ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On July 27, 2012, White Mountains Insurance Group, Ltd. issued a press release
announcing its results for the three and six months ended June 30, 2012. The
press release furnished herewith is attached as Exhibit 99.1 to this Form 8-K.
Certain information included in the press release constitutes non-GAAP financial
measures (as defined in Regulation G of the Securities and Exchange Commission).
Specifically, non-GAAP financial measures disclosed in the press release are
adjusted comprehensive income and adjusted book value per share. White Mountains
believes these measures to be more relevant than comparable GAAP measures in
evaluating White Mountains' financial performance.
Adjusted comprehensive income is a non-GAAP financial measure that excludes the
change in equity in net unrealized gains and losses from Symetra's fixed
maturity portfolio, net of applicable taxes, from comprehensive income. In the
calculation of comprehensive income under GAAP, fixed maturity investments are
marked-to-market while the liabilities to which those assets are matched are
not. Symetra attempts to earn a "spread" between what it earns on its
investments and what it pays out on its products. In order to try to fix this
spread, Symetra invests in a manner that tries to match the duration and cash
flows of its investments with the required cash outflows associated with its
life insurance and structured settlements products. As a result, Symetra
typically earns the same spread on in-force business whether interest rates fall
or rise. Further, at any given time, some of Symetra's structured settlement
obligations may extend 40 or 50 years into the future, which is further out than
the longest maturing fixed maturity investments regularly available for purchase
in the market (typically 30 years). For these long-dated products, Symetra is
unable to fully match the obligation with assets until the remaining expected
payout schedule comes within the duration of securities available in the market.
If at that time, these fixed maturity investments have yields that are lower
than the yields expected when the structured settlement product was originally
priced, the spread for the product will shrink and Symetra will ultimately
harvest lower returns for its shareholders. GAAP comprehensive income increases
when rates decline, which would suggest an increase in the value of Symetra -
the opposite of what is happening to the intrinsic value of the business.
Therefore, White Mountains' management and Board of Directors use adjusted
comprehensive income when assessing Symetra's quarterly financial performance.
In addition, this measure is typically the predominant component of change in
adjusted book value per share, which is used in calculation of White Mountains'
performance for both short-term (annual bonus) and long-term incentive plans. A
schedule is included in Exhibit 99.1 to this Form 8-K that reconciles adjusted
comprehensive income to GAAP comprehensive income.
Adjusted book value per share is a non-GAAP measure which is derived by
expanding the GAAP calculation of book value per White Mountains common share to
exclude equity in net unrealized gains and losses from Symetra's fixed maturity
portfolio, net of applicable taxes. In addition, the number of common shares
outstanding used in the calculation of adjusted book value per share are
adjusted to exclude unearned restricted common shares, the compensation cost of
which, at the date of calculation, has yet to be amortized. A schedule is
included in Exhibit 99.1 to this Form 8-K that reconciles adjusted book value
per share to GAAP book value per share.
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ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
99.1 Press Release of White Mountains Insurance Group, Ltd. dated July 27, 2012,
furnished herewith.
