 5. Loss and Loss Adjustment Expense Reserves
Ark establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. The process of estimating reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain.
Loss and LAE reserves typically comprise case reserves for claims reported and reserves for losses that have occurred but for which claims have not yet been reported, referred to as IBNR reserves. IBNR reserves include a provision for expected future development on case reserves. Case reserves are estimated based on the experience and knowledge of claims staff regarding the nature and potential cost of each claim and are adjusted as additional information becomes known or payments are made. IBNR reserves are typically derived by subtracting paid loss and LAE and case reserves from estimates of ultimate losses and LAE. Actuaries estimate ultimate loss and LAE using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made.
Ultimate loss and LAE are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to persist into the future. In forecasting ultimate loss and LAE with respect to any line of business, past experience with respect to that line of business is the primary resource, but cannot be relied upon in isolation. Ark’s own experience, particularly claims development experience, such as trends in case reserves, payments on and closings of claims, as well as changes in business mix and coverage limits, is the most important information for estimating its reserves. Ultimate loss and LAE for major losses and catastrophes are estimated based on the known and expected exposures to the loss event, rather than simply relying on the extrapolation of reported and settled claims.
Uncertainties in estimating ultimate loss and LAE are magnified by the time lag between when a claim actually occurs and when it is reported and eventually settled. This time lag is sometimes referred to as the “claim-tail”. The claim-tail for most property coverages is typically short (usually a few days up to a few months). The claim-tail for liability/casualty coverages can be quite long as claims are often reported and ultimately paid or settled years after the related loss events occur. During the long claims reporting and settlement period, additional facts regarding coverages written in prior accident years, as well as about actual claims and trends may become known and, as a result, Ark may adjust its reserves. If management determines that an adjustment is appropriate, the adjustment is booked in the accounting period in which such determination is made. Accordingly, should reserves need to be increased or decreased in the future from amounts currently established, future results of operations would be negatively or positively impacted.
In determining ultimate loss and LAE, the cost to indemnify claimants, provide needed legal defense and other services for insureds and administer the investigation and adjustment of claims are considered. These claim costs are influenced by many factors that change over time, such as expanded coverage definitions as a result of new court decisions, inflation in costs to repair or replace damaged property, inflation in the cost of services and legislated changes in statutory benefits, as well as by the particular, unique facts that pertain to each claim. As a result, the rate at which claims arose in the past and the costs to settle them may not always be representative of what will occur in the future. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple and conflicting interpretations. Changes in coverage terms or claims handling practices may also cause future experience and/or development patterns to vary from the past. Because of the factors previously discussed, the process requires the use of informed judgment and is inherently uncertain.
Ark performs an actuarial review of its recorded reserves each quarter, using several generally accepted actuarial methods to evaluate its loss reserves, each of which has its own strengths and weaknesses. Management places more or less reliance on a particular method based on the facts and circumstances at the time the reserve estimates are made.
The following table summarizes the loss and LAE reserve activity of Ark’s insurance and reinsurance subsidiaries for the three and nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
|
Three Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2021
|
Gross beginning balance
|
|
$
|
760.0
|
|
|
$
|
696.0
|
|
Less: beginning reinsurance recoverable on unpaid losses
|
|
(425.3)
|
|
|
(433.4)
|
|
Net loss and LAE reserves
|
|
334.7
|
|
|
262.6
|
|
|
|
|
|
|
Loss and LAE incurred relating to:
|
|
|
|
|
Current year losses
|
|
141.9
|
|
|
269.0
|
|
Prior year losses
|
|
(12.7)
|
|
|
(21.2)
|
|
Total incurred losses and LAE
|
|
129.2
|
|
|
247.8
|
|
|
|
|
|
|
Foreign currency translation adjustment to loss and LAE reserves
|
|
(1.2)
|
|
|
(3.4)
|
|
|
|
|
|
|
Loss and LAE paid relating to:
|
|
|
|
|
Current year losses
|
|
(9.0)
|
|
|
(11.5)
|
|
Prior year losses
|
|
(20.3)
|
|
|
(62.1)
|
|
Total loss and LAE payments
|
|
(29.3)
|
|
|
(73.6)
|
|
|
|
|
|
|
Net ending balance
|
|
433.4
|
|
|
433.4
|
|
Plus: ending reinsurance recoverable on unpaid losses
|
|
457.5
|
|
|
457.5
|
|
Gross ending balance
|
|
$
|
890.9
|
|
|
$
|
890.9
|
|
Ark’s GAAP combined ratio in the third quarter of 2021 included $12.7 million (6 points) of favorable prior year development, primarily related to the Property line of business.
Ark’s GAAP combined ratio in the first nine months of 2021 included $21.2 million (5 points) of favorable prior year development, primarily related to the Property, Marine & Energy and Accident & Health lines of business.
See Note 10 — “Municipal Bond Guarantee Insurance” for loss and LAE reserve balances related to White Mountains financial guarantee business.
Note 6. Third-Party Reinsurance
In the normal course of business, Ark may seek to limit losses that may arise from catastrophes or other events by reinsuring certain risks with third-party reinsurers. Ark remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The following table summarizes the effects of reinsurance on written and earned premiums and on losses and LAE for Ark.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2021
|
|
|
Millions
|
|
|
|
|
Written premiums:
|
|
|
|
|
|
|
Gross
|
|
$
|
162.4
|
|
|
$
|
895.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
|
|
(41.5)
|
|
|
(169.5)
|
|
|
|
Net written premiums
|
|
$
|
120.9
|
|
|
$
|
725.5
|
|
|
|
Earned premiums:
|
|
|
|
|
|
|
Gross
|
|
$
|
284.5
|
|
|
$
|
622.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
|
|
(71.1)
|
|
|
(186.2)
|
|
|
|
Net earned premiums
|
|
$
|
213.4
|
|
|
$
|
435.8
|
|
|
|
Losses and LAE:
|
|
|
|
|
|
|
Gross
|
|
$
|
193.5
|
|
|
$
|
372.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
|
|
(64.3)
|
|
|
(124.9)
|
|
|
|
Net Losses and LAE
|
|
$
|
129.2
|
|
|
$
|
247.8
|
|
|
|
As of September 30, 2021, Ark had $457.5 million and $8.1 million of reinsurance recoverables on unpaid and paid losses. As reinsurance contracts do not relieve Ark of its obligation to its policyholders, Ark seeks to reduce the credit risk associated with reinsurance balances by avoiding over-reliance on specific reinsurers through the application of concentration limits and thresholds. Ark is selective with its reinsurers, placing reinsurance with only those reinsurers having a strong financial condition. Ark monitors the financial strength of its reinsurers on an ongoing basis.
As of September 30, 2021, Ark’s reinsurance recoverables of $465.6 million included $299.9 million related to TPC Providers, which are collateralized. The following table provides a listing of Ark’s remaining gross and net reinsurance recoverables, excluding amounts related to TPC Providers, by the reinsurer’s A.M. Best Company, Inc (“A.M. Best”) rating and the percentage of total recoverables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
A.M. Best Rating(1)
|
|
Gross
|
|
Collateral
|
|
Net
|
|
% of Total
|
A+ or better
|
|
$
|
122.8
|
|
|
$
|
23.9
|
|
|
$
|
98.9
|
|
|
84.2
|
%
|
A- to A
|
|
32.7
|
|
15.6
|
|
17.1
|
|
14.6
|
|
B++ or lower and not rated
|
|
10.2
|
|
8.8
|
|
1.4
|
|
1.2
|
|
Total
|
|
$
|
165.7
|
|
|
$
|
48.3
|
|
|
$
|
117.4
|
|
|
100.0
|
%
|
(1) A.M. Best ratings as detailed above are: “A+ or better” (Superior) “A- to A” (Excellent), “B++” (Good).
See Note 10 — “Municipal Bond Guarantee Insurance” for third-party reinsurance balances related to White Mountains financial guarantee business.
Note 7. Debt
The following table presents White Mountains’s debt outstanding as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
|
September 30,
2021
|
|
Effective
Rate
|
(1)
|
|
December 31,
2020
|
|
Effective
Rate
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Ark 2007 Notes Tranche 1
|
|
$
|
30.0
|
|
|
|
|
$
|
—
|
|
|
|
|
Ark 2007 Notes Tranche 2
|
|
13.9
|
|
|
|
|
—
|
|
|
|
|
Ark 2007 Subordinated Notes, carrying value
|
|
43.9
|
|
|
|
|
—
|
|
|
|
|
Ark 2021 Notes Tranche 1
|
|
45.3
|
|
|
|
|
—
|
|
|
|
|
Ark 2021 Notes Tranche 2
|
|
47.0
|
|
|
|
|
—
|
|
|
|
|
Ark 2021 Notes Tranche 3
|
|
70.0
|
|
|
|
|
—
|
|
|
|
|
Unamortized issuance cost
|
|
(5.5)
|
|
|
|
|
|
|
|
|
Ark 2021 Subordinated Notes, carrying value
|
|
156.8
|
|
|
|
|
|
|
|
|
Total Ark Subordinated Notes, carrying value
|
|
200.7
|
|
|
5.1%
|
|
—
|
|
|
|
|
NSM Bank Facility
|
|
300.4
|
|
|
7.4%
|
(2)
|
|
277.4
|
|
|
7.5%
|
(2)
|
|
Unamortized issuance cost
|
|
(6.7)
|
|
|
|
|
(6.1)
|
|
|
|
|
NSM Bank Facility, carrying value
|
|
293.7
|
|
|
|
|
271.3
|
|
|
|
|
Other NSM debt, carrying value
|
|
1.3
|
|
|
3.3%
|
|
1.3
|
|
|
2.5%
|
|
Kudu Credit Facility
|
|
203.0
|
|
|
4.1%
|
|
—
|
|
|
|
|
Unamortized issuance cost
|
|
(7.4)
|
|
|
|
|
—
|
|
|
|
|
Kudu Credit Facility, carrying value
|
|
195.6
|
|
|
|
|
—
|
|
|
|
|
Kudu Bank Facility
|
|
—
|
|
|
|
|
89.2
|
|
|
8.3%
|
|
Unamortized issuance cost
|
|
—
|
|
|
|
|
(2.9)
|
|
|
|
|
Kudu Bank Facility, carrying value
|
|
—
|
|
|
|
|
86.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations debt
|
|
19.5
|
|
|
7.4%
|
|
18.0
|
|
|
7.4%
|
|
Unamortized issuance cost
|
|
(.4)
|
|
|
|
|
(.5)
|
|
|
|
|
Other Operations, carrying value
|
|
19.1
|
|
|
|
|
17.5
|
|
|
|
|
Total debt
|
|
$
|
710.4
|
|
|
|
|
$
|
376.4
|
|
|
|
|
(1) Effective rate includes the effect of the amortization of debt issuance costs.
(2) NSM’s effective rate excludes the effect of the interest rate swap on the hedged portion of the debt. The weighted average interest rate for the quarter ended September 30, 2021 and December 31, 2020, excluding the effect of amortization of debt issuance costs, was 6.7% and 7.0%. The weighted average interest rate for the quarter ended September 30, 2021 and December 31, 2020 on the total NSM Bank Facility including both the effect of the amortization of debt issuance costs and the effect of the interest rate swap was 8.3% and 8.4%.
Ark Subordinated Notes
In March 2007, GAIL, a wholly-owned subsidiary of Ark, issued $30.0 million face value of floating rate unsecured junior subordinated deferrable interest notes to Alesco Preferred Funding XII Ltd., Alesco Preferred Funding XIII Ltd. and Alesco Preferred Funding XIV Ltd (the “Ark 2007 Notes Tranche 1”) and a €12.0 million floating rate subordinated note to Dekania Europe CDO II plc (the “Ark 2007 Notes Tranche 2”) (together, the “Ark 2007 Subordinated Notes”). The Ark 2007 Notes Tranche 1, which mature in June 2037, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 4.6%. The Ark 2007 Notes Tranche 2, which matures in June 2027, accrues interest at a floating rate equal to the three-month EURIBOR plus 4.6%. As of September 30, 2021, the Ark 2007 Notes Tranche 1 had an outstanding balance of $30.0 million and the Ark 2007 Notes Tranche 2 had an outstanding balance of €12.0 million ($13.9 million based upon the foreign exchange spot rate as of September 30, 2021).
In the third quarter of 2021, GAIL issued $163.3 million face value floating rate subordinated notes at par in three separate transactions for proceeds of $157.8 million, net of debt issuance costs. The Ark 2021 Subordinated Notes were issued in private placement offerings that were exempt from the registration requirements of the Securities Act of 1933. On July 13, 2021, Ark issued €39.1 million ($46.3 million based upon the foreign exchange spot rate as of the date of the transaction) face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 1”). The Ark 2021 Notes Tranche 1, which mature in July 2041, accrue interest at a floating rate equal to the three-month EURIBOR plus 5.75%. On August 11, 2021, Ark issued $47.0 million face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 2”). The Ark 2021 Notes Tranche 2, which mature in August 2041, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 5.75%. On September 8, 2021, Ark issued $70.0 million face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 3”). The Ark 2021 Notes Tranche 3, which mature in September 2041, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 6.1%. On the ten-year anniversary of the issue dates, the interest rate for the Ark 2021 Subordinated Notes will increase by 1.0% per annum. Ark has the option to redeem, in whole or in part, the Ark 2021 Subordinated Notes ahead of contractual maturity at the outstanding principal amounts plus accrued interest at the ten-year anniversary or any subsequent interest payment date.
All payments of principal and interest under the Ark 2021 Subordinated Notes are conditional upon GAIL’s solvency and compliance with the enhanced capital requirements of the Bermuda Monetary Authority (“BMA”). The deferral of payments of principal and interest under these conditions does not constitute a default by Ark and does not give the noteholders any rights to accelerate repayment of the Ark 2021 Subordinated Notes or take any enforcement action under the Ark 2021 Subordinated Notes.
If the payments of principal and interest under the Ark 2021 Subordinated Notes become subject to tax withholding on behalf of Bermuda or any political subdivision there, the Ark 2021 Subordinated Notes require the payment of additional amounts such that the amount received by the noteholders is the same as would have been received absent the tax withholding being imposed. The Ark 2021 Notes Tranche 3 require the payment of additional interest of 1.0% per annum upon the occurrence of a Premium Load Event until such event is remedied. Premium Load Events include the failure to meet payment obligations of the Ark 2021 Notes Tranche 3 when due, failure of GAIL to maintain an investment grade credit rating, failure to maintain 120% of GAIL’s Bermuda solvency capital requirement, failure of GAIL to maintain a debt to capital ratio below 40%, late filing of GAIL’s or Ark’s financial information, and making a restricted payment or distribution on GAIL’s common stock or other securities that rank junior or pari passu with the Ark 2021 Notes Tranche 3 when a different Premium Load Event exists or will be caused by the restricted payment.
As of September 30, 2021, the Ark 2021 Notes Tranche 1 had an outstanding balance of €39.1 million ($45.3 million based upon the foreign exchange spot rate as of September 30, 2021), the Ark 2021 Notes Tranche 2 had an outstanding balance of $47.0 million, and the Ark 2021 Notes Tranche 3 had an outstanding balance of $70.0 million.
Ark Stand By Letter of Credit Facility
Ark has a secured stand by letter of credit facility (the “Ark LOC Facility”) with three lenders, Lloyds Bank plc, National Westminster Bank plc and ING Bank N.V, London Branch to provide capital support for the Syndicates. As of September 30, 2021, the utilized level of the facility was $45.0 million, with the ability to increase up to $150.0 million, subject to formal approval by Lloyd’s. The Ark LOC Facility has a termination date of December 31, 2025. During the three and nine months ended September 30, 2021, Ark did not borrow or make any repayments under the Ark LOC Facility.
The Ark LOC Facility, which provides funds at Lloyd’s, is secured by all property of the loan parties and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a minimum tangible net worth covenant.
NSM Bank Facility
NSM maintains a secured credit facility (the “NSM Bank Facility”) with Ares Capital Corporation. In both 2021 and 2020, NSM amended the terms of the facility. On April 7, 2020, NSM amended the NSM Bank Facility to increase the total commitment from $234.0 million, comprised of term loans of $224.0 million and a revolving credit loan commitment of $10.0 million, to $291.4 million, comprised of term loans of $276.4 million, including £42.5 million ($52.4 million based upon the foreign exchange spot rate as of the date of the transaction) in a GBP term loan, and a revolving credit loan commitment of $15.0 million. In connection with the April 7, 2020 amendment, the reference rates for USD denominated borrowings increased. The USD-LIBOR rate floor increased to 1.25% and the margin over USD-LIBOR increased from a range of 4.25% to 4.75% to a range of 5.50% to 6.00%.
On June 2, 2021, NSM amended the NSM Bank Facility to reduce the margin over the reference interest rate for USD LIBOR loans from a range of 5.5% to 6.00% to a range of 4.50% to 5.00%, and reduce the margin over the reference rate for GBP loans from a range of 6.0% to 6.50% to a range of 5.00% to 5.50%. The amendment also increased the revolving credit loan commitment to $40.0 million and added a $50.0 million delayed-draw term loan commitment. The amendment also changed the reference interest rate for the GBP loan from GBP-LIBOR to SONIA. The maturity dates of the term loans and the revolving credit loans were not changed as part of the amendment. The term loans under the NSM Bank Facility mature on May 11, 2026, and the revolving loan matures on November 11, 2025. The reference interest rates under the NSM Bank Facility are generally subject to a 1.25% rate floor.
Under GAAP, if the terms of a debt instrument are amended, unless there is greater than 10% change in the expected discounted future cash flows of such instrument, the instrument’s carrying value does not change. White Mountains has determined that the impact of the 2021 and 2020 amendments to the NSM Bank Facility was less than 10% on the expected discounted future cash flows.
The following table presents the change in debt under the NSM Bank Facility for the three and nine months ended September 30, 2021 and 2020:
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NSM Bank Facility
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Three Months Ended September 30,
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Nine Months Ended September 30,
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Millions
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2021
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2020
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2021
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2020
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Beginning balance
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$
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276.6
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$
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273.4
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$
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277.4
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$
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221.3
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|
Term loans
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Borrowings (1)
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—
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—
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—
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52.4
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Repayments
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(.7)
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(.7)
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(2.1)
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(1.3)
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Foreign currency translation
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(1.5)
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2.3
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(.9)
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2.6
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Revolving credit loan
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Borrowings (2)
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35.0
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—
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35.0
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—
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Repayments
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(9.0)
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—
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(9.0)
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—
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Ending balance
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300.4
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275.0
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$
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300.4
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$
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275.0
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(1) Borrowings for the nine months ended September 30, 2020 included $52.4 for the funding of the acquisition of Kingsbridge.
(2) Borrowings for both the three and nine months ended September 30, 2021 included $35.0 for the funding of the acquisition of J.C. Taylor.
As of September 30, 2021, the term loans had an outstanding balance of $274.4 million, including £41.9 million ($56.6 million based upon the foreign exchange spot rate as of September 30, 2021) in a GBP term loan, and the revolving credit loan had an outstanding balance of $26.0 million.
On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on $151.0 million of its USD denominated variable rate term loans. See Note 9 — “Derivatives”.
As of September 30, 2021, $146.5 million of the outstanding term loans were hedged by the swap and $128.0 million of the outstanding term loans were unhedged.
The following table presents the NSM weighted average interest rate for the nine months ended September 30, 2021 and 2020:
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NSM Weighted Average Interest Rate
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Nine Months Ended September 30,
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2021
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2020
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Millions
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Weighted Average
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Interest Expense (1)
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Weighted Average Interest rate
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Weighted Average
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Interest Expense (1)
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Weighted Average Interest rate
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Term loan - hedged
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$
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147.1
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$
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10.0
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9.1
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%
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$
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148.5
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$
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10.0
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9.0
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%
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Term loan - unhedged
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129.5
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7.3
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7.5
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%
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125.1
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6.1
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6.5
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%
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Total NSM Facility
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$
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276.6
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$
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17.3
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8.3
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%
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$
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273.6
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$
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16.1
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7.8
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%
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(1) Interest expense includes the amortization of debt issuance costs and the effect of the interest rate swap and excludes interest expense related to the Other NSM Debt.
The NSM Bank Facility is secured by all property of the loan parties and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a maximum consolidated total leverage ratio covenant.
Other NSM Debt
NSM also has a secured term loan related to its U.K. vertical. As of September 30, 2021, the secured term loan had an outstanding balance of $1.4 million and a maturity date of December 31, 2022.
Kudu Credit Facility and Kudu Bank Facility
On December 23, 2019, Kudu entered into a secured credit facility with Monroe Capital Management Advisors, LLC (the “Kudu Bank Facility”). On March 23, 2021, Kudu replaced the Kudu Bank Facility and entered into a secured revolving credit facility (the “Kudu Credit Facility”) with Massachusetts Mutual Life Insurance Company to repay the Kudu Bank Facility, and to fund new investments and related transaction expenses. The maximum borrowing capacity of the Kudu Credit Facility is $300.0 million. The Kudu Credit Facility matures on March 23, 2036. In connection with the replacement of the Kudu Bank Facility, Kudu recognized a total loss of $4.1 million, representing debt issuance costs and prepayment fees, which are included within interest expense for the year to date period ended September 30, 2021.
Interest on the Kudu Credit Facility accrues at a floating interest rate equal to the greater of the three-month USD-LIBOR and 0.25%, plus in each case, the applicable spread of 4.30%. The Kudu Credit Facility requires Kudu to maintain an interest reserve account, which is included in restricted cash. As of September 30, 2021, the interest reserve account is $4.5 million. The Kudu Credit Facility requires Kudu to maintain a ratio of outstanding balance to the sum of fair market value of participation contracts and cash held in certain accounts (the “LTV Percentage”) of less than 50% in years 0-3, 40% in years 4-6, 25% in years 7-8, 15% in years 9-10, and 0% thereafter. As of September 30, 2021, Kudu has a 34% LTV Percentage.
Kudu may borrow undrawn balances within the initial three-year availability period, subject to customary terms and conditions, to the extent the amount borrowed under the Kudu Credit Facility does not exceed the borrowing base, which is equal to 35% of the fair value of Kudu’s qualifying participation contracts. When considering White Mountains’s remaining equity commitment to Kudu and the fair value of Kudu’s qualifying participation contracts as of September 30, 2021, the available undrawn balance was $11.7 million.
During the nine months ended September 30, 2021, Kudu borrowed $3.0 million and repaid the outstanding Kudu Bank Facility balance of $92.2 million. During the three and nine months ended September 30, 2021, Kudu borrowed $101.0 million and $203.0 million and made no repayments on the Kudu Credit Facility. As of September 30, 2021, the Kudu Credit Facility had an undrawn balance of $97.0 million.
The Kudu Credit Facility is secured by all property of the loan parties and contains various affirmative and negative covenants that White Mountains considers to be customary for such borrowings.
Other Operations Debt
As of September 30, 2021, debt in White Mountains’s Other Operations segment consisted of three secured credit facilities (collectively, “Other Operations debt”).
The first credit facility has a maximum borrowing capacity of $16.3 million, which is comprised of a term loan of $11.3 million, a delayed-draw term loan of $3.0 million and a revolving credit loan commitment of $2.0 million, all with a maturity date of March 12, 2024. The second credit facility has a maximum borrowing capacity of $15.0 million, which is comprised of a term loan of $9.0 million, a delayed-draw term loan of $4.0 million and a revolving credit loan commitment of $2.0 million, all with a maturity date of July 2, 2025. The third credit facility has a maximum borrowing capacity of $4.0 million, which is comprised of a revolving credit loan commitment, with a maturity date of October 26, 2021.
During the three and nine months ended September 30, 2021, White Mountains’s Other Operations segment borrowed $0.4 million and $0.7 million. During the three and nine months ended September 30, 2021, White Mountains’s Other Operations segment made repayments of $1.2 million and $2.6 million. As of September 30, 2021, the Other Operations debt had an outstanding balance of $19.5 million.
Compliance
At September 30, 2021, White Mountains was in compliance in all material respects with the covenants under all of its debt instruments.
Note 8. Income Taxes
The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. In the event there is a change in the current law and taxes are imposed, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 31, 2035, pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966. The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate. The jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Ireland, Israel, Luxembourg, the United Kingdom and the United States.
White Mountains’s income tax expense related to pre-tax loss from continuing operations for the three and nine months ended September 30, 2021 represented an effective tax rate of (6.0)% and (12.4)%. The effective tax rate was different from the U.S. statutory rate of 21.0%, due to losses in jurisdictions with lower tax rates than the United States, a full valuation allowance on net deferred tax assets in certain U.S. operations, consisting of the WM Adams, Inc. consolidated tax group within the Other Operations segment and BAM, and state income taxes. For the nine months ended September 30, 2021, the effective rate was also different from the U.S. statutory rate of 21.0% due to additional tax expense related to the revaluation of U.K. deferred tax assets and liabilities. On June 10, 2021, the U.K. enacted an increase in its corporate tax rate from 19.0% to 25.0% for periods after April 1, 2023. On June 30, 2021, White Mountains increased its net U.K. deferred tax liability to reflect the higher tax rate on temporary differences projected to reverse after the new rate becomes effective.
White Mountains’s income tax expense related to pre-tax income from continuing operations for the three and nine months ended September 30, 2020 represented an effective tax rate of 30.7% and 33.7%. The effective tax rate was different from the U.S. statutory rate of 21.0% due to tax expense associated with the reorganization of the Guilford Holdings, Inc. consolidated U.S. tax group in preparation for the MediaAlpha IPO and state income taxes, partially offset by income generated in jurisdictions with lower tax rates than the United States. The additional tax expense associated with the reorganization of the Guilford Holdings, Inc. consolidated U.S. tax group within the Other Operations segment consisted of withholding taxes and the establishment of a partial valuation allowance on deferred tax assets of various service companies, other entities and investments.
In arriving at the effective tax rate for the three and nine months ended September 30, 2021 and 2020, White Mountains forecasted all income and expense items including the change in unrealized investment gains (losses) and realized investment gains (losses) for the years ending December 31, 2021 and 2020.
White Mountains records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. In determining whether or not a valuation allowance, or change therein, is warranted, White Mountains considers factors such as prior earnings history, expected future earnings, carryback and carryforward periods and strategies that if executed would result in the realization of a deferred tax asset.
With few exceptions, White Mountains is no longer subject to U.S. federal, state, or non-U.S. income tax examinations by tax authorities for years before 2015.
Note 9. Derivatives
NSM Interest Rate Swap
On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on $151.0 million of its USD denominated variable rate term loans under the NSM Bank Facility. Under the terms of the swap agreement, NSM pays a fixed-rate of 2.97% and receives a variable rate, which is reset monthly, based on the then-current USD-LIBOR. As of September 30, 2021, the variable rate received by NSM under the swap agreement was 1.00%. Over the term of the swap, the notional amount decreases in accordance with the principal repayments NSM expects to make on its term loans. The interest rate swap is scheduled to mature on June 30, 2024.
As of September 30, 2021, $146.5 million of the outstanding term loans were hedged by the swap. For the three and nine months ended September 30, 2021, the weighted average effective interest rate on the outstanding term loans that were hedged, including the effect of the amortization of debt issuance costs and the effect of the interest rate swap, was 9.1%.
NSM’s obligations under the swap are secured by the same collateral securing the NSM Bank Facility on a pari passu basis. NSM does not currently hold any collateral deposits from or provide any collateral deposits to the swap counterparty.
NSM evaluated the effectiveness of the swap to hedge its interest rate risk associated with its variable rate debt and concluded at the swap inception date that the swap was highly effective in hedging that risk. NSM evaluates the effectiveness of the hedging relationship on an ongoing basis.
For the three and nine months ended September 30, 2021, White Mountains recognized net interest expense of $0.6 million and $1.9 million for the periodic net settlement payments on the swap. For the three and nine months ended September 30, 2020, White Mountains recognized net interest expense of $0.6 million and $1.9 million for the periodic net settlement payments on the swap. As of September 30, 2021 and December 31, 2020, the estimated fair value of the swap and the accrual of the periodic net settlement payments recorded in other liabilities was $6.0 million and $8.2 million. There was no ineffectiveness in the hedge for the three and nine months ended September 30, 2021 and 2020. For the three and nine months ended September 30, 2021, the $(0.6) million and $(2.2) million change in the fair value of the swap is included within White Mountains’s accumulated other comprehensive income (loss). For the three and nine months ended September 30, 2020, the $0.5 million and $(2.3) million change in the fair value of the swap is included within White Mountains’s accumulated other comprehensive income (loss).
NSM Interest Rate Cap
On June 4, 2020, NSM entered into an interest rate cap agreement to limit its exposure to the risk of interest rate increases on the GBP denominated term loan under the NSM Bank Facility. The notional amount of the interest rate cap is £42.5 million ($52.4 million based upon the foreign exchange spot rate as of the date of the transaction) and the termination date is June 4, 2022. On August 18, 2020, NSM entered into a separate interest rate cap agreement to extend the term of the original interest rate cap agreement by one year. The second interest rate cap agreement has an effective date of June 15, 2022 and a termination date of June 15, 2023.
NSM paid total initial premiums of $0.1 million for the interest rate caps. Under the terms of the interest rate cap agreements, if the GBP-LIBOR rate at the measurement date exceeds 1.25%, NSM will receive payments from the counterparty equal to the GBP-LIBOR rate, less the 1.25% cap rate. As of September 30, 2021, the GBP-LIBOR rate was 0.08%.
NSM accounts for the interest rate caps as derivatives at fair value, with changes in fair value recognized in current period earnings within interest expense. For the three and nine months ended September 30, 2021, White Mountains recognized a negligible amount related to the change in fair value on the interest rate caps within interest expense. For the three and nine months ended September 30, 2020, White Mountains recognized a change in fair value of $(0.1) million on the interest rate caps within interest expense. As of September 30, 2021 and December 31, 2020, the estimated fair value of the caps recorded in other assets was less than $0.1 million.
Note 10. Municipal Bond Guarantee Insurance
HG Global was established to fund the startup of BAM, a mutual municipal bond insurer. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of BAM Surplus Notes.
Reinsurance Treaties
FLRT
BAM is a party to a first loss reinsurance treaty (“FLRT”) with HG Re under which HG Re provides first loss protection up to 15%-of-par outstanding on each municipal bond insured by BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds. In return, BAM cedes up to 60% of the risk premium charged for insuring the municipal bond, which is net of a ceding commission. The FLRT is a perpetual agreement, with an initial term through the end of 2022.
Fidus Re
BAM is party to two collateralized financial guarantee excess of loss reinsurance agreements that serve to increase BAM’s claims paying resources and are provided by Fidus Re, a Bermuda based special purpose insurer created in 2018 solely to provide reinsurance protection to BAM.
In the second quarter of 2018, Fidus Re was initially capitalized by the issuance of $100.0 million of insurance linked securities (the “Fidus Re 2018 Agreement”). The proceeds from issuance were placed in a collateral trust supporting Fidus Re’s obligations to BAM. The insurance linked securities were issued by Fidus Re with an initial term of 12 years and are callable five years after the date of issuance. Under the Fidus Re 2018 Agreement, Fidus Re reinsures 90% of aggregate losses exceeding $165.0 million on a portion of BAM’s financial guarantee portfolio (the “2018 Covered Portfolio”) up to a total reimbursement of $100.0 million. The Fidus Re 2018 Agreement does not provide coverage for losses in excess of $276.1 million. The 2018 Covered Portfolio consists of approximately 36% of BAM’s portfolio of financial guaranty policies issued through September 30, 2021.
In the first quarter of 2021, Fidus Re issued an additional $150.0 million of insurance linked securities (the “Fidus Re 2021 Agreement”) with an initial term of 12 years and are callable five years after the date of issuance. Under the Fidus Re 2021 Agreement, Fidus Re reinsures 90% of aggregate losses exceeding $135.0 million on a portion of BAM’s financial guarantee portfolio (the “2021 Covered Portfolio”) up to a total reimbursement of $150.0 million. The Fidus Re 2021 Agreement does not provide coverage for losses in excess of $301.7 million. The 2021 Covered Portfolio consists of approximately 40% of BAM’s portfolio of financial guaranty policies issued through September 30, 2021.
The Fidus Re Agreements are accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses as they do not meet the risk transfer requirements necessary to be accounted for as reinsurance.
XOLT
In January 2020, BAM entered into an excess of loss reinsurance agreement (the “XOLT”) with HG Re. Under the XOLT, HG Re provides last dollar protection for exposures on municipal bonds insured by BAM in excess of NYDFS single issuer limits. The XOLT is subject to an aggregate limit equal to the lesser of $75.0 million or the assets held in the Supplemental Trust at any point in time. The agreement is accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses as the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance.
Collateral Trusts
HG Re’s obligations under the FLRT are limited to the assets in two collateral trusts: a Regulation 114 Trust and a supplemental collateral trust (the “Supplemental Trust” and together with the Regulation 114 Trust, the “Collateral Trusts”). Losses required to be reimbursed under the FLRT are subject to an aggregate limit equal to the assets held in the Collateral Trusts at any point in time.
On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT directly into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to gross ceded unearned premiums and unpaid ceded loss and LAE expenses, if any. If, at the end of any quarter, the Regulation 114 Trust balance is below the target balance, funds will be withdrawn from the Supplemental Trust and deposited into the Regulation 114 Trust in an amount equal to the shortfall. If, at the end of any quarter, the Regulation 114 Trust balance is above 102% of the target balance, funds will be withdrawn from the Regulation 114 Trust and deposited into the Supplemental Trust. The Regulation 114 Trust balance as of September 30, 2021 and December 31, 2020 was $241.0 million and $222.8 million.
The Supplemental Trust target balance is $603.0 million, less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance (the “Supplemental Trust Target Balance”). If, at the end of any quarter, the Supplemental Trust balance exceeds the Supplemental Trust Target Balance, such excess may be distributed to HG Re. The distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities.
As the BAM Surplus Notes are repaid over time, the BAM Surplus Notes will be replaced in the Supplemental Trust by cash and fixed income securities. The Supplemental Trust balance as of September 30, 2021 and December 31, 2020 was $603.8 million and $604.3 million.
As of September 30, 2021 and December 31, 2020, the Collateral Trusts held assets of $844.8 million and $827.1 million, which included $449.7 million and $434.5 million of cash and investments, $388.2 million and $388.2 million of BAM Surplus Notes and $6.9 million and $4.4 million of interest receivable on the BAM Surplus Notes.
BAM Surplus Notes
Through 2024, the interest rate on the BAM Surplus Notes is a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually. During 2021, the interest rate on the BAM Surplus Notes is 3.1%. Beginning in 2025, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. BAM is required to seek regulatory approval to pay interest and principal on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its “AA/stable” rating from Standard & Poor’s. No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS.
In December 2020, BAM made a $30.1 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $21.5 million was a repayment of principal held in the Supplemental Trust, $0.2 million was a payment of accrued interest held inside the Supplemental Trust and $8.4 million was a payment of accrued interest held outside the Supplemental Trust.
In January 2020, BAM made a one-time $65.0 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $47.9 million was a repayment of principal held in the Supplemental Trust, $0.9 million was a payment of accrued interest held inside the Supplemental Trust and $16.2 million was a payment of accrued interest held outside the Supplemental Trust.
During the three and nine months ended September 30, 2021, BAM made no repayments of the BAM Surplus Notes or accrued interest.
As of September 30, 2021 and December 31, 2020, the principal balance on the BAM Surplus Notes was $388.2 million and $388.2 million and total interest receivable on the BAM Surplus Notes was $164.8 million and $155.7 million.
Insured Obligations and Premiums
The following table presents a schedule of BAM’s insured obligations as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Contracts outstanding
|
|
11,877
|
|
|
10,997
|
|
Remaining weighted average contract period outstanding (in years)
|
|
10.7
|
|
10.7
|
Contractual debt service outstanding (in millions):
|
|
|
|
|
Principal
|
|
$
|
83,829.0
|
|
|
$
|
75,287.7
|
|
Interest
|
|
39,528.4
|
|
|
36,448.8
|
|
Total debt service outstanding
|
|
$
|
123,357.4
|
|
|
$
|
111,736.5
|
|
|
|
|
|
|
Gross unearned insurance premiums (in millions)
|
|
$
|
257.0
|
|
|
$
|
237.5
|
|
The following table presents a schedule of BAM’s future premium revenues as of September 30, 2021:
|
|
|
|
|
|
|
|
|
Millions
|
|
September 30, 2021
|
October 1, 2021 - December 31, 2021
|
|
$
|
6.2
|
|
|
|
|
January 1, 2022 - March 31, 2022
|
|
6.1
|
|
April 1, 2022 - June 30, 2022
|
|
6.1
|
|
July 1, 2022 - September 30, 2022
|
|
6.0
|
|
October 1, 2022 - December 31, 2022
|
|
5.9
|
|
Total 2022
|
|
24.1
|
|
|
|
|
2023
|
|
22.8
|
|
2024
|
|
21.1
|
|
2025
|
|
19.6
|
|
2026
|
|
18.1
|
|
2027 and thereafter
|
|
145.1
|
|
Total gross unearned insurance premiums
|
|
$
|
257.0
|
|
The following table presents a schedule of written premiums and earned premiums included in White Mountains’s HG Global/BAM segment for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
Millions
|
|
2021
|
|
2020
|
|
|
|
|
|
2021
|
|
2020
|
Written premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
12.8
|
|
|
$
|
14.4
|
|
|
|
|
|
|
$
|
34.5
|
|
|
$
|
45.5
|
|
Assumed
|
|
—
|
|
|
—
|
|
|
|
|
|
|
4.5
|
|
|
.1
|
|
Gross written premiums (1)
|
|
$
|
12.8
|
|
|
$
|
14.4
|
|
|
|
|
|
|
$
|
39.0
|
|
|
$
|
45.6
|
|
Earned premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
5.9
|
|
|
$
|
5.3
|
|
|
|
|
|
|
$
|
16.8
|
|
|
$
|
14.5
|
|
Assumed
|
|
.8
|
|
|
.9
|
|
|
|
|
|
|
2.8
|
|
|
2.7
|
|
Gross earned premiums (1)
|
|
$
|
6.7
|
|
|
$
|
6.2
|
|
|
|
|
|
|
$
|
19.6
|
|
|
$
|
17.2
|
|
(1) There are no ceded premium amounts in the periods presented. Gross written premiums and Gross earned premium are equivalent to net written premiums and net earned premiums.
In the second quarter of 2020, BAM assumed a municipal bond guarantee contract with a par value of $36.9 million through an endorsement to the facultative quota share reinsurance agreement.
In January 2021, BAM entered into a 100% facultative quota share reinsurance agreement under which it assumed a portfolio of municipal bond guarantee contracts with a par value of $0.8 billion.
None of the contracts assumed were non-performing and no loss reserves have been established for any of the contracts, either as of the transaction dates or as of September 30, 2021. The agreements, which cover future claims exposure only, meet the risk transfer criteria under ASC 944-20, Insurance Activities and accordingly have been accounted for as reinsurance.
Note 11. Earnings Per Share
White Mountains calculates earnings per share using the two-class method, which allocates earnings between common shares and unvested restricted common shares. Both classes of shares participate equally in dividends and earnings on a per share basis. Basic earnings per share amounts are based on the weighted average number of common shares outstanding adjusted for unvested restricted common shares.
The following table presents the Company’s computation of earnings per share from continuing operations for the three and nine months ended September 30, 2021 and 2020. See Note 19 — “Held for Sale and Discontinued Operations”.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Basic and diluted earnings per share numerators (in millions):
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to White Mountains’s
common shareholders
|
|
$
|
(371.4)
|
|
|
$
|
232.9
|
|
|
$
|
(308.2)
|
|
|
$
|
219.5
|
|
Less: total income (loss) from discontinued operations, net of tax
|
|
—
|
|
|
(.7)
|
|
|
18.7
|
|
|
(.8)
|
|
Net (loss) income from continuing operations attributable to
White Mountains’s common shareholders
|
|
$
|
(371.4)
|
|
|
$
|
233.6
|
|
|
$
|
(326.9)
|
|
|
$
|
220.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of losses (earnings) to participating restricted common shares (1)
|
|
4.5
|
|
|
(3.2)
|
|
|
3.8
|
|
|
(2.9)
|
|
Basic and diluted (losses) earnings per share numerators
|
|
$
|
(366.9)
|
|
|
$
|
230.4
|
|
|
$
|
(323.1)
|
|
|
$
|
217.4
|
|
Basic earnings per share denominators (in thousands):
|
|
|
|
|
|
|
|
|
Total average common shares outstanding during the period
|
|
3,090.3
|
|
|
3,101.8
|
|
|
3,099.4
|
|
|
3,129.0
|
|
Average unvested restricted common shares(2)
|
|
(37.8)
|
|
|
(43.1)
|
|
|
(36.0)
|
|
|
(40.0)
|
|
Basic earnings (losses) per share denominator
|
|
3,052.5
|
|
|
3,058.7
|
|
|
3,063.4
|
|
|
3,089.0
|
|
Diluted earnings per share denominator (in thousands):
|
|
|
|
|
|
|
|
|
Total average common shares outstanding during the period
|
|
3,090.3
|
|
|
3,101.8
|
|
|
3,099.4
|
|
|
3,129.0
|
|
Average unvested restricted common shares (2)
|
|
(37.8)
|
|
|
(43.1)
|
|
|
(36.0)
|
|
|
(40.0)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (losses) per share denominator
|
|
3,052.5
|
|
|
3,058.7
|
|
|
3,063.4
|
|
|
3,089.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share (in dollars) - continuing operations:
|
|
|
|
|
|
|
|
|
Distributed earnings - dividends declared and paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
Undistributed (losses) earnings
|
|
(120.18)
|
|
|
75.32
|
|
|
(106.48)
|
|
|
69.40
|
|
Basic and diluted (losses) earnings per share
|
|
$
|
(120.18)
|
|
|
$
|
75.32
|
|
|
$
|
(105.48)
|
|
|
$
|
70.40
|
|
(1) Restricted shares issued by White Mountains receive dividends, and therefore, are considered participating securities.
(2) Restricted shares outstanding vest upon a stated date. See Note 12 — “Employee Share-Based Incentive Compensation Plans”.
The following table presents the undistributed net earnings (losses) from continuing operations for the three and nine months ended September 30, 2021 and 2020. See Note 19 — “Held for Sale and Discontinued Operations”.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
Millions
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Undistributed net earnings (losses) - continuing operations:
|
|
|
|
|
|
|
|
|
Net (losses) earnings attributable to White Mountains’s common shareholders, net of restricted common share amounts
|
|
$
|
(366.9)
|
|
|
$
|
230.4
|
|
|
$
|
(323.1)
|
|
|
$
|
217.4
|
|
Dividends declared, net of restricted common share amounts (1)
|
|
—
|
|
|
—
|
|
|
(3.1)
|
|
|
(3.1)
|
|
Total undistributed net (losses) earnings, net of restricted common share amounts
|
|
$
|
(366.9)
|
|
|
$
|
230.4
|
|
|
$
|
(326.2)
|
|
|
$
|
214.3
|
|
(1) Restricted shares issued by White Mountains receive dividends, and are therefore considered participating securities.
Note 12. 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 of White Mountains. As of September 30, 2021, White Mountains’s share-based compensation incentive awards consist of performance shares and restricted shares.
Performance Shares
Performance shares are designed to reward employees for meeting company-wide performance targets. 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 service 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. Performance shares earned under the WTM Incentive Plan are typically paid in cash but may be paid in common shares. Compensation expense is recognized for the vested portion of the awards over the related service periods. The level of payout ranges from zero to two times the number of shares initially granted, depending on White Mountains’s financial performance. Performance shares become payable at the conclusion of a performance cycle (typically 3 years) if pre-defined financial targets are met. The performance measures used for determining performance share payouts are growth in White Mountains’s adjusted book value per share and intrinsic value per share. Intrinsic value per share is generally calculated by adjusting adjusted book value per share for differences between the adjusted book value of certain assets and liabilities and White Mountains’s estimate of their underlying intrinsic values.
The following table presents the performance share activity for the three and nine months ended September 30, 2021 and 2020 for performance shares granted under the WTM Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
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
|
|
41,252
|
|
|
$
|
45.7
|
|
|
42,458
|
|
|
$
|
15.8
|
|
|
42,458
|
|
|
$
|
56.3
|
|
|
42,473
|
|
|
$
|
43.7
|
|
Shares paid (1)
|
|
(219)
|
|
|
(.6)
|
|
|
—
|
|
|
—
|
|
|
(14,336)
|
|
|
(35.2)
|
|
|
(14,070)
|
|
|
(27.7)
|
|
New grants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,475
|
|
|
—
|
|
|
14,055
|
|
|
—
|
|
Forfeitures and
cancellations (2)
|
|
(205)
|
|
|
.2
|
|
|
—
|
|
|
(.3)
|
|
|
(769)
|
|
|
.4
|
|
|
—
|
|
|
.1
|
|
Expense recognized
|
|
—
|
|
|
(6.5)
|
|
|
—
|
|
|
13.6
|
|
|
—
|
|
|
17.3
|
|
|
—
|
|
|
13.0
|
|
End of period
|
|
40,828
|
|
|
$
|
38.8
|
|
|
42,458
|
|
|
$
|
29.1
|
|
|
40,828
|
|
|
$
|
38.8
|
|
|
42,458
|
|
|
$
|
29.1
|
|
(1) WTM performance share payments in 2021 for the 2018-2020 performance cycle, which were paid in cash in March 2021 at 200% of target. WTM performance share payments in 2020 for the 2017-2019 performance cycle, which were paid in cash in March 2020, ranged from 174% to 180% of target.
(2) Amounts include changes in assumed forfeitures, as required under GAAP.
During the nine months ended September 30, 2021, White Mountains granted 13,475 performance shares for the 2021-2023 performance cycle. During the nine months ended September 30, 2020, White Mountains granted 14,055 performance shares for the 2020-2022 performance cycle.
All performance shares earned were settled in cash. If all the outstanding WTM performance shares had vested on September 30, 2021, the total additional compensation cost to be recognized would have been $17.2 million, based on accrual factors (common share price and payout assumptions) as of September 30, 2021.
The following table presents performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan as of September 30, 2021 for each performance cycle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
Millions, except share amounts
|
|
Target Performance
Shares Outstanding
|
|
Accrued
Expense
|
Performance cycle:
|
|
|
|
|
2019 – 2021
|
|
14,625
|
|
|
$
|
24.4
|
|
2020 – 2022
|
|
13,350
|
|
|
13.4
|
|
2021 – 2023
|
|
13,475
|
|
|
1.6
|
|
|
|
|
|
|
Sub-total
|
|
41,450
|
|
|
39.4
|
|
Assumed forfeitures
|
|
(622)
|
|
|
(.6)
|
|
September 30, 2021
|
|
40,828
|
|
|
$
|
38.8
|
|
Restricted Shares
Restricted shares are grants of a specified number of common shares that generally vest at the end of a 34-month service period. The following table presents the unrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
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
|
|
38,280
|
|
|
$
|
23.2
|
|
|
43,105
|
|
|
$
|
23.0
|
|
|
43,105
|
|
|
$
|
15.2
|
|
|
43,395
|
|
|
$
|
16.7
|
|
Issued
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,475
|
|
|
16.1
|
|
|
14,055
|
|
|
15.1
|
|
Vested
|
|
(219)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,936)
|
|
|
—
|
|
|
(14,345)
|
|
|
—
|
|
Forfeited
|
|
(211)
|
|
|
(.2)
|
|
|
—
|
|
|
—
|
|
|
(794)
|
|
|
(.8)
|
|
|
—
|
|
|
—
|
|
Expense recognized
|
|
—
|
|
|
(3.6)
|
|
|
—
|
|
|
(3.6)
|
|
|
—
|
|
|
(11.1)
|
|
|
—
|
|
|
(12.4)
|
|
End of period
|
|
37,850
|
|
|
$
|
19.4
|
|
|
43,105
|
|
|
$
|
19.4
|
|
|
37,850
|
|
|
$
|
19.4
|
|
|
43,105
|
|
|
$
|
19.4
|
|
During the nine months ended September 30, 2021, White Mountains issued 13,475 restricted shares that vest on January 1, 2024. During the nine months ended September 30, 2020, White Mountains issued 14,055 restricted shares that vest on January 1, 2023. The unamortized issue date fair value as of September 30, 2021 is expected to be recognized ratably over the remaining vesting periods.
Note 13. Leases
White Mountains has entered into lease agreements, primarily for office space. These leases are classified as operating leases, with lease expense recognized on a straight-line basis over the term of the lease. Lease incentives, such as free rent or landlord reimbursements for leasehold improvements, are recognized at lease inception and amortized on a straight-line basis over the term of the lease. Lease expense and the amortization of leasehold improvements are recognized within general and administrative expenses. Lease payments related to options to extend or renew the lease term are excluded from the calculation of lease liabilities unless White Mountains is reasonably certain of exercising those options.
As of September 30, 2021 and December 31, 2020, the right of use (“ROU”) asset was $42.9 million and $37.6 million and lease liabilities were $45.9 million and $38.3 million.
The following table summarizes net lease expense recognized in White Mountains’s consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020:
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Millions
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Three Months Ended September 30,
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Nine Months Ended September 30,
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Lease Cost
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2021
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2020
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2021
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2020
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Lease cost
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$
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2.7
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$
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1.6
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$
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7.2
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$
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5.7
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Less: sublease income
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.1
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.1
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.3
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.3
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Net lease cost
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$
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2.6
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$
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1.5
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$
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6.9
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$
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5.4
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The following table presents the contractual maturities of the lease liabilities associated with White Mountains’s operating lease agreements as of September 30, 2021:
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Millions
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As of September 30, 2021
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Remainder of 2021
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$
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2.0
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2022
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10.8
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2023
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9.8
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2024
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8.5
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2025
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6.7
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Thereafter
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16.4
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Total undiscounted lease payments
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54.2
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Less: present value adjustment
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8.3
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Operating lease liability
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$
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45.9
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The following tables present lease related assets and liabilities by reportable segment as of September 30, 2021 and December 31, 2020:
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As of September 30, 2021
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Millions
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HG/BAM
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Ark
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NSM
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Kudu
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Other Operations
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Total
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Weighted Average Incremental Borrowing Rate (1)
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ROU lease asset
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$
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8.0
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$
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7.0
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$
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13.8
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$
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6.7
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$
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7.4
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$
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42.9
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5.0%
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Lease liability
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$
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8.6
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$
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7.0
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$
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15.0
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$
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7.1
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$
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8.2
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$
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45.9
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(1) The present value of the remaining lease payments was determined by discounting the lease payments using the incremental borrowing rate.
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As of December 31, 2020
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Millions
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HG/BAM
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NSM
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Kudu
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Other Operations
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Total
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Weighted Average Incremental Borrowing Rate (1)
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ROU lease asset
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$
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10.1
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$
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17.1
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$
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2.0
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$
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8.4
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$
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37.6
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4.6%
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Lease liability
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$
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10.1
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$
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17.1
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$
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2.0
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$
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9.1
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$
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38.3
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(1) The present value of the remaining lease payments was determined by discounting the lease payments using the incremental borrowing rate.