WHITE MOUNTAINS INSURANCE GROUP LTD – 10-K – Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 The following discussion contains "forward-looking statements". White Mountains intends statements that are not historical in nature, which are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct. White Mountains' actual results could be materially different from and worse than its expectations. See "FORWARD-LOOKING STATEMENTS" on page 102 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements. The following discussion also includes three non-GAAP financial measures, adjusted comprehensive income, adjusted book value per share and adjusted capital, that have been reconciled to their most comparable GAAP financial measures (see page 73). White Mountains believes these measures to be more relevant than comparable GAAP measures in evaluating White Mountains' financial performance and condition.  

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 and 2010

  Overview-Year Ended December 31, 2012 versus Year Ended December 31, 2011White Mountains ended 2012 with an adjusted book value per share of $588, an increase of 8.6%, including dividends, from December 31, 2011. White Mountains reported adjusted comprehensive income of $245 million in 2012 compared to adjusted comprehensive income of $745 million in 2011, which included an after-tax gain of $678 million from the Esurance Sale. OneBeacon's book value per share decreased 0.8% during 2012, including dividends. OneBeacon's 2012 results included $101 million of after-tax GAAP losses related to the sale of its Runoff Business, which resulted in a decrease of $12 to White Mountains' adjusted book value per share (net of non-controlling interest). OneBeacon's GAAP combined ratio was 98% for 2012 compared to 92% for 2011. The increase was primarily driven by higher catastrophe losses, mainly from hurricane Sandy, lower favorable loss reserve development and higher expenses. Sirius Group's GAAP combined ratio was 90% for 2012 compared to 100% for 2011. Sirius Group's combined ratio for 2012 included 13 points of catastrophe losses, 11 points of which were from hurricane Sandy, compared to 24 points of catastrophe losses for 2011. Additionally, Sirius Group's combined ratio for 2012 included 3 points of losses from its agricultural line of business, primarily as a result of the drought in the midwestern United States. Total net written premiums increased 8% to $2,127 million in 2012 from $1,978 million in 2011, due to higher net written premiums at both OneBeacon and Sirius Group.  OneBeacon's net written premiums increased 11% to $1,179 million in 2012, primarily due to new business and improved retention in several lines, particularly within the accident, government risk, energy and technology businesses. In January 2013, OneBeacon terminated its relationship with Hagerty and sold Essentia, the wholly owned subsidiary that wrote OneBeacon's Hagerty collector car and boat business, to Markel Corporation. Business written through Hagerty generated net written premiums of approximately 8% of White Mountains' consolidated net written premiums in each of 2012, 2011 and 2010. OneBeacon will recognize a $23 million pre-tax gain on the sale of Essentia ($15 million after tax) in the first quarter of 2013. Sirius Group's net written premiums increased 3% to $948 million in 2012, primarily due to increases in the accident and health and property lines of business, partially offset by a decrease in the trade credit line of business. White Mountains' GAAP investment return was 4.9% in 2012. The fixed income portfolio return (in local currencies) of 3.8% was higher than the Barclay's Intermediate Aggregate Bond Index return of 3.6%, despite significantly less duration risk, while the equity portfolio return was 7.7% compared to the S&P 500 Index return of 16.0%. In addition, adjusted book value per share increased $10 in 2012 from share repurchases and $3 from foreign currency translation. Effective January 1, 2013, Sweden reduced its corporate tax rate from 26.3% to 22.0%, and Luxembourg increased its corporate tax rate from 28.8% to 29.2%. This resulted in a reduction in Sirius Group's net deferred tax liabilities in Sweden and an increase in Sirius Group's net deferred tax assets in Luxembourg at December 31, 2012. In addition, during the quarter Sirius Group had a net release of valuation allowances on deferred tax assets in Luxembourg and White Mountains established a valuation allowance on deferred tax assets of a group of U.S. companies reported in the Other Operations segment. In total, these changes resulted in an increase to adjusted book value per share of $13 in the fourth quarter of 2012.                                          46

--------------------------------------------------------------------------------  Overview-Year Ended December 31, 2011 versus Year Ended December 31, 2010White Mountains ended 2011 with an adjusted book value per share of $542, an increase of 23%, including dividends, from December 31, 2010. White Mountains reported adjusted comprehensive income of $745 million in 2011 compared to adjusted comprehensive income of $141 million in 2010. The increase in adjusted book value per share in 2011 was driven by an $89 increase from the gain from the Esurance Sale, net of transaction related expenses. OneBeacon's book value per share increased 3% during 2011, including dividends. OneBeacon's GAAP combined ratio was 92% for 2011 compared to 96% for 2010. The decrease was primarily driven by improved current accident year results, partially offset by higher catastrophe losses. Sirius Group's GAAP combined ratio was 100% for 2011 compared to 94% for 2010. Both years were impacted by significant catastrophe losses as 2011 included 24 points of catastrophe losses compared to 23 points in 2010. Total net written premiums decreased 3% to $1,978 million in 2011 from $2,034 million in 2010. Excluding the $180 million of net written premiums in 2010 related to OneBeacon's personal lines business, net written premiums were up 7% in 2011, due to higher net written premiums at both OneBeacon and Sirius Group. OneBeacon's net written premiums increased 8% to $1,063 million in 2011, primarily due to new business and improved retention in several lines, particularly within the accident, government risk, energy and technology businesses. Sirius Group's net written premiums increased 6% to $916 million in 2011, primarily due to increases in the accident and health and trade credit lines of business and foreign currency translation. White Mountains' GAAP investment return was 2.9% in 2011. The fixed income portfolio return (in local currencies) of 3.1% was lower than the Barclay's Intermediate Aggregate Bond Index return of 6.0%, as the fixed income portfolio trailed the longer-duration benchmark as rates declined. The equity portfolio return was 1.4% compared to the S&P 500 Index return of 2.1%. In addition, adjusted book value per share increased $17 in 2011 from the release of a valuation allowance against deferred tax assets in two Luxembourg subsidiaries and $5 from share repurchases. Also, adjusted book value per share decreased $6 in 2011 from a GAAP other-than-temporary impairment write-down on the investment in Symetra common shares. White Mountains concluded that the accounting impairment on its investment in Symetra common shares existed due to the prolonged low interest rate environment in which life insurance companies operate and not from reasons specific to Symetra itself. As a result, White Mountains does not believe that the accounting impairment equates to an impairment in Symetra's long-term intrinsic business value. See CRITICAL ACCOUNTING ESTIMATES - White Mountains' Investment in Symetra Common Shares on page 100 for a more detailed discussion.  Foreign currency translation did not have a significant impact on adjusted book value per share in 2011.  

Adjusted Book Value Per Share

  The following table presents White Mountains' adjusted book value per share, a non-GAAP financial measure, for the years ended December 31, 2012, 2011 and 2010 and reconciles this non-GAAP measure to the most comparable GAAP measure (See NON-GAAP FINANCIAL MEASURES on page 73):                                                                   December 

31,

                                                         2012          2011  

2010

 Book value per share numerators (in millions): White Mountains' common shareholders' equity         $ 3,731.8     $ 4,087.7     $ 3,653.0 Equity in net unrealized gains from Symetra's fixed maturity portfolio                                 (57.7 )           -         (58.5 ) Adjusted book value per share numerator              $ 3,674.1     $ 4,087.7     $ 3,594.5 Book value per share denominators (in thousands of shares): Common shares outstanding                              6,291.0       7,577.9       8,194.9 Unearned restricted shares                               (38.7 )       (37.6 )       (36.5 ) Adjusted book value per share denominator              6,252.3       7,540.3       8,158.4 Book value per share                                 $  593.20     $  539.43     $  445.76 Adjusted book value per share                        $  587.63     $  542.11     $  440.59 Dividends paid per share                             $    1.00     $    1.00     $    1.00                                           47

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Review of Consolidated Results

A summary of White Mountains' consolidated financial results for the years ended December 31, 2012, 2011 and 2010 follows:

                                                           Year Ended December 31, Millions                                              2012           2011           2010 Gross written premiums                            $  2,438.0     $  2,256.4     $  2,371.6 Net written premiums                              $  2,126.9     $  1,978.4     $  2,033.5 Revenues Earned insurance and reinsurance premiums         $  2,063.6     $  1,924.5     $  2,029.0 Net investment income                                  153.6          184.5 

208.9

 Net realized and unrealized investment gains           118.2           74.1 

77.6

 Other revenue - foreign currency translation (losses) gains                                          39.9           (5.5 )         27.6 Other revenue - Tuckerman Fund I (1)                    24.1           24.3 

23.3

 Other revenue - Symetra warrants                        17.7          (24.5 )         (1.4 ) Other revenue - other                                   18.6           (4.3 )        (31.3 ) Other revenue (losses)                                 100.3          (10.0 )         18.2 Total revenues                                       2,435.7        2,173.1        2,333.7 Expenses Losses and LAE                                       1,193.9        1,174.3        1,216.6

Insurance and reinsurance acquisition expenses 430.2 402.2

419.6

 Other underwriting expenses                            321.8          268.1 

295.9

 General and administrative expenses                    131.0          143.5 

125.9

 General and administrative expenses - Tuckerman Fund I (1)                                              21.0           23.5 

20.6

 General and administrative expenses - BAM               19.6              -              - Accretion of fair value adjustment to loss and LAE reserves                                            10.6            8.3            8.5 Interest expense on debt                                44.8           55.2           57.3 Total expenses                                       2,172.9        2,075.1        2,144.4 Pre-tax income                                         262.8           98.0          189.3 Income tax benefit (expense)                            15.7          110.0          (29.6 ) Net income from continuing operations                  278.5          208.0 

159.7

 Net gain on sale of Esurance, net of tax                   -          677.5              - Net loss on sale of AutoOne, net of tax                (91.0 )        (19.2 )            - Net loss from discontinued operations, net of tax                                                    (24.0 )        (36.7 )        (30.1 ) Equity in (losses) earnings of unconsolidated affiliates                                              29.9          (20.2 )          9.9 Net income                                             193.4          809.4 

139.5

 Net loss (income) attributable to non-controlling interests                               14.0          (41.5 )        (53.0 ) Net income attributable to White Mountains' common shareholders                                    207.4          767.9 

86.5

 Change in equity in net unrealized (losses) gains from investments in unconsolidated affiliates                                              57.7          (58.5 )         73.5 Change in foreign currency translation and other                                                   36.7          (26.0 )         56.1 Comprehensive income                                   301.8          683.4 

216.1

 Comprehensive loss (income) attributable to non-controlling interests                                 .8            2.8           (1.7 ) Comprehensive income attributable to White Mountains' common shareholders                         302.6          686.2 

214.4

 Change in net unrealized losses (gains) from Symetra's fixed maturity portfolio                     (57.7 )         58.5          (73.5 ) Adjusted comprehensive income (2)                 $    244.9     $    744.7 

$ 140.9

   (1) On December 31, 2011, Tuckerman Fund I was dissolved and all of the net assets of the fund, which consisted of the LLC units of Hamer and Bri-Mar, two small manufacturing companies, were distributed. As of October 1, 2012, Hamer and Bri-Mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates. (2) Adjusted comprehensive income is a non-GAAP measure. For a reconciliation to the most comparable GAAP measure (see NON-GAAP MEASURES on page 73).                                           48 --------------------------------------------------------------------------------  Consolidated Results-Year Ended December 31, 2012 versus Year Ended December 31, 2011 White Mountains' total revenues increased 12% to $2,436 million in 2012 compared to $2,173 million in 2011, primarily due to higher earned insurance and reinsurance premiums, foreign currency translation gains, higher net realized and unrealized investment gains and an improvement of the mark-to-market performance of the Symetra warrants, partially offset by lower net investment income. Earned premiums increased 7% to $2,064 million in 2012, with an 11% increase at OneBeacon and a 3% increase at Sirius Group. Net investment income was down 17% to $154 million in 2012, principally due to a lower invested asset base driven by share repurchases and lower fixed maturity yields. White Mountains reported net realized and unrealized investment gains of <money>$118 million in 2012 compared to $74 million in 2011. Net realized and unrealized investment gains for both periods were impacted by foreign currency translation on U.S. dollar-denominated investments at Sirius International, the effects of which are offset in other comprehensive income (see "Impact of Foreign Currency on Investment Returns" on page 59). Other revenues increased to a gain of $100 million in 2012 from a loss of $10 million in 2011, due primarily to $40 million in foreign currency translation gains and $18 million in mark-to-market gains on the Symetra warrants in 2012, compared to $6 million in foreign currency translation losses and $25 million in mark-to-market losses on the Symetra warrants in 2011.  Other revenues included a $25 million loss from WM Life Re in 2012 compared to a $16 million loss in 2011. See Note 8 - Variable Annuity Reinsurance for details regarding WM Life Re's total impact on White Mountains' statement of operations. Other revenues in 2012 also included a $15 million pre-tax gain on Sirius Group's sale of IMG, $14 million in pre-tax transaction gains from White Mountains Solutions' acquisitions that closed in 2012, a $5 million pre-tax gain on OneBeacon's sale of a shell company and a $6 million pre-tax loss from OneBeacon's repurchase of its remaining 2003 OBH Senior Notes. Other revenues in 2011 included a $7 million pre-tax gain from Sirius Group's acquisition of Old Lyme. White Mountains' total expenses increased 5% to $2,173 million in 2012 compared to $2,075 million in 2011. Losses and LAE expenses increased 2% and insurance and reinsurance acquisition expenses increased by 7%, driven by increased business volume. The increase in loss and LAE expenses was partially offset by lower catastrophe losses. Other underwriting expenses increased 20%, driven by increased business volume, start-up costs for new specialty businesses at OneBeacon and the migration of OneBeacon's corporate functions to Minnesota. General and administrative expenses were $172 million in 2012, which includes $20 million in expenses from the consolidation of BAM, compared to $167 million in 2011. Excluding the $20 million of expenses related to BAM, general and administrative expenses decreased 9% in 2012, primarily due to lower incentive compensation expenses. 2011 included a higher level of incentive compensation expenses as a result of the gain from the Esurance Sale and a 35% increase in White Mountains' stock price during 2011 compared to a 14% increase in 2012. Interest expense on debt decreased 19% to $45 million in 2012 compared to $55 million in 2011, primarily due to reductions of outstanding debt resulting from repurchases of the 2003 OBH Senior Notes.  Consolidated Results-Year Ended December 31, 2011 versus Year Ended December 31, 2010 White Mountains' total revenues decreased 7% to $2,173 million in 2011 compared to $2,334 million in 2010, primarily due to lower earned insurance premiums, net investment income, net investment gains and other revenues. Earned premiums were down 5% to $1,925 million in 2011, due primarily to a 14% decrease at OneBeacon, which was driven by the sale of its personal lines business in 2010. Excluding the $202 million of earned premiums in 2010 related to OneBeacon's personal lines business, earned premiums were up 5% in 2011, with a 3% increase at OneBeacon and an 8% increase at Sirius Group. Net investment income was down 12% to $185 million in 2011, due primarily to lower fixed maturity yields and a reduction in invested assets from the sale of OneBeacon's personal lines business in 2010, repurchases of a portion of the 2003 OBH Senior Notes and share repurchases. White Mountains reported net realized and unrealized investment gains of $74 million in 2011 compared to $78 million in 2010. Net realized and unrealized investment gains for both periods were significantly impacted by foreign currency translation on U.S. dollar-denominated investments at Sirius International, the effects of which are offset in other comprehensive income (see "Impact of Foreign Currency on Investment Returns" on page 59). Other revenues decreased to a loss of $10 million in 2011 from a gain of $18 million in 2010, due primarily to foreign currency translation losses and higher mark-to-market losses on the Symetra warrants, partially offset by lower losses reported by WM Life Re.  Other revenues included a $16 million loss from WM Life Re in 2011 compared to a $45 million loss in 2010.  Other revenues in 2011 also included a $7 million pre-tax gain from Sirius Group's acquisition of Old Lyme, while other revenues in 2010 included a $13 million pre-tax gain from Sirius Group's acquisition of Central National. White Mountains' total expenses decreased 3% to $2,075 million in 2011 compared to $2,144 million in 2010. Excluding the $218 million of expenses reported in 2010 related to OneBeacon's personal lines business, White Mountains' total expenses increased 8% in 2011, as losses and LAE expenses, insurance and reinsurance acquisition expenses and other underwriting expenses increased 10%, 6% and 2%, driven by increased business volume. The increase in loss and LAE expenses was also due to higher catastrophe losses. General and administrative expenses increased 14% to $167 million in 2011 compared to $147 million in 2010, due primarily to increased compensation expenses as a result of the gain from the Esurance Sale and to the 35% increase in White Mountains' stock price during 2011.  Interest expense on debt decreased 4% to $55 million in 2011 compared to $57 million in 2010, primarily due to reductions of outstanding debt resulting from repurchases of the 2003 OBH Senior Notes.                                          49 --------------------------------------------------------------------------------  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 such that 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 Australia, Belgium, Canada, Germany, Gibraltar, Luxembourg, the Netherlands, Singapore, Sweden, Switzerland, the United Kingdom and the United States. White Mountains reported an income tax benefit of $16 million in 2012 on pre-tax income of $263 million. Effective January 1, 2013, Sweden reduced its corporate tax rate from 26.3% to 22.0% and Luxembourg increased its corporate tax rate from 28.8% to 29.2%. This resulted in a reduction in deferred tax liabilities in Sweden and an increase in deferred tax assets in Luxembourg at December 31, 2012. As a result, Sirius Group recognized $73 million in tax benefits from these changes. In addition, during the quarter Sirius Group had a net release of valuation allowances on deferred tax assets in Luxembourg, resulting in a tax benefit of $41 million, and White Mountains established a valuation allowance on deferred tax assets of a group of U.S. companies reported in the Other Operations segment, resulting in a tax expense of $38 million. In total, White Mountains recognized $76 million in overall net tax benefits from these changes. Excluding the impact of these changes, White Mountains effective tax rate for 2012 was 23%, which was lower than the U.S. statutory rate of 35% due primarily to income generated in jurisdictions other than the United States. White Mountains reported an income tax benefit of $110 million in 2011 on pre-tax income of $98 million, due primarily to a $130 million tax benefit from the release of a valuation allowance against certain deferred tax assets as a result of the reorganization of Sirius Group. In connection with the reorganization, which included Sirius Group's acquisition of a Luxembourg holding company from OneBeacon in January 2012, internal debt was contributed to holding companies that had large deferred tax assets offset by full valuation allowances.  Because the reorganization created a future stream of income for these holding companies, White Mountains was required to reduce the valuation allowances by $130 million in the fourth quarter of 2011. White Mountains also recorded a reclassification of $3 million of equity from White Mountains' common shareholders' equity to non-controlling interest, which represents OneBeacon's minority shareholders' portion of the excess of the purchase price over the net assets of the Luxembourg holding company.  Excluding the valuation allowance reduction, White Mountains effective tax rate for 2011 was 20%, which was lower than the U.S. statutory rate of 35% due primarily to income generated in jurisdictions other than the United States. The income tax expense related to pre-tax income for 2010 represented an effective tax rate of 16.0%, which was lower than the U.S. statutory rate of 35% due primarily to income generated in jurisdictions other than the United States.  Discontinued Operations On October 17, 2012, OneBeacon entered into an agreement to sell its runoff business to Armour and recorded $101 million in after-tax losses related to the Runoff Transaction in 2012. These losses are composed of a $92 million after-tax loss on sale and a $9 million after-tax loss related to a reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale. The transaction is expected to close in the second half of 2013. On October 7, 2011, White Mountains completed the sale of Esurance to Allstate for cash equal to $700 million plus the tangible book value at closing of the entities being sold and recorded a gain of $678 million.  In 2011, OneBeacon agreed to sell its AutoOne business to Interboro and recorded a charge of $19 million after tax for the estimated loss on the sale. The AutoOne transaction closed in February 2012. As a result of these transactions, the results of the Runoff Business, the Esurance and AutoOne businesses and related transaction gains and losses are reported in discontinued operations in White Mountains' GAAP financial statements.                                         50 --------------------------------------------------------------------------------

I. Summary of Operations By Segment

  White Mountains conducts its operations through four segments: (1) OneBeacon, (2) Sirius Group, (3) HG Global/BAM and (4) Other Operations. While investment results are included in these segments, because White Mountains manages the majority of its investments through its wholly-owned subsidiary, WM Advisors, a discussion of White Mountains' consolidated investment operations is included after the discussion of operations by segment. White Mountains' segment information is presented in Note 14 -"Segment Information" to the Consolidated Financial Statements.  OneBeacon 

Financial results and GAAP combined ratios for OneBeacon for the years ended December 31, 2012, 2011 and 2010 follow:

                                                         Year Ended December 31, Millions                                            2012          2011          2010 Gross written premiums                           $ 1,259.2     $ 1,128.3     $ 1,292.5 Net written premiums                             $ 1,179.2     $ 1,062.7     $ 1,167.7 

Earned insurance and reinsurance premiums $ 1,132.0$ 1,012.2

  $ 1,181.1 Net investment income                                 53.6          71.4    

96.6

Net realized and unrealized investment gains 55.7 10.6

      74.6 Other revenue                                          (.5 )       (12.4 )         (.6 ) Total revenues                                     1,240.8       1,081.8       1,351.7 Losses and LAE                                       650.0         548.3         685.6

Insurance and reinsurance acquisition expenses 249.4 221.2

252.1

 Other underwriting expenses                          205.2         162.3    

196.1

 General and administrative expenses                   13.4           9.8          12.9 Interest expense on debt                              16.9          20.5          29.6 Total expenses                                     1,134.9         962.1       1,176.3 Pre-tax income                                   $   105.9     $   119.7     $   175.4  GAAP Ratios: Loss and LAE                                            58 %          54 %          58 % Expense                                                 40 %          38 %          38 %    Combined                                             98 %          92 %          96 %   

The following table presents OneBeacon's book value per share.

                                                        December 31, (Millions, except per share amounts)          2012         2011         2010 OneBeacon common shareholders' equity      $ 1,014.5    $ 1,099.8    $ 1,229.0 OneBeacon Ltd. common shares outstanding        95.4         95.1         94.4 OneBeacon book value per common share      $   10.63    $   11.56    $   13.02 Dividends paid per common share            $    0.84    $    1.84    $    3.34                                            51

--------------------------------------------------------------------------------  OneBeacon Results-Year Ended December 31, 2012 versus Year Ended December 31, 2011 OneBeacon ended 2012 with a book value per share of $10.63, a decrease of 0.8%, including dividends (a quarterly dividend of $0.21 per share) from December 31, 2011. The decrease in book value was driven by a $92 million estimated after-tax loss on the Runoff Transaction and $24 million of net after-tax operating losses from discontinued operations, which included a $9 million after-tax charge related to the Runoff Transaction from a reduction in the workers compensation loss reserve discount rate. This negative impact to book value was partially offset by a $14 million increase from the sale of OneBeacon Holdings (Luxembourg) S.à r.l. to Sirius Group. The transaction was recorded as an increase in OneBeacon's equity and was eliminated in White Mountains' consolidated financial statements. OneBeacon's GAAP return of investments was 4.4% for 2012. OneBeacon's GAAP combined ratio increased to 98% for 2012 from 92% for 2011, primarily driven by lower favorable loss reserve development, higher catastrophe losses and higher expenses. Favorable loss reserve development for 2012 was $7 million, or 1 point, compared to $30 million, or 3 points, for 2011. The favorable reserve development for 2012 was primarily in the workers' compensation, multiple peril liability and general liability lines, mostly offset by adverse loss reserve development on excess property claims. The combined ratio for 2012 included 5 points of net catastrophe losses ($56 million, including $8 million of ceded reinstatement premiums), due primarily to the impact of hurricane Sandy, compared to 4 points ($37 million) of catastrophe losses for 2011, primarily related to hurricane Irene, tornados in the southeastern and midwestern United States as well as storms and freezing weather in the northeastern and southwestern United States. The increase in the expense ratio is primarily the result of start up costs for new specialty businesses and costs associated with actions taken to migrate certain corporate functions to Minnesota in 2012. OneBeacon's net written premiums increased 11% in 2012 to $1,179 million, compared to $1,063 million in 2011, primarily due to the growth in several underwriting units, particularly within the Professional Insurance, Technology and Accident units. In January 2013, OneBeacon terminated its relationship with Hagerty and sold Essentia, the wholly owned subsidiary that wrote OneBeacon's Hagerty collector car and boat business, to Markel Corporation. For the years ended December 31, 2012, 2011 and 2010, business written through Hagerty generated net written premiums of approximately 15%, 16% and 13%, respectively, of OneBeacon's consolidated net written premiums. OneBeacon will recognize a $23 million pre-tax gain on the sale of Essentia ($15 million after tax) in the first quarter of 2013. OneBeacon's other revenues in 2012 included a $6 million loss related to the repurchase of its 2003 OBH Senior Notes, offset in part by a $5 million gain on the sale of a shell company, Pennsylvania General Insurance. OneBeacon's other revenues in 2011 included a $12 million loss related to the partial redemption of a portion of the 2003 OBH Senior Notes. OneBeacon's losses and LAE expenses increased 19% and insurance and reinsurance acquisition expenses increased by 13%, driven by increased business volume. The increase in loss and LAE expenses was also partially due to higher catastrophe losses, driven by hurricane Sandy. Other underwriting expenses increased 26%, driven by increased business volume, start-up costs for new specialty businesses at OneBeacon and the migration of OneBeacon's corporate functions to Minnesota. Interest expense decreased 18% to $17 million in 2012, reflecting lower outstanding debt. Reinsurance protection. OneBeacon purchases reinsurance in order to minimize loss from large risks or catastrophic events. OneBeacon also purchases individual property reinsurance coverage for certain risks to reduce large loss volatility through property-per-risk excess of loss reinsurance programs and individual risk facultative reinsurance. OneBeacon also maintains excess of loss casualty reinsurance programs that provide protection for individual risk or catastrophe losses involving workers compensation, general liability, automobile liability, professional liability or umbrella liability. The availability and cost of reinsurance protection is subject to market conditions, which are outside of management's control. Limiting risk of loss through reinsurance arrangements serves to mitigate the impact of large losses; however, the cost of this protection in an individual period may exceed the benefit. OneBeacon's net combined ratio for 2012 was lower than its gross combined ratio by 1 point, primarily due to the significant amount of reinsurance cessions related to hurricane Sandy, which were partially off-set by the impact of the cost of facultative reinsurance and property reinsurance, and also the cost of catastrophe reinsurance and marine reinsurance. OneBeacon's net combined ratio for 2011 was higher than its gross combined ratio by 4 points, primarily due to the impact of the cost of facultative reinsurance and property reinsurance, and also the cost of catastrophe reinsurance and marine reinsurance.  OneBeacon Results-Year Ended December 31, 2011 versus Year Ended December 31, 2010 OneBeacon ended 2011 with a book value per share of $11.56, an increase of 3%, including dividends (quarterly dividends of $0.21 per share and a special dividend of $1.00 per share paid in June 2011) from December 31, 2010. OneBeacon's GAAP investment return was 3.0% for 2011. OneBeacon's results for 2011 were adversely impacted by a decline in the value of investment assets in OneBeacon's pension plan, the loss resulting from a debt tender on the 2003 OBH Senior Notes, and the loss on the AutoOne sale.                                         52 --------------------------------------------------------------------------------  OneBeacon's GAAP combined ratio for 2011 decreased to 92% from 96% for 2010, primarily due to better current accident year results, partially offset by higher catastrophe losses. OneBeacon experienced a number of large losses in its property and inland marine business during 2010. The GAAP combined ratio for 2011 included 4 points of catastrophe losses compared to 2 points in 2010.  The GAAP combined ratio included 3 points of favorable loss reserve development for both years. OneBeacon's net written premiums decreased 8% in 2011 to $1,063 million from $1,168 million in 2010. Excluding $171 million of net written premiums in 2010 related to OneBeacon's personal lines business, which was sold in July of 2010, OneBeacon's net written premiums increased 8% in 2011, primarily due to new business and improved retention in several lines, particularly within the collector cars and boats, accident, government risk, energy and technology businesses. OneBeacon's other revenues in 2011 included a $12 million loss related to the repurchase of a portion of the 2003 OBH Senior Notes. OneBeacon's other revenues in 2010 included a $9 million net gain on the sale of OneBeacon's personal lines business, partially offset by an $11 million loss related to the repurchase of a portion of the 2003 OBH Senior Notes. OneBeacon's policy acquisition expenses decreased 12% to $221 million and other underwriting expenses decreased 17% to $162 million in 2011. Excluding the personal lines business that OneBeacon sold in 2010, OneBeacon's policy acquisition expenses increased 4% and other underwriting expenses were essentially flat in 2011. Interest expense decreased 31% to $21 million in 2011, reflective of lower outstanding debt. Reinsurance protection. OneBeacon's net combined ratio for 2011 was higher than its gross combined ratio by 4 points, primarily due to the impact of the cost of facultative reinsurance and property reinsurance, and also the cost of catastrophe reinsurance and marine reinsurance. OneBeacon's net combined ratio for 2010 was higher than its gross combined ratio by 4 points, primarily due to the impact of the cost of catastrophe reinsurance and facultative reinsurance.  

Sirius Group

Financial results and GAAP combined ratios for Sirius Group for the years ended December 31, 2012, 2011 and 2010 follows:

                                                          Year Ended December 31, Millions                                             2012           2011           2010 Gross written premiums                           $  1,178.8     $  1,128.1     $  1,079.1 Net written premiums                             $    947.7     $    915.7     $    865.8 

Earned insurance and reinsurance premiums $ 931.6$ 912.3

    $    847.9 Net investment income                                  65.0           89.9  

96.5

 Net realized and unrealized investment gains (losses)                                               17.3           53.2          (14.8 ) Other revenue-foreign currency translation gains (losses)                                         39.9           (5.5 )         27.6 Other revenue                                          30.7            9.6           13.3 Total revenues                                      1,084.5        1,059.5          970.5 Losses and LAE                                        543.9          626.0          531.0

Insurance and reinsurance acquisition expenses 180.8 181.0

167.5

 Other underwriting expenses                           116.4          105.8  

99.8

 General and administrative expenses                    35.3           25.8  

23.1

 Accretion of fair value adjustment to loss and LAE reserves                                           10.6            8.3            8.5 Interest expense on debt                               26.2           31.6           26.6 Total expenses                                        913.2          978.5          856.5 Pre-tax income                                   $    171.3     $     81.0     $    114.0  GAAP Ratios: Loss and LAE                                             58 %           69 %           63 % Expense                                                  32 %           31 %           31 %   Combined                                               90 %          100 %           94 %                                            53

--------------------------------------------------------------------------------  Sirius Group Results-Year Ended December 31, 2012 versus Year Ended December 31, 2011Sirius Group's GAAP combined ratio was 90% for 2012 compared to 100% for 2011. The decrease was primarily due to lower catastrophe losses, as the 2012 combined ratio included 13 points ($117 million) of catastrophe losses net of reinsurance and reinstatement premiums, primarily due to $98 million of losses from hurricane Sandy, compared to 24 points ($218 million) in 2011, primarily due to the Japan earthquake and tsunami, the New Zealand earthquakes and the floods in Thailand. Additionally, the 2012 combined ratio included 3 points of agricultural losses principally as a result of the drought in the midwestern United States. Favorable loss reserve development was 4 points for 2012. The major reductions in loss reserve estimates were recognized in casualty runoff ($32 million), property ($28 million), marine/energy ($12 million), trade credit ($7 million) and aviation/space ($5 million) lines, partially offset by a $46 million increase in asbestos and environmental loss reserves and a $4 million increase in accident and health. Favorable loss reserve development was 5 points for 2011 and was primarily attributable to $41 million of favorable development on property lines, partially offset by asbestos and environmental increases of $12 million. Sirius Group's gross written premiums increased 4% (6% in local currencies) to $1,179 million in 2012 from $1,128 million for 2011, while net written premiums increased 3% (5% in local currencies) to $948 million for 2012 from $916 million in 2011.  These increases were primarily from the property and accident and health lines of business, partially offset by decreases in the casualty and trade credit lines.  Net written premiums for 2012 increased less than gross written premiums due to increased retrocessions on the property and accident and health lines of business. Net earned premiums increased 2% (4% in local currencies) to $932 million for 2012 from $912 million in 2011. Sirius Group's other revenues primarily consisted of $40 million of foreign currency translation gains recorded in 2012 compared to foreign currency translation losses of $6 million in 2011. (See Impact of Foreign Currency on Investment Returns of on page 59.) Additionally, Sirius Group recorded pre-tax transaction gains of $14 million from White Mountains Solutions' acquisitions of PICO, Citation, American General and American General Property and $15 million on the sale of its interest in an affiliate, IMG, a managing general underwriter in the medical and travel business. In 2011, Sirius Group recorded a $7 million pre-tax gain from White Mountains Solutions' acquisition of the loss reserve portfolio of Old Lyme.  Sirius Group's other underwriting expenses increased $11 million in 2012, primarily due to higher incentive compensation costs and professional fees. General and administrative expenses increased $10 million in 2012, primarily due to higher incentive compensation costs in addition to severance and separation costs as a result of a reduction in staff. Reinsurance protection.  Sirius Group's reinsurance protection primarily consists of pro-rata and excess of loss protections to cover aviation, trade credit, and certain accident and health and property exposures. Sirius Group's proportional reinsurance programs provide protection for part of the non-proportional treaty accounts written in Europe, the Americas, Asia, the Middle East and Australia.  This reinsurance is designed to increase underwriting capacity where appropriate, and to reduce exposure both to large catastrophe losses and to a frequency of smaller loss events. Attachment points and coverage limits vary by region around the world. Sirius Group's gross combined ratio was lower than the net combined ratio by 6 points for 2012 and 7 points for 2011. The higher net combined ratio for 2012 was primarily due to the cost of property retrocessions with limited ceded property loss recoveries. The higher net combined ratio for 2011 was due to the Japan and New Zealand earthquake losses, very little of which were ceded under Sirius Group's retrocessional reinsurance coverage, in addition to the cost of the property retrocessions.  Sirius Group Results-Year Ended December 31, 2011 versus Year Ended December 31, 2010Sirius Group's GAAP combined ratio was 100% for 2011 compared to 94% for 2010.  Both years were impacted by significant catastrophe losses as the 2011 GAAP combined ratio included 24 points of catastrophe losses compared to 23 points in 2010. For 2011, catastrophe losses included $81 million (9 points) of losses from the Japan earthquake and tsunami, $51 million (6 points) of losses from the February and June 2011 New Zealand earthquakes, $34 million (4 points) from floods in Thailand, and $25 million (3 points) of losses from severe weather and tornados in the Midwestern United States.  Catastrophe losses for 2010 were primarily due to the Chile and New Zealand earthquakes, European floods and Deepwater Horizon.  Favorable net loss reserve development for 2011 was 5 points, primarily attributable to $41 million of favorable development on property lines, including $13 million of loss reserve reductions for the 2010 Chile earthquake, partially offset by asbestos and environmental increases of $12 million. Favorable loss reserve development for 2010 was 7 points, mostly from short-tailed lines of business, primarily property, accident and health, and marine. The increase in the 2011 GAAP combined ratio also reflects worse current accident year underwriting results in the accident and health, marine, and aviation lines, partially offset by improved underwriting results in the trade credit line.                                         54 --------------------------------------------------------------------------------  Sirius Group's gross written premiums increased 5% (2% in local currencies) to $1,128 million in 2011 from $1,079 million in 2010, while net written premiums increased 6% (3% in local currencies) to $916 million in 2011 from $866 million in 2010.  These increases were primarily due to increases in the accident and health and trade credit lines of business and foreign exchange translation. Earned premiums increased 8% (5% in local currencies) to $912 million in 2011 from $848 million in 2010.  In addition to the changes noted above for written premiums, earned premiums increased due to a change in business mix. Trade credit and accident and health premiums, which have a longer earnings recognition period than Sirius Group's other writings, have been an increasingly higher percentage of Sirius Group's total written premiums in recent years. Sirius Group's other revenues consisted primarily of $6 million of foreign currency translation losses recorded in 2011 compared to $28 million of foreign currency translation gains in 2010.  Additionally, Sirius Group acquired the loss reserve portfolio of Old Lyme and recorded a pre-tax gain of approximately $7 million in other revenues in 2011, which reflects the excess of the fair value of the net assets acquired over the consideration paid. In 2010, Sirius Group acquired Central National and recorded a pre-tax gain of approximately $13 million in other revenues. Sirius Group's other underwriting expenses increased $6 million in 2011, primarily due to foreign exchange, higher professional fees mainly from systems initiatives, somewhat offset by lower incentive compensation costs. Reinsurance protection.  Sirius Group's net combined ratio for 2011 was higher than its gross combined ratio by 7 points and the net combined ratio was lower than the gross combined ratio by 6 points for 2010.  The higher net combined ratio for 2011 was due to the Japan and New Zealand earthquake losses, very little of which were ceded under Sirius Group's retrocessional reinsurance coverage, in addition to the cost of the property retrocessions. The lower net combined ratio for 2010 was primarily due to significant retrocessional recoveries, including recovery of the full $65 million limit under Sirius Group's non-U.S./non-Japan earthquake cover triggered by losses from the Chile earthquake.  HG Global/BAM  HG Global and BAM. The following table presents the components of pre-tax income included in White Mountains' HG Global/BAM segment related to the consolidation of HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM for the year ended December 31, 2012:                                          Year Ended December 31, 2012 Millions                            HG Global       BAM       Consolidated Net investment income              $      .3     $   1.9     $        2.2 Net investment income - surplus note interest                           18.4       (18.4 )              - Net realized and unrealized investment gains                           -           -                - Total revenues                          18.7       (16.5 )            2.2 Other underwriting expenses                -          .2               .2 General and administrative expenses                                 4.5        19.6             24.1 Total expenses                           4.5        19.8             24.3 Pre-tax income (loss)              $    14.2     $ (36.3 )   $      (22.1 )    HG Global reported pre-tax income of $14 million in 2012, which was driven by $18 million of interest income on the BAM Surplus Notes, partially offset by startup and operational costs. BAM reported $36 million in pre-tax losses in 2012 that were driven by $18 million of interest expense on the BAM Surplus Notes and startup and operational costs. Since BAM is a mutual insurance company owned by its members, BAM's results do not affect White Mountains' adjusted book value per share as they are attributed to non-controlling interests.                                         55 --------------------------------------------------------------------------------  The following table presents amounts from HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM that are contained within White Mountains' consolidated balance sheet as of December 31, 2012:                                                            As of December 31, 2012 Millions                                          HG Global           BAM         Consolidated Assets Fixed maturity investments                     $        98.2     $     467.3     $      565.5 Short-term investments                                   3.3             5.1              8.4   Total investments                                    101.5           472.4            573.9 Cash                                                      .1            16.0             16.1 Other assets - BAM Surplus Notes (1)                   503.0          (503.0 )              - Other assets - accrued interest on BAM Surplus Notes (2)                                       18.4           (18.4 )              - Other assets                                              .6             4.4              5.0 Total assets                                   $       623.6     $     (28.6 )   $      595.0  Liabilities Preferred dividends payable to non-controlling investors                      $          .5     $         -     $         .5 Other liabilities                                         .4             7.4              7.8 Total liabilities                                         .9             7.4              8.3  Equity White Mountains' common shareholders' equity           606.1               -            606.1 Non-controlling interests                               16.6           (36.0 )          (19.4 ) Total equity                                   $       622.7     $     (36.0 )   $      586.7 Total liabilities and equity                   $       623.6     $     (28.6 )   $      595.0   (1) Under GAAP, the BAM Surplus Notes are classified as debt by the issuer. Under Statutory accounting, they are classified as Surplus. (2) Under GAAP, interest accrues daily on the BAM Surplus Notes. Under Statutory accounting, interest is not accrued on the BAM Surplus Notes until it has been approved for payment by insurance regulators.  

Other Operations

A summary of White Mountains' financial results from its Other Operations segment for the years ended December 31, 2012, 2011 and 2010 follows:

                                                          Year Ended December 31, Millions                                             2012           2011           2010 Net investment income                            $     32.8     $     23.2     $     15.8 Net realized and unrealized investment gains           45.2           10.3  

17.8

 Other revenue-Tuckerman Fund I (1)                     24.1           24.3  

23.3

 Other revenue-Symetra warrants                         17.7          (24.5 )         (1.4 ) Other revenue                                         (11.6 )         (1.5 )        (44.0 ) Total revenues                                        108.2           31.8           11.5 General and administrative expenses-Tuckerman Fund I (1)                                             21.0           23.5  

20.6

 General and administrative expenses                    77.8          107.9           89.9 Interest expense on debt                                1.7            3.1            1.1 Total expenses                                        100.5          134.5          111.6 Pre-tax income (loss)                            $      7.7     $   (102.7 )   $   (100.1 )   (1) On December 31, 2011, Tuckerman Fund I was dissolved and all of the net assets of the fund, which consisted of the LLC units of Hamer and Bri-Mar, two small manufacturing companies, were distributed. As of October 1, 2012, Hamer and Bri-Mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates.                                          56 --------------------------------------------------------------------------------  Other Operations Results-Year December 31, 2012 versus Year Ended December 31, 2011 White Mountains' Other Operations segment reported pre-tax income of $8 million in 2012 compared to a pre-tax loss of $103 million in 2011.  The improvement in the 2012 results was driven by an improvement in the mark-to-market performance of the Symetra warrants, higher pre-tax income from investments, lower incentive compensation expenses and lower losses from WM Life Re. 2011 included a higher level of incentive compensation expenses as a result of the gain from the Esurance Sale and a 35% increase in White Mountains' stock price during 2011 compared to a 14% increase in 2012.  The value of White Mountains' investment in Symetra warrants increased $18 million in 2012 compared to a decrease of $25 million in 2011. WM Life Re reported pre-tax loss of $19 million in 2012 compared to pre-tax loss of $27 million in 2011. See Note 8 - Variable Annuity Reinsurance for details regarding WM Life Re's total impact on White Mountains' statement of operations. Share repurchases. White Mountains repurchased and retired 1,329,640 of its common shares for $669 million in 2012 at an average price per share of $503.09, or approximately 86% of White Mountains' December 31, 2012 adjusted book value per share.  Other Operations Results-Year Ended December 31, 2011 versus Year Ended December 31, 2010 White Mountains' Other Operations segment reported pre-tax loss of $103 million in 2011 compared to a pre-tax loss of $100 million in 2010.  The increase in the pre-tax loss in 2011 was driven by higher mark-to-market losses on the Symetra warrants and higher incentive compensation expenses, partially offset by lower losses from WM Life Re. The value of White Mountains' investment in Symetra warrants decreased $25 million in 2011 compared to a decrease of $1 million in 2010. WM Life Re reported pre-tax losses $27 million 2011 compared to $61 million of pre-tax loss in 2010.  During the fourth quarter of 2011, WM Life Re reported approximately $13 million of losses from changes in assumptions used to calculate the value of its variable annuity guarantee liabilities, including a $7 million loss due to lower surrender assumptions.  During 2010, WM Life Re reported $48 million in losses from reductions in surrender assumptions. Share repurchases. White Mountains repurchased and retired 646,502 of its common shares for $253 million in 2011 at an average share price of $390, which was approximately 72% of White Mountains' December 31, 2011 adjusted book value per share.  

II. Summary of Investment Results

  For purposes of discussing rates of return, all percentages are presented gross of management fees and trading expenses in order to produce a better comparison to benchmark returns, while all dollar amounts are presented net of any management fees and trading expenses.  A summary of White Mountains' consolidated pre-tax investment results for the years ended December 31, 2012, 2011 and 2010 follows:                                                             Year Ended December 31, Millions                                              2012            2011           2010 Net investment income                             $     153.6     $    184.5     $    208.9 Net realized and unrealized investment gains (1)                                                     118.2           74.1           77.6 Net unrealized foreign currency gains (losses) on investments (2)                                       95.5          (41.7 )        107.9 Pre-tax investment gains included in discontinued operations                                     -           12.7           32.9 Total GAAP pre-tax investment gains               $     367.3     $    

229.6 $ 427.3

(1)Includes foreign currency (losses) gains of $(57.2), $20.7 and $(76.0). (2)Excludes non-investment related foreign currency (losses) gains of $(55.9), $26.5 and $(58.1).

                                          57 --------------------------------------------------------------------------------

Gross investment returns and benchmarks returns

                                                             Year Ended December 31,                                                         2012           2011          2010 Fixed maturity investments                                4.9 %          3.4  %        4.8 % Short-term investments                                    0.3 %          1.0  %        0.1 % Total fixed maturity investments                          4.4 %          3.1  %        3.8 % Barclays U.S. Intermediate Aggregate Index                3.6 %          

6.0 % 6.1 %

  Common stocks                                             9.8 %          0.7  %       15.6 % Convertible fixed maturity securities                     6.0 %         (6.2 )%        9.4 % Other long-term investments                               2.4 %          6.2  %        9.6 % Total equities, convertible securities, and other long-term investments                                     7.7 %          1.4  %       12.6 % S&P 500 Index (total return)                             16.0 %          

2.1 % 15.1 %

  Total consolidated portfolio                              4.9 %          

2.9 % 5.0 %

    Investment Returns-Year Ended December 31, 2012 versus Year Ended December 31, 2011 White Mountains' GAAP pre-tax total return on invested assets was 4.9% for 2012, which includes 0.5% of foreign currency gains, compared to 2.9% for 2011, which includes 0.2% of foreign currency losses. White Mountains' high-quality, short-duration, fixed income portfolio returned 4.4% (3.8% in local currencies) for 2012, outperforming the Barclays U.S. Intermediate Aggregate Index return of 3.6%. White Mountains' fixed income portfolio returned 3.1% for 2011, trailing the benchmark of 6.0% as rates declined during 2011. White Mountains' value-oriented equity portfolio, approximately 19% of GAAP invested assets at December 31, 2012, returned 7.7% for 2012, compared to the S&P 500 Index return of 16.0%, while the equity portfolio returned 1.4% in 2011, compared to the S&P 500 Index return of 2.1%.  The underperformance against the benchmark in both periods reflects large positions in other long-term investments and convertible fixed maturity investments (as opposed to common equity securities), which tend to lag the index in strong markets. It also reflects underweight exposure in common equity and convertible securities to the technology, consumer discretionary, and industrial sectors and an overweight position in materials, in particular gold mining stocks, relative to the S&P 500 Index. Net investment income was down 17% to $154 million in 2012, due primarily to a lower invested asset base driven by share repurchases and lower fixed maturity yields. WM Advisors has a sub-advisory agreement with Prospector, a registered investment adviser, under which Prospector manages most of White Mountains' publicly-traded common equity securities and convertible fixed maturity securities. Total annualized returns for White Mountains' equity portfolio managed by Prospector compared to the annualized total returns of the S&P 500 Index are as follows:                                      Periods ending December 31, 2012 Annualized returns               1-year       3-years    5-years    7-years

Prospector separate accounts 7.7 % 8.2 % (0.2 )% 4.2 % S&P 500 Index

                     16.0 %       10.9 %      1.7  %      4.1 %    Investment Returns-Year Ended December 31, 2011 versus Year Ended December 31, 2010 White Mountains' GAAP pre-tax total return on invested assets was 2.9% for 2011, which includes 0.2% of foreign currency losses, compared to 5.0% for 2010, which includes 0.5% of foreign currency gains. White Mountains' fixed income portfolio returned 3.1% for 2011, lagging the Barclays U.S. Intermediate Aggregate Index return of 6.0%. White Mountains' high-quality, short-duration fixed income portfolio trailed the longer-duration benchmark as rates declined during 2011.  White Mountains' equity portfolio, approximately 14% of GAAP invested assets at December 31, 2011, returned 1.4% for 2011, compared to the S&P 500 Index return of 2.1%, while the equity portfolio returned 12.6% in 2010, compared to the S&P 500 Index return of 15.1%.  White Mountains' equity portfolio included convertible fixed maturity investments whose returns were hurt by rising credit spreads on the fixed maturity component of the instruments. Net investment income was down 12% to $185 million in 2011, due primarily to lower fixed maturity yields and a lower invested asset base in the first nine months of 2011, partially offset by the effect of the increase in invested assets during the fourth quarter of 2011 as a result of the Esurance Sale.                                          58 --------------------------------------------------------------------------------  Symetra Common Shares During 2012, White Mountains recorded $30 million in after-tax equity in earnings from its investment in Symetra's common shares, which increased the value of the investment in Symetra's common shares used in the calculation of White Mountains' adjusted book value per share to $16.58 per Symetra common share at December 31, 2012, compared to Symetra's quoted stock price of $12.98 and Symetra's book value per common share excluding unrealized gains and losses from its fixed maturity investment portfolio of $18.97. White Mountains accounts for its investment in common shares of Symetra using the equity method. Under the equity method, the GAAP carrying value of White Mountains' investment in Symetra common shares is normally equal to the percentage of Symetra's GAAP book value represented by White Mountains' common share ownership, which was 15% at December 31, 2012 and 2011. At December 31, 2011, White Mountains concluded that its investment in Symetra common shares was other-than-temporarily impaired and wrote down the GAAP book value of the investment to its estimated fair value of $261 million, or $15 per share at December 31, 2011, which resulted in $46 million of after-tax equity in losses of unconsolidated affiliates and $137 million of after-tax equity in net unrealized losses of unconsolidated affiliates. The write-down reduced adjusted book value per share by approximately $6. Under GAAP, a decline in the fair value of an investment is considered to be other-than-temporary when the fair value of the investment is not expected to recover to its GAAP carrying value in the near term. White Mountains concluded that the accounting impairment on its investment in Symetra common shares existed due to the prolonged low interest rate environment in which life insurance companies currently operate and not from reasons specific to Symetra itself. As a result, White Mountains does not believe that the accounting impairment equates to an impairment in Symetra's long-term intrinsic business value. See "White Mountains' Investment in Symetra Common Shares" under CRITICAL ACCOUNTING ESTIMATES on page 100.  Impact of Foreign Currency on Investment Returns White Mountains' foreign assets and liabilities are valued using period-end exchange rates, and its foreign revenues and expenses are valued using average exchange rates over the period. Foreign currency exchange rate risk is the risk that White Mountains will incur losses on a U.S. dollar basis due to adverse changes in foreign currency exchange rates. See "Foreign Currency Exchange Risk" on page 105. A summary of the impact of foreign currency translation on White Mountains' consolidated financial results for the years ended December 31, 2012, 2011 and 2010 follows:                                                               Year Ended December 31, Millions                                                  2012         

2011 2010 Net unrealized investment (losses) gains - foreign currency (1)

                                           $   (48.6 )   $   69.4     $   (71.0 ) Net realized investment (losses) gains - foreign currency (1)                                                (8.6 )      

(48.7 ) (5.0 )

   Net realized and unrealized investment (losses) gains - foreign currency (1)                               (57.2 )       

20.7 (76.0 ) Other revenue - foreign currency translation gains (losses)

                                                    39.9         (5.5 )        27.6 Total income tax (expense) benefit                          (3.1 )       (4.8 )        14.8 Total foreign currency translation gains (losses) recognized through net income                              (20.4 )       10.4         (33.6 ) Change in foreign currency translation on investments                                                 95.5        (41.7 )       107.9 Change in foreign currency translation on non-investment net liabilities                             (55.9 )       26.5         (58.1 ) Total foreign currency translation (losses) gains recognized through other comprehensive income               39.6        (15.2 )        49.8 Total foreign currency gains (losses) recognized through comprehensive income                           $    19.2     $   

(4.8 ) $ 16.2

(1) Component of net realized and unrealized investments gains on the income statement.

  At December 31, 2012, White Mountains' investment portfolio included approximately $1.2 billion in non-U.S. dollar-denominated investments, most of which are held at Sirius International and denominated in Swedish kronor or euros. The value of the investments in this portfolio is impacted by changes in the exchange rate between the U.S. dollar and the kronor and between the U.S. dollar and the euro.  During 2012, the U.S. dollar weakened 6% against the kronor and 2% against the euro.  These currency movements resulted in approximately $38 million of pre-tax foreign currency investment gains for the year ended December 31, 2012, which are recorded as components of net realized and unrealized investment gains and unrealized foreign currency gains and losses on investments.  During 2011, the U.S. dollar strengthened 3% against the kronor and 3% against the euro, which resulted in $21 million of pre-tax foreign currency losses for the year.  During 2010, the U.S. dollar weakened 6% against the kronor and strengthened 7% against the euro, which resulted in $32 million of pre-tax foreign currency gains for the year.                                         59 --------------------------------------------------------------------------------  Sirius International holds a large portfolio of investments that are denominated in U.S. dollars, but its functional currency is the Swedish kronor. When Sirius International prepares its stand-alone GAAP financial statements, it translates its U.S. dollar-denominated investments to Swedish kronor and recognizes the related foreign currency translation gains or losses through income. When White Mountains consolidates Sirius International, it translates Sirius International's stand-alone GAAP financial statements to U.S. dollars and recognizes the foreign currency gains or losses arising from this translation, including those associated with Sirius International's U.S. dollar-denominated investments, through other comprehensive income.  Since White Mountains reports its financial statements in U.S. dollars, there is no net effect to adjusted book value per share or to investment returns from foreign currency translation on its U.S. dollar-denominated investments at Sirius International.  However, net realized and unrealized investment gains, other revenues and other comprehensive income can be significantly affected during periods of high volatility in the foreign exchange rate between the U.S. dollar and the Swedish kronor. The amount of foreign currency translation on Sirius International's U.S. dollar denominated investments recognized as a decrease of net income and an increase of other comprehensive income was $40 millionSirius International's U.S. dollar denominated investments recognized as an increase of net income and decrease of other comprehensive income was $25 million in 2011. The amount of foreign currency translation on Sirius International's U.S. dollar denominated investments recognized as a decrease of net income and an increase of other comprehensive income was $49 million in 2010.  

Portfolio Composition The following table presents the composition of White Mountains' investment portfolio as of December 31, 2012 and 2011:

                                                    As of December 31, 2012                        As of December 31, 2011                                                    Carrying                                       Carrying $ in millions                                        value                % of total                value                % of total Fixed maturity investments (1)            $        5,534.3                      73 %     $        6,333.7                      76 % Short-term investments                               630.6                       8 %                846.0                      10 % Common equity securities                           1,029.7                      13 %                755.0                       9 % Convertible fixed maturity investments               127.4                       2 %                143.8                       2 % Other long-term investments                          294.2                       4 %                301.3                       3 % Total investments                         $        7,616.2                     100 %     $        8,379.8                     100 %  

(1) Carrying value includes $338.1 and $111.8 as of December 31, 2012 and 2011 that is classified as assets held for sale relating to discontinued operations.

  The breakdown of White Mountains' fixed maturity and convertible fixed maturity investments at December 31, 2012 by credit class, based upon issue credit ratings provided by Standard & Poor's, or if unrated by Standard & Poor's, long term obligation ratings provided by Moody's, is as follows:                                                                As of December 31, 2012                                              Amortized                       Carrying (1) $ in millions                                  cost         % of total          Value          % of total U.S. government and government-sponsored entities (2)                               $   1,576.2           28 %     $       1,583.8           28 % AAA/Aaa                                        1,135.0           20 %             1,145.5           20 % AA/Aa                                            442.3            8 %               436.6            8 % A/A                                            1,112.9           20 %             1,137.4           20 % BBB/Baa                                        1,098.7           20 %             1,139.7           20 % Other/not rated                                  211.2            4 %               218.7            4 % Total fixed maturity and convertible fixed maturity investments                 $   5,576.3          100 %     $ 

5,661.7 100 %

(1) Carrying value includes $338.1 that is classified as assets held for sale

relating to discontinued operations.

(2) Includes 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).

                                       60 --------------------------------------------------------------------------------  White Mountains' overall fixed maturity investment strategy is to purchase securities that are attractively priced in relation to their investment risks. White Mountains also actively manages the average duration of the portfolio. The weighted average duration of White Mountains' fixed maturity portfolio at December 31, 2012 was approximately 2.4 years, including short-term investments, and approximately 2.7 years excluding short-term investments. The cost or amortized cost and carrying value of White Mountains' fixed maturity and convertible fixed maturity investments at December 31, 2012 is presented below by contractual maturity. 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.                                                                As of December 31, 2012                                                              Amortized            Carrying Millions                                                       cost                 Value Due in one year or less                                $        395.9          $       396.7 Due after one year through five years                         2,297.8       

2,336.7

 Due after five years through ten years                          648.9                  671.6 Due after ten years                                              72.8                   74.7 Mortgage-backed and asset-backed securities                   2,081.0       

2,095.6

 Preferred stocks                                                 79.9                   86.4 Total fixed maturity and convertible fixed maturity investments                                            $      5,576.3          $     5,661.7    White Mountains' investment portfolio consists of debt and equity securities issued in over 30 countries worldwide. The United States represents the country of issue for 76% of White Mountains' fixed maturity, common equity and convertible fixed maturity investment portfolio. White Mountains has minimal sovereign risk exposure to European peripheral countries such as Ireland, Greece, Portugal, Spain and Italy ("peripheral countries"). White Mountains' portfolio includes 0.6% of total fixed maturity, convertible fixed maturity and common equity investments issued from these peripheral countries at December 31, 2012.  However, White Mountains may have indirect exposure to peripheral countries through securities issued from non-peripheral countries as the issuers of those securities could have exposure to peripheral countries.                                         61 --------------------------------------------------------------------------------  The following tables list White Mountains' investments in fixed maturities, common equities and convertible fixed maturities at December 31, 2012 categorized as financial or non-financial investments and by country of issue:                                                                 December 31,                                                                    2012 Millions                                                        Fair value Debt securities issued by corporations: Non-financial Australia                                                     $         44.9 Canada                                                                 166.1 France                                                                  48.8 Greece                                                                     - Ireland                                                                    - Italy                                                                   12.2 Netherlands                                                             90.0 Portugal                                                                   - Spain                                                                   10.0 United Kingdom                                                         113.6 United States                                                        1,400.2 Other                                                                   97.9 Total non-financial debt                                             1,983.7 Financial Australia                                                               16.0 Greece                                                                     - Ireland                                                                    - Italy                                                                    1.8 Netherlands                                                             46.8 Portugal                                                                   - Spain                                                                      - United Kingdom                                                          19.0 United States                                                          300.0 Other                                                                   17.8 Total financial debt                                                   401.4 Debt securities issued by corporations                               

2,385.1

 Mortgage-backed and asset-backed securities France                                                                  31.8 United Kingdom                                                         159.2 United States                                                        1,904.6 Total mortgage-backed and asset-backed securities                    

2,095.6

 Foreign government, agency and provincial obligations Canada                                                                  52.4 Germany                                                                 25.6 Greece                                                                     - France                                                                  50.5 Ireland                                                                    - Italy                                                                      - Japan                                                                   27.8 Portugal                                                                   - Spain                                                                      - Sweden                                                                 291.8 United Kingdom                                                           4.3 Other                                                                   69.5 Total foreign government, agency and provincial obligations            

521.9

 U.S. Government and agency obligations (1)                             440.1 Municipal obligations (1)                                                5.2 Preferred stocks (1)                                                    86.4 Total fixed maturities                                        $      5,534.3  

(1)All securities were issued in the United States.

                                       62 --------------------------------------------------------------------------------

                                                 December 31,                                                     2012 Millions                                         Fair value Common equity securities: Non-financial Canada                                         $         49.1 Greece                                                    0.5 Ireland                                                   6.7 Italy                                                     0.5 Japan                                                    15.4 Portugal                                                  0.4 South Africa                                             21.9 Spain                                                     4.3 Switzerland                                              10.6 United States                                           562.7 Other                                                    33.1 Total non-financial common equity securities            705.2  Financial Bermuda                                                  70.3 Cayman Islands                                            4.4 United States                                           247.9 Other                                                     1.9 Total financial common equity securities                324.5 Total common equity securities                 $      1,029.7  Convertible fixed maturities: Canada                                         $          6.0 United Kingdom                                           13.4 United States                                           108.0 

Total convertible fixed maturity investments $ 127.4

LIQUIDITY AND CAPITAL RESOURCES

  Operating Cash and Short-term Investments Holding company level.  The primary sources of cash for the Company and certain of its intermediate holding companies are expected to be distributions and tax sharing payments received from its insurance and reinsurance operating subsidiaries, capital raising activities, net investment income and proceeds from sales and maturities of investments. The primary uses of cash are expected to be repurchases of the Company's common shares, payments on and repurchases/retirements of its debt obligations, dividend payments to holders of the Company's common shares, to non-controlling interest holders of OneBeacon Ltd.'s common shares and to holders of the SIG Preference Shares, purchases of investments, payments made to tax authorities, contributions to operating subsidiaries and operating expenses. Operating subsidiary level.  The primary sources of cash for White Mountains' insurance and reinsurance operating subsidiaries are expected to be premium collections, net investment income, proceeds from sales and maturities of investments, contributions from holding companies and capital raising activities. The primary uses of cash are expected to be claim payments, policy acquisition costs, purchases of investments, payments on and repurchases/retirements of its debt obligations, distributions and tax sharing payments made to holding companies and operating expenses. Both internal and external forces influence White Mountains' financial condition, results of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, sometimes several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to White Mountains and the settlement of the liability for that loss. The exact timing of the payment of claims and benefits cannot be predicted with certainty. White Mountains' insurance and reinsurance operating subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of cash and short-term investments to provide adequate liquidity for the payment of claims. Management believes that White Mountains' cash balances, cash flows from operations, routine sales and maturities of investments and the liquidity provided by the WTM Bank Facility are adequate to meet expected cash requirements for the foreseeable future on both a holding company and insurance and reinsurance operating subsidiary level.                                          63 --------------------------------------------------------------------------------

Dividend Capacity

  Under the insurance laws of the states and jurisdictions that White Mountains' insurance and reinsurance operating subsidiaries are domiciled, an insurer is restricted with respect to the timing and the amount of dividends it may pay without prior approval by regulatory authorities. Accordingly, there can be no assurance regarding the amount of such dividends that may be paid by such subsidiaries in the future. Following is a description of the dividend capacity of White Mountains' insurance and reinsurance operating subsidiaries:  

OneBeacon:

 Generally, OneBeacon's top tier regulated insurance operating subsidiaries have the ability to pay dividends during any 12-month period without the prior approval of regulatory authorities in an amount set by formula based on the greater of prior year statutory net income or 10% of prior year end statutory surplus, subject to the availability of unassigned funds. OneBeacon Insurance Company ("OBIC"), OneBeacon's primary top tier regulated insurance operating subsidiary, has the ability to pay $330 million of dividends during 2013 (based on its 2012 statutory net income of $330 million) without prior approval of regulatory authorities, subject to the availability of unassigned funds. The amount of dividends available to be paid by OBIC in any given year is also subject to cash flow and earnings generated by OBIC's business, which now just comprises the Runoff Business, as well as to dividends received from its subsidiaries, including Atlantic Specialty Insurance Company ("ASIC"). At December 31, 2012, OBIC had $0.7 billion of unassigned funds and $0.9 billion of statutory surplus. As disclosed in Note 2 - "Significant Transactions" of the accompanying consolidated financial statements, during the fourth quarter of 2012, OneBeacon executed various intercompany reinsurance agreements which, along with other internal capital transactions among our insurance operating subsidiaries, resulted in ASIC becoming the lead insurance company for the ongoing specialty business and OBIC becoming the lead insurance company for the Runoff Business. Notwithstanding these restructuring transactions, OneBeacon continues to manage its statutory capital on a combined basis. Although OBIC remains a top tier regulated insurance operating subsidiary and maintains sufficient statutory capital to support the Runoff Business, the majority of the group's statutory capital is now included in ASIC to support the ongoing specialty business. ASIC has the ability to pay dividends during any 12-month period without the prior approval of regulatory authorities in an amount set by formula based on the lesser of net investment income, as defined by statute, or 10% of statutory surplus, in both cases as most recently reported to regulatory authorities, subject to the availability of earned surplus. Given the changes in structure noted above, ASIC will likely require prior approval by regulatory authorities in order to pay dividends until it builds up a historical net investment income stream and earned surplus balance under its new structure. At December 31, 2012, ASIC had negative earned surplus and $0.7 billion of statutory surplus. During 2012, OneBeacon's top tier regulated insurance operating subsidiaries paid $173 million of dividends to their immediate parent, which included the distribution of a regulated insurance subsidiary with a value of $34 million. During 2012, OneBeacon's unregulated insurance operating subsidiaries paid $5 million of dividends to their immediate parent. At December 31, 2012, OneBeacon's unregulated insurance operating subsidiaries had $29 million of net unrestricted cash, short-term investments and fixed maturity investments. During 2012, OneBeacon Ltd. paid $80 million of regular quarterly dividends to its common shareholders. White Mountains received $60 million of these dividends. At December 31, 2012, OneBeacon Ltd. and its intermediate holding companies had $272 million of net unrestricted cash, short-term investments and fixed maturity investments and $33 million of common equity securities and convertible fixed maturity investments outside of its regulated and unregulated insurance operating subsidiaries.  Sirius Group: Subject to certain limitations under Swedish law, Sirius International is permitted to transfer a portion of its pre-tax income to its Swedish parent companies to minimize taxes (referred to as a group contribution). In 2012, Sirius International transferred $82 million of its 2011 pre-tax income to its Swedish parent companies as a group contribution. In 2013, Sirius International currently intends to transfer approximately $110 million (based on the December 31, 2012 SEK to USD exchange rate) of its 2012 pre-tax income to its Swedish parent companies as a group contribution. Sirius International has the ability to pay dividends subject to the availability of unrestricted statutory surplus. Historically, Sirius International has allocated the majority of its pre-tax income, after group contributions to its Swedish parent companies, to the Safety Reserve (see "Safety Reserve" below). At December 31, 2012, Sirius International had $852 million (based on the December 31, 2012 SEK to USD exchange rate) of unrestricted statutory surplus, which is available for distribution in 2013. The amount of dividends available to be paid by Sirius International in any given year is also subject to cash flow and earnings generated by Sirius International's business, as well as to dividends received from its subsidiaries, including Sirius America. During 2012, Sirius International distributed $24 million of dividends to its immediate parent and declared an additional $75 million of dividends at December 31, 2012 (for a total of $99 million). The $75 million was paid in January 2013. In 2013, Sirius International currently intends to distribute an additional $50 million of dividends to its immediate parent.                                         64 --------------------------------------------------------------------------------  Sirius America has the ability to pay dividends during any twelve-month period without the prior approval of regulatory authorities in an amount set by formula based on the lesser of net investment income, as defined by statute, or 10% of statutory surplus, in both cases as most recently reported to regulatory authorities, subject to the availability of earned surplus. Based upon 2012 statutory net investment income, Sirius America has the ability to pay $15 million of dividends during 2013 without prior approval of regulatory authorities, subject to the availability of earned surplus.  At December 31, 2012, Sirius America had $56 million of earned surplus and $528 million of statutory surplus.  In 2012, Sirius America paid $55 million of dividends to its immediate parent. During 2012, Sirius Group distributed $40 million to its immediate parent and declared an additional $75 million at December 31, 2012 (for a total of $115 million). The $75 million was paid in January 2013. At December 31, 2012, Sirius Group and its intermediate holding companies had $72 million of net unrestricted cash, short-term investments and fixed maturity investments and $18 million of other long-term investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries.  Sirius Group 2011 Reorganization During the fourth quarter of 2011, White Mountains completed a rebranding and reorganization (the "Reorganization") of its reinsurance business. As part of the Reorganization, White Mountains' reinsurance businesses adopted the Sirius name globally and Sirius America (formerly WMRe America) became a wholly owned subsidiary of Sirius International (formerly WMRe Sirius). In connection with the Reorganization, A.M. Best upgraded the financial strength rating of Sirius America from "A-" (Excellent, the fourth highest of sixteen ratings) to a group "A" (Excellent, the third highest of sixteen ratings), consistent with Sirius International's rating, and all financial strength ratings from the four major ratings agencies were affirmed with stable outlook. Additionally, A.M. Best upgraded the creditworthiness ratings from "bbb-" (Adequate, the tenth highest of twenty-two ratings) on the SIG Senior Notes to "bbb" (Adequate, the ninth highest of twenty-two ratings) and from "bb" (Speculative, the twelfth highest of twenty-two ratings) on the SIG Preference Shares to "bb+" (Speculative, the eleventh highest of twenty-two ratings).  S&P upgraded the creditworthiness ratings from "BBB-" (Adequate, the tenth highest of twenty-two ratings) on the SIG Senior Notes to "BBB" (Adequate, the ninth highest of twenty-two ratings) and from "BB" (Speculative, the twelfth highest of twenty-two ratings) on the SIG Preference Shares to "BB+" (Speculative, the eleventh highest of twenty-two ratings). In conjunction with the Reorganization, the following capital transactions occurred in October 2011: ·     Sirius America paid $250 million to its immediate parent, which included $67 million of dividends and a $183 million return of capital; ·     Sirius International paid $169 million to an intermediate holding company of Sirius Group for a portion of Sirius America. ·     An intermediate holding company of Sirius Group contributed the remaining shares of Sirius America with a GAAP book value of $436 million to Sirius International, which subsequently owned 100% of the shares of Sirius America; ·     Sirius Group distributed $425 million to White Mountains, which included approximately $300 million that was freed up at Sirius International and Sirius America as a result of the Reorganization and the commutation of quota-share agreements between Sirius Group and Esurance as a result of the Esurance Sale; ·     White Mountains contributed a portion of its common share investment in Symetra to an intermediate holding company of Sirius Group.  At December 31, 2011, White Mountains' entire common share investment in Symetra, which had a carrying value of $261 million, was held by Sirius Group.  Capital Maintenance In connection with Sirius Group's reorganization in October 2011, Sirius International and Sirius America entered into a capital maintenance agreement, which obligates Sirius International to make contributions to Sirius America's surplus in order for Sirius America to maintain surplus equal to at least 125% of the company action level risk based capital as defined in the NAIC Property/Casualty Risk-Based Capital Report. The agreement provides for a maximum contribution to Sirius America of $200 million.  Sirius International also provides Sirius America with accident year stop loss reinsurance, which protects Sirius America's accident year loss and allocated loss adjustment expense ratio in excess of 70%, with a limit of $110 million.                                          65 --------------------------------------------------------------------------------  Safety Reserve Subject to certain limitations under Swedish law, Sirius International is permitted to transfer pre-tax income amounts into an untaxed reserve referred to as a safety reserve. At December 31, 2012, Sirius International's safety reserve amounted to SEK 9.6 billion, or $1.5 billion (based on the December 31, 2012 SEK to USD exchange rate). Under GAAP, an amount equal to the safety reserve, net of a related deferred tax liability established at the Swedish tax rate, is classified as shareholder's equity. The tax rate in effect on December 31, 2011 was 26.3%. The tax rate utilized on December 31, 2012 was the new Swedish tax rate of 22.0%. Generally, this deferred tax liability is only required to be paid by Sirius International if it fails to maintain prescribed levels of premium writings and loss reserves in future years. As a result of the indefinite deferral of these taxes, Swedish regulatory authorities do not apply any taxes to the safety reserve when calculating solvency capital under Swedish insurance regulations. Accordingly, under local statutory requirements, an amount equal to the deferred tax liability on Sirius International's safety reserve ($327 million at December 31, 2012) is included in solvency capital. Access to the safety reserve is restricted to coverage of reinsurance losses. Access for any other purpose requires the approval of Swedish regulatory authorities. Similar to the approach taken by Swedish regulatory authorities, most major rating agencies generally include the $1.5 billion balance of the safety reserve, without any provision for deferred taxes, in Sirius International's capital when assessing Sirius International's financial strength.  HG Global/BAM: HG Global has $613 million face value of preferred shares outstanding, of which White Mountains owns 97.3%. Holders of the HG Global preferred shares receive cumulative dividends at a fixed annual rate of 6.0% on a quarterly basis, when and if declared by HG Global. HG Global did not declare or pay any preferred dividends in 2012. As of December 31, 2012, HG Global has accrued $16.8 million of dividends payable to holders of its preferred shares, $16.3 million of which is payable to White Mountains and eliminated in consolidation. HG Re is a Special Purpose Insurer subject to regulation and supervision by the BMA, but does not require regulatory approval to pay dividends. However, HG Re's dividend capacity is limited by amounts held in the collateral trusts pursuant to the FLRT with BAM. As of December 31, 2012, HG Re had statutory capital of $412 million, of which $12 million (which partially relates to accrued interest on the BAM Surplus Notes held by HG Re) was available for dividends to HG Global and $400 million was held as collateral in the Supplemental Trust pursuant to the FLRT with BAM. Interest on the BAM Surplus Notes is payable quarterly at a fixed annual rate of 8.0%. Interest and principal payments are subject to approval of the New York State Department of Financial Services. BAM did not pay any interest on the BAM Surplus Notes in 2012. As of December 31, 2012, HG Global has accrued $18.4 million of interest receivable on the BAM Surplus Notes.  Other Operations: During 2012, WM Advisors did not pay any dividends to its immediate parent. At December 31, 2012, WM Advisors had approximately $18 million of net unrestricted cash and short-term investments. At December 31, 2012, the Company and its intermediate holding companies had $132 million of net unrestricted cash, short-term investments and fixed maturity investments, $540 million of common equity securities and $78 million of other long-term investments included in its Other Operations segment. During 2012, White Mountains paid a $7 million common share dividend.  

Insurance Float

  Insurance float is an important aspect of White Mountains' insurance operations. Insurance float represents funds that an insurance or reinsurance company holds for a limited time. In an insurance or reinsurance operation, float arises because premiums are collected before losses are paid. This interval can extend over many years. During that time, the insurer or reinsurer invests the funds. When the premiums that an insurer or reinsurer collects do not cover the losses and expenses it eventually must pay, the result is an underwriting loss, which is considered to be the cost of insurance float.  One manner in which White Mountains calculates its insurance float is by taking its net investment assets and subtracting its total adjusted capital. Although insurance float can be calculated using numbers determined under GAAP, insurance float is not a GAAP concept and, therefore, there is no comparable GAAP measure.                                         66 --------------------------------------------------------------------------------  Insurance float can increase in a number of ways, including through acquisitions of insurance and reinsurance operations, organic growth in existing insurance and reinsurance operations and recognition of losses that do not cause a corresponding reduction in investment assets.  Conversely, insurance float can decrease in a number of other ways, including sales of insurance and reinsurance operations, shrinking or runoff of existing insurance and reinsurance operations, the acquisition of operations that do not have substantial investment assets (e.g., an agency) and the recognition of gains that do not cause a corresponding increase in investment assets.  White Mountains has historically obtained its insurance float primarily through acquisitions, as opposed to organic growth. It is White Mountains' intention to generate low-cost float over time through a combination of acquisitions and organic growth in its existing insurance and reinsurance operations. However, White Mountains will seek to increase its insurance float organically only when market conditions allow for an expectation of generating underwriting profits. Certain operational leverage metrics can be measured with ratios that are calculated using insurance float.  There are many activities that do not change the amount of insurance float at an insurance company but can have a significant impact on the company's operational leverage metrics.  For example, investment gains and losses, foreign currency gains and losses, debt issuances and repurchases/repayments, common and preferred share issuances and repurchases and dividends paid to shareholders are all activities that do not change insurance float but that can meaningfully impact operational leverage metrics. The following table illustrates White Mountains' consolidated insurance float position as of December 31, 2012 and 2011:                                                                      December 31, ($ in millions)                                                  2012           2011 Total investments                                             $ 7,278.1     $  8,268.0 BAM total cash and investments                                   (488.4 )   

-

 BAM Surplus Notes held by HG Global                               503.0     

-

 Consolidated limited partnership investments (1)                  (91.2 )        (77.2 ) Cash                                                              462.4     

705.4

 Investments in unconsolidated affiliates                          387.9     

275.3

Equity in net unrealized (gains) losses from Symetra's fixed maturity portfolio

                                          (62.8 )   

-

Cash and investments posted as collateral by WM Life Re (2) (393.6 )

(485.3 ) Net investment assets classified within assets held for sale

                                                              338.1     

117.3

 Accounts receivable on unsettled investment sales                   3.9     

4.7

 Accounts payable on unsettled investment purchases                (11.4 )        (34.6 ) Interest-bearing funds held by ceding companies (3)                85.1     

73.6

Interest-bearing funds held under reinsurance treaties (4) (17.7 )

      (12.7 ) Net investment assets                                         $ 7,993.4     $  8,834.5 Total White Mountains' common shareholders' equity            $ 3,731.8     $  4,087.7 Non-controlling interest-OneBeacon Ltd.                           251.4     

273.1

 Non-controlling interest-SIG Preference Shares                    250.0          250.0 Debt                                                              751.2          677.5 Total capital (1)                                               4,984.4        5,288.3

Equity in net unrealized gains from Symetra's fixed maturity portfolio, net of applicable taxes

                       (57.7 )            - Total adjusted capital                                        $ 4,926.7     $  5,288.3 Insurance float                                               $ 3,066.7     $  3,546.2 Insurance float as a multiple of total adjusted capital            0.6x     

0.7x

Net investment assets as a multiple of total adjusted capital

                                                            1.6x     

1.7x

Insurance float as a multiple of White Mountains' common shareholders' equity

                                               0.8x     

0.9x

Net investment assets as a multiple of White Mountains' common shareholders' equity

                                        2.1x     

2.1x

   (1) The non-controlling interest arising from White Mountains' investments in consolidated limited partnerships has not been included in total capital because White Mountains does not have the ability to utilize the assets supporting this non-controlling interest in its insurance operations or in support of its debt obligations. (2) Consists of cash, fixed maturity and short-term investments held by WM Life Re and posted as collateral to its variable annuity reinsurance counterparties. (3) Excludes funds held by ceding companies from which White Mountains does not receive interest credits. (4) Excludes funds held by White Mountains under reinsurance treaties for which White Mountains does not provide interest credits.                                          67 --------------------------------------------------------------------------------  During 2012, insurance float decreased by $480 million, primarily due to the AutoOne Sale and the continued runoff of reserves at OneBeacon and Sirius America, the final settlement and commutation of Scandinavian Re's multi-year retrocessional Casualty Aggregate Stop Loss Agreement with St. Paul, as well as commutations and runoff of Sirius Group's casualty business and payments of losses incurred in 2010 and 2011 related to major catastrophes, primarily from earthquakes in Chile, Japan and New Zealand.  These catastrophe losses increased White Mountains' insurance float when they were first recorded, which is now reversing and decreasing insurance float as the catastrophe losses are paid. These decreases in insurance float were partially offset by an increase in float resulting from the $101 million in after tax losses recognized at OneBeacon related to the Runoff Transaction and $113 million of after tax catastrophe losses recognized by White Mountains in 2012, primarily due to hurricane Sandy. Based on December 31, 2012 balances, the closing of the Runoff Transaction is expected to decrease insurance float by approximately $340 million.  

Financing

  The following table summarizes White Mountains' capital structure at December 31, 2012 and 2011:                                                                    December 31, ($ in millions)                                                 2012           2011 2012 OBH Senior Notes, carrying value                       $    274.7     $        - 2003 OBH Senior Notes, carrying value                                -      

269.8

 SIG Senior Notes, carrying value                                 399.4          399.3 WTM Bank Facility                                                 75.0              - Old Lyme Note                                                      2.1            2.1 Other debt                                                           -            6.3 Total debt                                                       751.2          677.5 Non-controlling interest-OneBeacon Ltd.                          251.4      

273.1

 Non-controlling interest-SIG Preference Shares                   250.0      

250.0

Total White Mountains' common shareholders' equity             3,731.8      

4,087.7

 Total capital (1)                                              4,984.4      

5,288.3

Equity in net unrealized gains from Symetra's fixed maturity portfolio, net of applicable taxes

                      (57.7 )    

-

 Total adjusted capital                                      $  4,926.7     $  5,288.3 Total debt to total adjusted capital                                15 %    

13 % Total debt and Preference Shares to total adjusted capital

                                                             20 %           18 % Total debt to total adjusted capital and the deferred tax liability on the safety reserve at Sirius International (2)                                                   14 %    

12 % Total debt and Preference Shares to total adjusted capital and the deferred tax liability on the safety reserve at Sirius International (2)

                                 19 %    

16 %

(1) The non-controlling interest arising from White Mountains' investments in

consolidated limited partnerships has not been included in total

   capital because White Mountains does not have the ability to utilize the assets supporting this non-controlling interest in its insurance operations or in support of its debt obligations. (2)    Includes the regulatory capital represented by the deferred tax liability 

on the safety reserve at Sirius International (See "Safety

Reserve" on page 66) of $327 and $370 at December 31, 2012 and 2011,

  Management believes that White Mountains has the flexibility and capacity to obtain funds externally as needed through debt or equity financing on both a short-term and long-term basis. However, White Mountains can provide no assurance that, if needed, it would be able to obtain additional debt or equity financing on satisfactory terms, if at all. White Mountains has a revolving credit facility with a syndicate of lenders administered by Bank of America, N.A. with a total commitment of $375 million (the "WTM Bank Facility") that has a maturity date of August 12, 2015. As of December 31, 2012, White Mountains had $75 million outstanding under the WTM Bank Facility, which the Company repaid in January 2013. The WTM Bank Facility contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including certain minimum net worth and maximum debt to capitalization standards. Failure to meet one or more of these covenants could result in an event of default, which ultimately could eliminate availability under this facility and result in acceleration of principal repayment on any amounts outstanding. At December 31, 2012, White Mountains was in compliance with all of the covenants under the WTM Bank Facility and anticipates it will continue to remain in compliance with these covenants for the foreseeable future.                                         68 --------------------------------------------------------------------------------  It is possible that, in the future, one or more of the rating agencies may lower White Mountains' existing ratings. If one or more of its ratings were lowered, White Mountains could incur higher borrowing costs on future borrowings and its ability to access the capital markets could be impacted. In addition, White Mountains' insurance and reinsurance operating subsidiaries could be adversely impacted by a lowering of their financial strength ratings, including a possible reduction in demand for their products in certain markets. In November 2012, OBH issued $275 million face value of senior unsecured debt through a public offering, at an issue price of 99.9%. The net proceeds from the issuance of the 2012 OBH Senior Notes were used to repurchase the remaining 2003 OBH Senior Notes. The 2012 OBH Senior Notes, which are fully and unconditionally guaranteed as to the payment of principal and interest by OneBeacon Ltd., bear an annual interest rate of 4.60%, payable semi-annually in arrears on May 9 and November 9, until maturity on November 9, 2022OneBeacon, Ltd., OBH, SIG and their respective subsidiaries to create liens and enter into sale and leaseback transactions and limits the ability of OneBeacon, Ltd., OBH, SIG and their respective subsidiaries to consolidate, merge or transfer their properties and assets. The indentures do not contain any financial ratios or specified levels of net worth or liquidity to which OneBeacon, Ltd., OBH or SIG must adhere. At December 31, 2012, OneBeacon, Ltd., OBH and SIG were in compliance with all of the covenants under the 2012 OBH Senior Notes and the SIG Senior Notes, and anticipates it will continue to remain in compliance with these covenants for the foreseeable future.  Capital Lease In December 2011, OneBeacon Insurance Company ("OBIC"), an indirect wholly-owned subsidiary of OneBeacon Ltd., sold the majority of its fixed assets and capitalized software to OneBeacon Services LLC ("OB Services"), another indirect wholly-owned subsidiary of OneBeacon Ltd. The fixed assets and capitalized software were sold at a cost equal to book value with no gain or loss recorded on the sale. Subsequent to purchasing the fixed assets and capitalized software from OBIC, OB Services entered into lease financing arrangements with US Bancorp Equipment Finance, Inc. ("US Bancorp") and Fifth Third Equipment Finance Company ("Fifth Third") whereby OB Services sold its fixed assets and its capitalized software, respectively, to US Bancorp and Fifth Third. The assets were sold at a cost equal to net book value. OB Services then leased the fixed assets back from US Bancorp for a lease term of five years and leased the capitalized software back from Fifth Third for a lease term of four years. OB Services received cash proceeds of $23 million as a result of entering into the sale-leaseback transactions. At the end of the lease terms, OB Services will be obligated to purchase the leased assets for a nominal fee, after which all rights, title and interest would transfer to OB Services. At December 31, 2012, OB Services has recorded a capital lease obligation of $18 million included within other liabilities and a capital lease asset of $16 million included within other assets.  Contractual Obligations and Commitments Below is a schedule of White Mountains' material contractual obligations and commitments as of December 31, 2012:                                     Due in           Due in            Due in         Due After                                    One Year       Two to Three      Four to Five         Five Millions                            or Less          Years              Years           Years          Total Loss and LAE reserves (1)         $ 1,092.9     $        892.0     $       398.1     $    785.9     $ 3,168.9 Debt (2)                                  -               75.0             402.1          275.0         752.1 Interest on debt                       38.6               76.5              63.6           63.2         241.9 Long-term incentive compensation                           44.6               81.7               6.8            9.0         142.1 Pension and other benefit plan obligations                            27.4                7.9               6.9           36.5          78.7 Capital leases                          5.3               10.6               1.9              -          17.8 Operating leases                       14.8               25.3              21.5           11.9          73.5

Total contractual obligations $ 1,223.6 $ 1,169.0 $ 900.9 $ 1,181.5$ 4,475.0

  (1)    Represents expected future cash outflows resulting from loss and LAE        payments. The amounts presented are gross of reinsurance   recoverables on unpaid losses of $429 and include the discount on OneBeacon's workers compensation loss and LAE reserves of $5 as of December 31, 2012. These balances exclude amounts included in held for sale as of December 31, 2012 for reinsurance recoverables on unpaid losses of $1,800, loss and LAE reserves of $2,100 and the remaining purchase accounting fair value adjustment of $150 related to the OneBeacon Acquisition. (2)    At December 31, 2012, White Mountains had $75 outstanding under its credit 

facility that was repaid in January 2013.

    White Mountains' loss reserves do not have contractual maturity dates. However, based on historical payment patterns, the preceding table includes an estimate of when management expects White Mountains' loss reserves to be paid. The timing of claim payments is subject to significant uncertainty. White Mountains maintains a portfolio of marketable investments with varying maturities and a substantial amount of short-term investments to provide adequate liquidity for the payment of claims.                                         69 --------------------------------------------------------------------------------  The SIG Preference Shares are not included in the table above as these perpetual preferred shares have no stated maturity date and are redeemable only at the option of SIG. See "Sirius Group's Preference Shares and Senior Notes" on page 22 for more details. The balances included in the table above regarding White Mountains' long-term incentive compensation plans include amounts payable for performance shares and units, as well as deferred compensation balances. Exact amounts to be paid for performance shares cannot be predicted with certainty, as the ultimate amounts of these liabilities are based on the future performance of White Mountains and in some cases the market price of the Company's and OneBeacon Ltd.'s common shares at the time the payments are made. The estimated payments reflected in the table are based on current accrual factors (including performance relative to targets and common share price) and assume that all outstanding balances were 100% vested as of December 31, 2012. There are no provisions within White Mountains' operating leasing agreements that would trigger acceleration of future lease payments. The capital lease that OneBeacon entered into in conjunction with the sale-leaseback of certain of OneBeacon's fixed assets and capitalized software contains provisions that could trigger an event of default, including a failure to make payments when due under the capital lease. If an event of default were to occur, the lessor would have a number of remedies available including the acceleration of future lease payments or the possession of the property covered under the lease agreement. White Mountains does not finance its operations through the securitization of its trade receivables, through special purpose entities or through synthetic leases. Further, except as noted in the following paragraph, White Mountains has not entered into any material arrangements requiring it to guarantee payment of third-party debt or lease payments or to fund losses of an unconsolidated special purpose entity. Through Sirius International, White Mountains has a long-term investment as a stockholder in LUC Holdings, an entity that has entered into a lease to rent the London Underwriting Center ("LUC") through 2016. LUC Holdings in turn subleases space in the LUC. In the LUC Holdings stockholders agreement, the stockholders have guaranteed any shortfall between the lease and the sub-leases on a joint and several basis. As a consequence, in recent years the stockholders have funded an operating shortfall of LUC. At December 31, 2012, White Mountains has recorded a liability of $4 million for its share of the expected future shortfall between LUC Holdings' head lease payments and sub-lease receipts. White Mountains does not believe that future shortfalls, if any, will have a material impact on its results of operations. White Mountains also has future binding commitments to fund certain other long-term investments. These commitments, which total approximately $125 million, do not have fixed funding dates and are therefore excluded from the table above. WM Life Re reinsures death and living benefit guarantees associated with certain variable annuities issued in Japan.  WM Life Re has assumed the risk related to a shortfall between the account value and the guaranteed value that must be paid by the ceding company to an annuitant or to an annuitant's beneficiary in accordance with the underlying annuity contracts. WM Life Re uses derivative instruments, including put options, interest rate swaps, total return swaps and futures contracts on major equity indices, currency pairs and government bonds, to mitigate the risks associated with changes in the fair value of the reinsured variable annuity guarantees. As of December 31, 2012, the total guarantee value was approximately ¥230 billion (approximately $2.7 billion) and the related account values were approximately 87% of this amount. The following table represents expected future cash outflows for WM Life Re's reinsurance contracts.                                               Due in   Due in                                     Due in    Two to   Four to   Due After Cash outflows                      One Year   Three     Five       Five Millions                           or Less    Years     Years      Years     Total

WM Life Re reinsurance contracts $3$7$471 $-

$481

    White Mountains purchases derivative instruments, including futures and over-the-counter option contracts on interest rates, major equity indices, and foreign currencies, to mitigate the risks associated with changes in the fair value of the reinsured variable annuity guarantees. At December 31, 2012, the fair value of these derivative instruments was $98 million. In addition, WM Life Re held approximately $394 million of cash and fixed maturity investments at December 31, 2012 posted as collateral to its reinsurance counterparties.  Share Repurchases In 2006, White Mountains' board of directors authorized the Company to repurchase up to 1,000,000 of its common shares, from time to time, subject to market conditions. In 2010 and 2012, White Mountains' board of directors authorized the Company to repurchase an additional 600,000 and 1,000,000, respectively, of its common shares, for a total authorization of 2.6 million shares. Shares may be repurchased on the open market or through privately negotiated transactions. The repurchase authorizations do not have a stated expiration date. At December 31, 2012, White Mountains may repurchase an additional 685,496 shares under these board authorizations. In addition, from time to time White Mountains has also repurchased its common shares through tender offers that were separately approved by its board of directors.                                         70 --------------------------------------------------------------------------------  During 2012, White Mountains repurchased a total of 1,329,640 of its common shares for $669 million at an average share price of $503, which was 86% of White Mountains' adjusted book value per share of $588 at December 31, 2012. These repurchases were comprised of (1) 502,801 common shares repurchased under the board authorization for $256 million at an average share price of $508; (2) 816,829 common shares repurchased through a fixed-price tender offer for $409 million at a share price of $500; and (3) 10,010 common shares repurchased to satisfy employee income tax withholdings, pursuant to employee benefit plans. Shares repurchased pursuant to employee benefit plans do not fall under the board authorization referred to above. During 2011, White Mountains repurchased a total of 646,502 of its common shares during for $253 million at an average share price of $390, which was 72% of White Mountains' adjusted book value per share of $542 at December 31, 2011. These repurchases were comprised of (1) 313,967 common shares repurchased under the board authorization for $114 million at an average share price of $364; (2) 332,346 common shares repurchased through two "modified Dutch auction" self-tender offers for $139 million at an average share price of $418; and (3) 189 common shares repurchased to satisfy employee income tax withholdings, pursuant to employee benefit plans.  Cash Flows Detailed information concerning White Mountains' cash flows during 2012, 2011 and 2010 follows:  

Cash flows from operations for the years ended 2012, 2011 and 2010

  Net cash flows (used for) provided from continuing operations was $(30) million, $94 million and $29 million in 2012, 2011 and 2010, respectively. Cash flows from continuing operations decreased $124 million from 2011 to 2012 due to declining net investment income, primarily due to a decrease in the overall average invested asset base, the final settlement and commutation of Scandinavian Re's multi-year retrocessional Casualty Aggregate Stop Loss Agreement with St. Paul, as well as commutations and runoff of Sirius Group's casualty business and payments of losses incurred in 2010 and 2011 related to major catastrophes, primarily from earthquakes in Chile, Japan and New Zealand. Net cash flows (used for) provided from discontinued operations was $(196) million, $(209) million and $27 million in 2012, 2011 and 2010, respectively. The cash outflows from discontinued operations in 2012 and 2011 were primarily due to the runoff of reserves related to non-specialty commercial lines businesses that OneBeacon has exited since 2010. White Mountains does not believe that these trends will have a meaningful impact on its future liquidity or its ability to meet its future cash requirements.  

Cash flows from investing and financing activities for the year ended December 31, 2012

  Financing and Other Capital Activities During the first quarter of 2012, the Company declared and paid a $7 million cash dividend to its common shareholders and paid $2 million of interest on the WTM Credit Facility. In December 2012, White Mountains borrowed $150 million under the WTM Bank Facility. White Mountains repaid $75 million of this advance in December 2012 and the remaining $75 million was repaid in January 2013. During 2012, the Company repurchased and retired 1,329,640 of its common shares for $669 million. During 2012, OneBeacon Ltd. declared and paid $80 million of cash dividends to its common shareholders. White Mountains received a total of $60 million of these dividends. During 2012, OBH issued $275 million face value of senior unsecured debt through a public offering, at an issue price of 99.9%. The net proceeds from the issuance of the 2012 OBH Senior Notes were used to repurchase and retire the remaining $270 million principal outstanding on the 2003 OBH Senior Notes. During 2012, OneBeacon paid a total of $16 million of interest on the 2003 OBH Senior Notes. During 2012, Sirius Group declared $115 million and paid $40 million of capital distributions to its immediate parent. In January 2013, Sirius Group paid the remaining $75 million capital distribution to its immediate parent. During 2012, Sirius Group paid $26 million of interest on the SIG Senior Notes, $19 million of dividends on the SIG Preference Shares. During 2012, White Mountains contributed $25 million to WM Life Re.  Acquisitions and Dispositions During 2012, White Mountains capitalized HG Global with approximately $600 million in cash and HG Global capitalized BAM by purchasing $503 million of BAM Surplus Notes. In November 2012, White Mountains Solutions acquired PICO and Citation for a purchase price of $15 million and American General and American General Property for a purchase price of $35 million. During 2012, OneBeacon completed the sale of a shell company, Pennsylvania General Insurance, and received $15 million as consideration.                                          71 --------------------------------------------------------------------------------

Cash flows from investing and financing activities for the year ended December 31, 2011

  Financing and Other Capital Activities During the first quarter of 2011, the Company declared and paid an $8 million cash dividend to its common shareholders. During 2011, the Company repurchased and retired 646,502 of its common shares for $253 million. During 2011, OneBeacon Ltd. declared and paid $175 million of cash dividends to its common shareholders, including $80 million of regular quarterly dividends and a $95 million special dividend. White Mountains received a total of $132 million of these dividends. During 2011, OBH repurchased and retired a portion of the outstanding 2003 OBH Senior Notes for $162 million. During 2011, OneBeacon paid a total of $20 million of interest on the 2003 OBH Senior Notes. During 2011, Sirius Group declared and paid $594 million of capital distributions to its immediate parent, which included $300 million received in connection with the Reorganization. During 2011, Sirius Group paid $26 million of interest on the SIG Senior Notes, $19 million of dividends on the SIG Preference Shares. During 2011, White Mountains contributed $20 million to WM Life Re. During 2011, WM Advisors declared and paid $5 million of capital distributions to its immediate parent. During 2011, White Mountains contributed $104 million to Esurance and received $95 million of capital distributions from Esurance.  Acquisitions and Dispositions During the fourth quarter of 2011, White Mountains completed the sale of Esurance and received $1.01 billion in cash proceeds from Allstate. During the fourth quarter of 2011, Sirius Group acquired Old Lyme for $6 million in cash and a note of $2 million.  

Cash flows from investing and financing activities for the year ended December 31, 2010

  Financing and Other Capital Activities During the first quarter of 2010, the Company declared and paid a $9 million cash dividend to its common shareholders. During 2010, the Company repurchased and retired 687,871 of its common shares for $226 million. During 2010, OneBeacon Ltd. declared and paid $316 million of cash dividends to its common shareholders, including $80 million of regular quarterly dividends and a $236 million special dividend. White Mountains received a total of $240 million of these dividends. During 2010, OneBeacon Ltd. repurchased and retired 0.7 million of its Class A common shares for $11 million through its share repurchase program. During 2010, OBH repurchased and retired a portion of the outstanding OBH Senior Notes for $196 million and OneBeacon Insurance Company purchased a portion of the outstanding OBH Senior Notes for $1 million. In addition, during the first quarter of 2010, OneBeacon repaid in full the $14 million outstanding under the Atlantic Specialty Note. During 2010, OneBeacon paid $30 million of interest on the OBH Senior Notes. During 2010, Sirius Group declared and paid $225 million of capital distributions to its immediate parent. During 2010, Sirius Group paid $26 million of interest on the SIG Senior Notes and $19 million of cash dividends on the SIG Preference Shares. During 2010, Sirius Group paid Sierra $43 million on the Sierra Note, which consisted of $33 million for the principal repayment and $10 million for accrued interest.  In accordance with an indemnification agreement, Berkshire reimbursed White Mountains $37 million related to the Sierra Note payments. During 2010, White Mountains contributed $45 million to WM Life Re. During 2010, White Mountains contributed $70 million to Esurance.  Acquisitions and Dispositions During the first quarter of 2010, Sirius Group acquired Central National for $5 million in cash. During the third quarter of 2010, OneBeacon completed the sale of its traditional personal lines business and received consideration of approximately $167 million. During 2010, OneBeacon received $10 million of additional consideration from the the sale of the renewal rights to its non-specialty commercial lines business. During the fourth quarter of 2010, White Mountains sold its interest in Delos for $22 million.                                          72

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TRANSACTIONS WITH RELATED PERSONS

See Note 18-"Transactions with Related Persons" in the accompanying Consolidated Financial Statements.

  NON-GAAP FINANCIAL MEASURES  This report includes three non-GAAP financial measures that have been reconciled to their most comparable GAAP financial measures. White Mountains believes these measures to be more relevant than comparable GAAP measures in evaluating White Mountains' results of operations and financial condition. 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. The reconciliation of adjusted comprehensive income to comprehensive income is included on page 48. 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. The reconciliation of adjusted book value per share to GAAP book value per share is included on page 47. Total capital at White Mountains is comprised of White Mountains' common shareholders' equity, debt and non-controlling interest in OneBeacon Ltd and the SIG Preference Shares. Total adjusted capital excludes the equity in net unrealized gains and losses from Symetra's fixed maturity portfolio, net of applicable taxes from total capital. The reconciliation of total capital to total adjusted capital is included on page 67.  

CRITICAL ACCOUNTING ESTIMATES

  Management's Discussion and Analysis of Financial Condition and Results of Operations discuss the Company's consolidated financial statements, which have been prepared in accordance with GAAP. The financial statements presented herein include all adjustments considered necessary by management to fairly present the financial position, results of operations and cash flows of White Mountains. 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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain of these estimates are considered critical in that they involve a higher degree of judgment and are subject to a significant degree of variability. On an ongoing basis, management evaluates its estimates, including those related to fair value measurements of investments and other financial instruments, valuation of liabilities associated with an assumed reinsurance agreement covering benefit guarantees on variable annuities in Japan, its property-casualty loss and LAE reserves and its property-casualty reinsurance contracts. Management bases it estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.                                          73 --------------------------------------------------------------------------------

1. Loss and LAE Reserves

General

 White Mountains 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 are typically comprised of (1) case reserves for claims reported and (2) reserves for losses that have occurred but for which claims have not yet been reported, referred to as incurred but not reported reserves, which 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 derived by subtracting paid loss and LAE and case reserves from estimates of ultimate loss 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. White Mountains' 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. External data, available from organizations such as statistical bureaus, consulting firms and reinsurance companies, is sometimes used to supplement or corroborate White Mountains' own experience, and can be especially useful for estimating costs of new business. For some lines of business, such as "long-tail" coverages discussed below, claims data reported in the most recent accident year is often too limited to provide a meaningful basis for analysis due to the typical delay in reporting of claims. For this type of business, White Mountains uses a selected loss ratio method for the initial accident year or years. This is a standard and accepted actuarial reserve estimation method in these circumstances in which the loss ratio is selected based upon information used in pricing policies for that line of business, as well as any publicly available industry data, such as industry pricing, experience and trends, for that line of business. 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 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, such as automobile liability, general liability, products liability, multiple peril coverage, and workers compensation, can be especially long as claims are often reported and ultimately paid or settled years, even decades, 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, White Mountains 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 in accordance with GAAP. 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, respectively. 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 medical 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. A key objective of actuaries in developing estimates of ultimate loss and LAE, and resulting IBNR reserves, is to identify aberrations and systemic changes occurring within historical experience and accurately adjust for them so that the future can be projected reliably. Because of the factors previously discussed, this process requires the use of informed judgment and is inherently uncertain. White Mountains' actuaries use 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.                                         74 --------------------------------------------------------------------------------

These methods generally fall into one of the following categories or are hybrids of one or more of the following categories:

• Historical paid loss development methods: These methods use historical

loss payments over discrete periods of time to estimate future losses.

Historical paid loss development methods assume that the ratio of losses

paid in one period to losses paid in an earlier period will remain

constant. These methods necessarily assume that factors that have affected

paid losses in the past, such as inflation or the effects of litigation,

will remain constant in the future. Because historical paid loss

development methods do not use case reserves to estimate ultimate losses,

they can be more reliable than the other methods discussed below that look

to case reserves (such as actuarial methods that use reported losses) in

situations where there are significant changes in how case reserves are

established by a company's claims adjusters. However, historical paid loss

development methods are more leveraged, meaning that small changes in

       payments have a larger impact on estimates of ultimate losses, than        actuarial methods that use reported losses because cumulative loss        payments take much longer to equal the expected ultimate losses than        cumulative reported amounts. In addition, and for similar reasons,        historical paid loss development methods are often slow to react to        situations when new or different factors arise than those that have        affected paid losses in the past.  

• Historical reported loss development methods: These methods, like

historical paid loss development methods, assume that the ratio of losses

in one period to losses in an earlier period will remain constant in the

future. However, instead of using paid losses, these methods use reported

       losses (i.e., the sum of cumulative historical loss payments plus        outstanding case reserves) over discrete periods of time to estimate        future losses. Historical reported loss development methods can be        preferable to historical paid loss development methods because they        explicitly take into account open cases and the claims adjusters'

evaluations of the cost to settle all known claims. However, historical

reported loss development methods necessarily assume that case reserving

       practices are consistently applied over time. Therefore, when there have        been significant changes in how case reserves are established, using        reported loss data to project ultimate losses can be less reliable than        other methods.  

• Expected loss ratio methods: These methods are based on the assumption

that ultimate losses vary proportionately with premiums. Expected loss

ratios are typically developed based upon the information used in pricing,

and are multiplied by the total amount of premiums written to calculate

ultimate losses. Expected loss ratio methods are useful for estimating

       ultimate losses in the early years of long-tailed lines of business, when        little or no paid or reported loss information is available.   •      Adjusted historical paid and reported loss development methods:  These

methods take traditional historical paid and reported loss development

methods and adjust them for the estimated impact of changes from the past

in factors such as inflation, the speed of claim payments or the adequacy

of case reserves. Adjusted historical paid and reported loss development

methods are often more reliable methods of predicting ultimate losses in

periods of significant change, provided the actuaries can develop methods

to reasonably quantify the impact of changes.

    White Mountains performs an actuarial review of its recorded reserves each quarter. White Mountains' actuaries compare the previous quarter's estimates of paid loss and LAE, case reserves and IBNR to amounts indicated by actual experience. Differences between previous estimates and actual experience are evaluated to determine whether a given actuarial method for estimating loss and LAE should be relied upon to a greater or lesser extent than it had been in the past. While some variance is expected each quarter due to the inherent uncertainty in loss and LAE, persistent or large variances would indicate that prior assumptions and/or reliance on certain reserving methods may need to be revised going forward.  OneBeacon  OneBeacon, like other insurance companies, categorizes and tracks its insurance reserves by "line of business", such as automobile liability, multiple peril package business, and workers compensation. Furthermore, OneBeacon regularly reviews the appropriateness of reserve levels at the line of business level, taking into consideration the variety of trends that impact the ultimate settlement of claims for the subsets of claims in each particular line of business. In its selection of recorded reserves, OneBeacon historically gave greater weight to adjusted paid loss development methods, which are not dependent on the consistency of case reserving practices, over methods that rely on reported losses. In recent years, the amount of weight given to methods based on reported losses has increased with OneBeacon's confidence that its case reserving practices have been more consistently applied.                                         75 --------------------------------------------------------------------------------  Upon completion of each quarterly review, OneBeacon's actuaries select indicated reserve levels based on the results of the actuarial methods described previously, which are the primary consideration in determining management's best estimate of required reserves. However, in making its best estimate, management also considers other qualitative factors that may lead to a difference between held reserves and actuarially recommended levels in the future. Typically, these factors exist when management and OneBeacon's actuaries conclude that there is insufficient historical reported and paid loss information or that trends included in the historical reported and paid loss information are unlikely to repeat in the future. Such factors include, among others, recent entry into new markets or new products, improvements in the claims department that are expected to lessen future ultimate loss costs and legal and regulatory developments. At December 31, 2012 and 2011, total carried reserves, including reserves that are presented as liabilities held for sale in the December 31, 2012 balance sheet related to the Runoff Business, were 6% and 10%, respectively, above the actuarial point estimate.  

Loss and LAE Reserves by Line of Business

OneBeacon's loss and LAE reserves, net of reinsurance recoverables, at December 31, 2012 and 2011 were as follows:

                         December 31, 2012 (1)                December 31, 2011 Millions             Case       IBNR       Total        Case       IBNR       Total Ongoing Business   $ 324.7    $ 568.0    $   892.7    $ 296.5    $ 510.5    $   807.0 Runoff Business      164.3       47.5        211.8      225.4      158.7        384.1 Total              $ 489.0    $ 615.5    $ 1,104.5    $ 521.9    $ 669.2    $ 1,191.1  

(1) Amounts included in Runoff Business as of December 31, 2012 consist of case and IBNR reserves that have been reclassified to liabilities held for sale in the December 31, 2012 consolidated balance sheet.

  OneBeacon's loss and LAE reserves, net of reinsurance recoverables, for its Ongoing Business by line of business at December 31, 2012 and 2011 were as follows:                                         December 31, 2012                December 31, 2011 Millions                            Case       IBNR      Total       Case       IBNR      Total Automobile liability              $  33.3    $  27.5    $  60.8    $  28.2    $  25.9    $  54.1 General liability - occurrence       43.8      123.5      167.3       41.1      108.8      149.9 General liability - claims made      58.3      171.3      229.6       51.4      163.6      215.0 Medical malpractice                  57.7      114.9      172.6       45.1      116.1      161.2 Other casualty                       51.8       29.5       81.3       48.6       34.6       83.2 Workers compensation                 33.3       37.9       71.2       26.0       30.0       56.0 Property                             24.8       35.0       59.8       38.1       11.4       49.5 Other                                21.7       28.4       50.1       18.0       20.1       38.1 Total                             $ 324.7    $ 568.0    $ 892.7    $ 296.5    $ 510.5    $ 807.0    For loss and allocated LAE reserves, excluding A&E, the key assumption as of December 31, 2012 was that the impact of the various reserving factors, as described below, on future paid losses would be similar to the impact of those factors on the historical loss data with the exception of severity trends, which have been relatively stable over the relevant historical period. The actuarial methods used would project losses assuming continued stability in severity trends. Management has considered future increases in loss severity trends, including the impact of inflation, in making its reserve selections. The major causes of material uncertainty ("reserving factors") generally will vary for each product line, as well as for each separately analyzed component of the product line. The following section details reserving factors by product line. There could be other reserving factors that may impact ultimate claim costs. Each reserving factor presented will have a different impact on estimated reserves. Also, reserving factors can have offsetting or compounding effects on estimated reserves. For example, in workers compensation, the use of expensive medical procedures that result in medical cost inflation may enable workers to return to work faster, thereby lowering indemnity costs. Thus, in almost all cases, it is impossible to discretely measure the effect of a single reserving factor and construct a meaningful sensitivity expectation. Actual results will likely vary from expectations for each of these assumptions, resulting in an ultimate claim liability that is different from that being estimated currently.                                          76 --------------------------------------------------------------------------------  Workers compensation Workers compensation covers an employer's liability for injuries, disability or death of employees, without regard to fault, as prescribed by state workers compensation law and other statutes. Workers compensation is generally considered a long tail coverage, as it takes a relatively long period of time to finalize claims from a given accident year. While certain payments such as initial medical treatment or temporary wage replacement for the injured worker are made quickly, some other payments are made over the course of several years, such as awards for permanent partial injuries. In addition, some payments can run as long as the injured worker's life, such as permanent disability benefits and ongoing medical care. Despite the possibility of long payment tails, the reporting lags are generally short, settlements are generally not complex, and most of the liability can be considered high frequency with moderate severity. The largest reserve risk generally comes from the low frequency, high severity claims providing lifetime coverage for medical expense arising from a worker's injury. Examples of common reserving factors that can change and, thus, affect the estimated workers compensation reserves include:  

General workers compensation reserving factors • Mortality trends of injured workers with lifetime benefits and medical

treatment or dependents entitled to survivor benefits

• Degree of cost shifting between workers compensation and health insurance

• Changes in claim handling philosophies (e.g., case reserving standards)

    Indemnity reserving factors • Time required to recover from the injury   

• Degree of available transitional jobs

• Degree of legal involvement

  •       Changes in the interpretations and processes of various workers         compensation bureaus' oversight of claims  

• Future wage inflation for states that index benefits

• Changes in the administrative policies of second injury funds

• Re-marriage rate for spouse in instances of death

Medical reserving factors • Changes in the cost of medical treatments, including prescription drugs,

and underlying fee schedules

• Frequency of visits to health providers

• Number of medical procedures given during visits to health providers

• Types of health providers used

• Type of medical treatments received

• Use of preferred provider networks and other medical cost containment

practices

• Availability of new medical processes and equipment

• Changes in the use of pharmaceutical drugs

• Degree of patient responsiveness to treatment

Workers compensation book of business reserving factors • Product mix

   • Injury type mix   

• Changes in underwriting standards

    Multiple peril Multiple peril represents a package policy sold to insureds or to members of trade associations or other groups that include general liability and property insurance. General liability covers businesses for any liability resulting from bodily injury and property damage arising from general business operations, accidents on a premises and the products manufactured or sold. Property covers losses to a business' premises, inventory and equipment as a result of weather, fire, theft and other causes. Because commercial multiple peril provides a combination of property and liability coverage typically for small businesses, it includes both short and long tail coverages. For property coverage, it generally takes a relatively short period of time to close claims, while for the other coverages, generally for the liability coverages, it takes a longer period of time to close claims. The reserving risk for this line is dominated by the liability coverage portion of this product, except occasionally in the event of catastrophic or large single losses.                                         77 --------------------------------------------------------------------------------  Multiple peril liability reserves here are generally analyzed as two components: bodily injury and property damage. Bodily injury payments reimburse the claimant for damages pertaining to physical injury as a result of the policyholder's legal obligation arising from non-intentional acts such as negligence, subject to the insurance policy provisions. In some cases the damages can include future wage loss (which is a function of future earnings power and wage inflation) and future medical treatment costs. Property damage payments result from damages to the claimant's private property arising from the policyholder's legal obligation for non-intentional acts. In most cases, property damage losses are a function of costs as of the loss date, or soon thereafter. Defense costs are also a part of the insured costs covered by liability policies and can be significant, sometimes greater than the cost of the actual paid claims, though for some products this risk is mitigated by policy language such that the insured portion of defense costs erodes the amount of policy limit available to pay the claim. Multiple peril liability is generally considered a long tail line, as it takes a relatively long period of time to finalize and settle claims from a given accident year. The speed of claim reporting and claim settlement is a function of the specific coverage provided and the jurisdiction, among other factors. There are numerous components underlying the multiple peril liability product line. Some of these have relatively moderate payment patterns (with most of the claims for a given accident year closed within 5 to 7 years), while others can have extreme lags in both reporting and payment of claims (e.g., a reporting lag of a decade for "construction defect" claims). Examples of common reserving factors that can change and, thus, affect the estimated multiple peril liability reserves include:  Multiple peril liability reserving factors • Changes in claim handling philosophies (e.g., case reserving standards)   

• Changes in policy provisions or court interpretations of such provisions

   • New theories of liability   • Trends in jury awards   •       Changes in the propensity to sue, in general with specificity to         particular issues  

• Changes in statutes of limitations

• Changes in the underlying court system

• Distortions from losses resulting from large single accounts or single issues

   • Changes in tort law   

• Shifts in lawsuit mix between federal and state courts

• Changes in settlement patterns

Multiple peril liability book of business reserving factors • Changes in policy provisions (e.g., deductibles, policy limits, or

         endorsements)   

• Changes in underwriting standards

• Product mix (e.g., size of account, industries insured, or jurisdiction mix)

    Commercial automobile liability The commercial automobile product line is a mix of property and liability coverages and, therefore, includes both short and long tail coverages. The payments that are made quickly typically pertain to auto physical damage (property) claims and property damage (liability) claims. The payments that take longer to finalize and are more difficult to estimate relate to bodily injury claims. Commercial automobile reserves are typically analyzed in two components; liability and collision/comprehensive claims. This second component has minimum reserve risk and fast payouts and, accordingly, separate reserving factors are not presented. The liability component includes claims for both bodily injury and property damage. In general, claim reporting lags are minor, claim complexity is not a major issue, and the line is viewed as high frequency, low to moderate severity.                                         78 --------------------------------------------------------------------------------

Examples of common reserving factors that can change and, thus, affect the estimated commercial automobile liability reserves include:

Bodily injury and property damage liability reserving factors • Trends in jury awards

• Changes in the underlying court system

  • Changes in case law   • Litigation trends  

• Frequency of claims with payment capped by policy limits

• Change in average severity of accidents, or proportion of severe accidents

• Subrogation opportunities

• Changes in claim handling philosophies (e.g., case reserving standards)

• Frequency of visits to health providers

• Number of medical procedures given during visits to health providers

• Types of health providers used

• Types of medical treatments received

• Changes in cost of medical treatments

• Degree of patient responsiveness to treatment

    Commercial automobile liability book of business reserving factors •       Changes in policy provisions (e.g., deductibles, policy limits, or         endorsements)   •       Changes in mix of insured vehicles (e.g., long-haul trucks versus local         and smaller vehicles, or fleet risks versus non-fleet risks)  

• Changes in underwriting standards

    General liability See the above discussions under the liability product lines with regard to reserving factors for multiple peril, which are similar to the reserving factors used for general liability.  

OneBeacon Loss and LAE Development - Ongoing Business

  Loss and LAE development-2012 During 2012, OneBeacon experienced $7 million of net favorable loss and LAE reserve development on prior accident year reserves. The favorable reserve development was primarily from workers' compensation, multiple peril liability and general liability lines. This favorable development was offset somewhat by unexpected adverse development on excess property claims.  Loss and LAE development-2011 During 2011, OneBeacon experienced $30 million of net favorable loss and LAE reserve development on prior accident year loss reserves. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines. With respect to the favorable loss reserve development in specialty insurance operations, at December 31, 2010, management had revised its expectations downward for future loss emergence in the professional liability business, which had initially been based on market analysis when this business was initiated in 2002 and 2003. However, during 2011, losses continued to be significantly lower than these revised expectations. As a result, management lowered its selected reserves on the earliest years which affected more recent years as total loss expectations for those years are based in part on prior years' results. The impact of this revised estimate was a decrease to professional liability reserves of $12 million. During 2010, management began separately reviewing loss reserves for some business which had been previously managed as a part of OneBeacon's former commercial lines underwriting unit.  As of December 31, 2010, the reserves for these businesses had been selected based on expected emergence that was based on the historic loss development of former commercial lines underwriting unit. However, during 2011 the actual emerged experience for these businesses was significantly lower than the expected emergence.  As a result of this favorable emergence, management lowered the loss reserves for these businesses by $14 million during 2011. In addition to the development described for the lines of business above, OneBeacon also recorded a $4 million net decrease in reserves in other lines of business as a result of its review of loss reserves at December 31, 2011.                                          79 --------------------------------------------------------------------------------  Loss and LAE development-2010 In 2010, OneBeacon experienced $36 million of net favorable loss and LAE reserve development on prior accident year loss reserves. The favorable loss reserve development was primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines, multiple peril liability lines and other general liability lines, as well as development on personal lines business. The favorable development also included an $8 million release of commercial catastrophe reserves associated with storms occurring in 2004 and 2005. Specifically, at December 31, 2009, management had revised its expectations downward with respect to future loss emergence in the professional liability business, which had initially been based on market analysis when this business was initiated in 2002 and 2003. However, during 2010, losses continued to be significantly lower than these revised expectations. As a result, management lowered its selected reserves on the earliest years which affected more recent years as total loss expectations for those years are based in part on prior years' results. The impact of this revised estimate was a decrease to professional liability reserves of $19 million. At December 31, 2009, management had recorded $8 million of reserves for certain claims related to catastrophes from accident years 2004 and 2005 related to OneBeacon's excess property business. During 2010, these claims were resolved for amounts below OneBeacon's policy coverage therefore the reserves were no longer necessary. In addition to the development described for the lines of business above, management also recorded a $9 million net decrease in IBNR in other lines of business, primarily personal lines, as a result of its review of loss reserves at December 31, 2010.  

OneBeacon Loss and LAE Development - Runoff Business

  Loss and LAE development-2012 During 2012, OneBeacon experienced $40 million of net unfavorable loss and LAE development related to the Runoff Business primarily driven by case incurred development on claims related to multiple peril liability lines and general liability lines and also the impact of an adverse court ruling in Mississippi regarding a disputed assessment from an involuntary pool for hurricane Katrina claims. In addition, there was a change in the workers' compensation tabular discount rate from 4.5% to 3.5% that resulted in unfavorable loss reserve development of $15 million.  Loss and LAE development-2011 During 2011, OneBeacon experienced $27 million of net unfavorable loss and LAE reserve development on prior accident year loss reserves relating to the Runoff Business. The net unfavorable loss reserve development resulted from a detailed review of runoff expenses, principally unallocated loss adjustment expenses ("ULAE"), completed during the fourth quarter of 2011. Specifically, OneBeacon completed a detailed review of loss and defense and cost containment expenses (allocated LAE or "ALAE") and other adjusting expenses (ULAE) during the fourth quarter of 2011. The analysis considered costs, based on current non-staff expenses and staffing projections for the runoff business, as OneBeacon continued efforts to segregate its claims operations between ongoing claims and runoff claims. The analysis also factored in the revised definition of runoff claims to include the non-specialty commercial lines business that was exited via the renewal rights agreement sale beginning with January 1, 2010 effective dates.  Loss and LAE development-2010 During 2010, OneBeacon experienced $23 million of net favorable loss and LAE reserve development on prior accident year loss reserves relating to the Runoff Business. The net favorable loss reserve development was primarily due to lower than expected severity on multiple peril liability lines and other general liability lines, particularly for accident years 2004 through 2009. As a result of the lower than expected case incurred loss and ALAE, actuarial methods based on case incurred losses produced lower estimated ultimate losses, resulting in lower estimates of required IBNR.                                          80 --------------------------------------------------------------------------------  Range of Reserves by Line of Business OneBeacon's range of reserve estimates at December 31, 2012 was evaluated to consider the strengths and weaknesses of the actuarial methods applied against OneBeacon's historical claims experience data. The following table shows the recorded unpaid loss and LAE reserves, net of reinsurance recoverables on unpaid losses, and the high and low ends of OneBeacon's range of reasonable loss reserve estimates for its Ongoing and Runoff Business at December 31, 2012. The high and low ends of OneBeacon's range of reserve estimates in the table below are based on the results of various actuarial methods described above.                             December 31, 2012 Millions               Low      Recorded      High Ongoing Business      $ 740    $   892.7    $   975 Runoff Business (1)     137        211.8        296 Total                 $ 877    $ 1,104.5    $ 1,271  

(1) Includes substantially all OneBeacon's net A&E reserves ($9, net of reinsurance recoverables at December 31, 2012). See A&E Reserves below for a further discussion.

  The following table shows the recorded loss and LAE reserves, net of reinsurance recoverable on unpaid losses, and the high and low ends of OneBeacon's range of reasonable loss reserve estimates for OneBeacon's Ongoing Business by line of business at December 31, 2012.                                         December 31, 2012 Millions                            Low      Recorded      High Automobile liability              $   55    $     60.8    $  63 General liability - occurrence       128         167.3      184 General liability - claims made      184         229.6      264 Medical malpractice                  138         172.6      196 Other casualty                        75          81.3       83 Workers compensation                  57          71.2       72 Property                              57          59.8       63 Other                                 46          50.1       50 Total                             $  740    $    892.7    $ 975    The recorded reserves represent management's best estimate of unpaid loss and LAE by line of business. OneBeacon uses the results of several different actuarial methods to develop its estimate of ultimate reserves. While OneBeacon has not determined the statistical probability of actual ultimate paid losses falling within the range, OneBeacon believes that it is reasonably likely that actual ultimate paid losses will fall within the ranges noted above because the ranges were developed by using several different generally accepted actuarial methods. The probability that ultimate losses will fall outside of the ranges of estimates by line of business is higher for each line of business individually than it is for the sum of the estimates for all lines taken together due to the effects of diversification. The diversification effects result from the fact that losses across OneBeacon's different lines of business are not completely correlated. Although OneBeacon believes its reserves are reasonably stated, ultimate losses may deviate, perhaps materially, from the recorded reserve amounts and could be above or below the range of actuarial projections. This is because ranges are developed based on known events as of the valuation date, whereas the ultimate disposition of losses is subject to the outcome of events and circumstances that may be unknown as of the valuation date.                                         81 --------------------------------------------------------------------------------  The percentages shown in the following table represent the linear interpolation of where OneBeacon's recorded loss and LAE reserves, net of reinsurance recoverable on unpaid losses, are within the range of reserve estimates at December 31, 2012 and 2011, where the low end of the range equals zero, the middle of the range equals 50% and the high end of the range equals 100%. The middle of the range (50%) does not necessarily represent the actuarial indication within the range of possible outcomes, provided above. During 2012, OneBeacon modeled the range of reserves for its Ongoing Business at a more refined line of business level than it had previously used; the prior period has been restated to reflect the more refined range.                                              December 31, (expressed as a percentage of the range)    2012       2011 Ongoing Business                             65 %       73 % Runoff Business                              47 %       57 % Total                                        58 %       66 %    In selecting its best estimate, management continues to monitor the impact of future increases in inflation, including adverse changes in tort liability. These types of changes could result in deterioration in the loss reserves. During 2012, inflation continued to emerge in the loss data for some lines of business which increased the actuarial indications and related estimated range of outcomes. Since these changes in inflation assumptions are now being partially reflected in the actuarial methods, management does not need to select reserves as high in the range of actuarial indications. This has had some impact on most lines but has a particular impact on general liability - claims made and medical malpractice within both OneBeacon's Ongoing Business and its Runoff Business. Additionally, as OneBeacon continues to pay down the obligations associated with its Runoff Business, the uncertainty and volatility associated with those reserves is also declining such that carried reserves, which continue to exceed actuarial indications, are expectedly closer to the middle of the range. Also in 2012, management lowered held reserves in several businesses that had been previously managed as part of OneBeacon's former commercial lines underwriting group. This development was primarily related to workers compensation and general liability occurrence. This favorable development resulted in recorded reserves being lower in the range as of December 31, 2012 compared to December 31, 2011. The percentages shown in the following table represent the linear interpolation of where OneBeacon's recorded loss and LAE reserves on its Ongoing Business, net of reinsurance recoverable on unpaid losses, are within the range of reserves estimates by line of business at December 31, 2012 and 2011. Similar to the preceding table, the low end of the range equals zero, the middle of the range equals 50% and the high end of the range equals 100%.                                              December 31, 

(expressed as a percentage of the range) 2012 2011 Automobile liability

                        69 %        68 % General liability - occurrence              70 %        84 % General liability - claims made             57 %        64 % Medical malpractice                         60 %        71 % Other casualty                              80 %        82 % Workers compensation                        97 %       100 % Property                                    49 %        88 % Other                                       92 %        35 % Total                                       65 %        73 %                                            82

--------------------------------------------------------------------------------  Sensitivity Analysis The following discussion includes disclosure of possible variations from current estimates of loss reserves in OneBeacon's Ongoing Business due to a change in certain key assumptions. Each of the impacts described below is estimated individually, without consideration for any correlation among key assumptions or among lines of business. Therefore, it would be inappropriate to take each of the amounts described below and add them together in an attempt to estimate volatility for OneBeacon's reserves in total. It is important to note that the variations discussed are not meant to be a worst-case scenario, and therefore, it is possible that future variations may be more than amounts discussed below.  

• Workers compensation: Recorded loss and LAE reserves, net of reinsurance

recoverable, for Ongoing and Runoff Business workers compensation were

$254 million at December 31, 2012. The two most important assumptions for

workers compensation reserves are loss development factors and loss cost

trends, particularly medical cost inflation. Loss development patterns are

dependent on medical cost inflation. Approximately half of the workers

compensation net reserves are related to future medical costs. Across the

entire reserve base, a 0.5 point change in calendar year medical inflation

would have changed the estimated net reserve by approximately $46 million

       at December 31, 2012, in either direction.    •      Professional liability:  Recorded loss and LAE reserves, net of

reinsurance recoverable, for professional liability were $410 million

across all lines at December 31, 2012. A key assumption for professional

liability is the implicit loss cost trend, particularly the severity

inflation trend component of loss costs. Across the entire reserve base, a

5.0 point change in assumed annual severity would have changed the

estimated net reserve by approximately $68 million at December 31, 2012,

       in either direction.   

• Multiple peril liability: Recorded loss and LAE reserves for the Ongoing

       and Runoff Businesses, net of reinsurance recoverable, excluding that        provided under the GRC Cover, for multiple peril were $142 million at

December 31, 2012. Reported loss development patterns are a key assumption

for this line of business, particularly for more mature accident years.

       Historically, assumptions on reported loss development patterns have been        impacted by, among other things, emergence of new types of claims        (e.g. construction defect claims) or a shift in the mixture between        smaller, more routine claims and larger, more complex claims. If case        reserve adequacy for multiple peril claims changed by 10.0 points this

would have changed the estimated net reserve by approximately $14 million

at December 31, 2012, in either direction.

    A&E Reserves OneBeacon's reserves include provisions made for claims that assert damages from A&E related exposures. Substantially all of these reserves have been reclassified to liabilities held for sale as of December 31, 2012, as they relate to the Runoff Business. Asbestos claims relate primarily to injuries asserted by those who allegedly came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up cost obligations, particularly as mandated by federal and state environmental protection agencies. In addition to the factors described above regarding the reserving process, OneBeacon estimates its A&E reserves based upon, among other factors, facts surrounding reported cases and exposures to claims, such as policy limits and deductibles, current law, past and projected claim activity and past settlement values for similar claims, as well as analysis of industry studies and events, such as recent settlements and asbestos-related bankruptcies. The cost of administering A&E claims, which is an important factor in estimating loss and LAE reserves, tends to be higher than in the case of non-A&E claims due to the higher legal costs typically associated with A&E claims. A large portion of OneBeacon's A&E losses resulted from the operations of the Employers Group, an entity acquired by one of the legacy companies in 1971. These operations, including business of Employers Surplus Lines Insurance Company and Employers Liability Assurance Corporation, provided primary and excess liability insurance for commercial insureds, including Fortune 500-sized accounts, some of whom subsequently experienced claims for A&E losses. OneBeacon stopped writing such coverage in 1984. OneBeacon's liabilities for A&E losses from business underwritten in the recent past are substantially limited by the application of exclusionary clauses in the policy language that eliminated coverage for such claims. After 1987 for pollution and 1992 for asbestos, most liability policies contained industry- standard absolute exclusions of such claims. In earlier years, various exclusions were also applied, but the wording of those exclusions was less strict and subsequent court rulings have reduced their effectiveness.                                         83 --------------------------------------------------------------------------------  OneBeacon also incurred A&E losses via its participation in industry pools and associations. The most significant of these pools was Excess Casualty Reinsurance Association ("ECRA"), which provided excess liability reinsurance to U.S. insurers from 1950 until the early 1980s. ECRA incurred significant liabilities for A&E, of which OneBeacon bears approximately a 4.6% and 4.7% share, or $67 million and $77 million at December 31, 2012 and 2011, respectively, which is fully reflected in OneBeacon's loss and LAE reserves. More recently, since the 1990s, OneBeacon has experienced an influx of claims from commercial insureds, including many non-Fortune 500-sized accounts written during the 1970s and 1980s, who are named as defendants in asbestos lawsuits. As a number of large well-known manufacturers of asbestos and asbestos-containing products have gone into bankruptcy, plaintiffs have sought recoveries from peripheral defendants, such as installers, transporters or sellers of such products, or from owners of premises on which the plaintiffs' exposure to asbestos allegedly occurred. At December 31, 2012, 481 policyholders had asbestos-related claims against OneBeacon. In 2012, 106 new insureds with such peripheral involvement presented asbestos claims under prior OneBeacon policies. Historically, most asbestos claims have been asserted as product liability claims. Recently, insureds who have exhausted the available products liability limits of their insurance policies have sought from insurers such as OneBeacon payment for asbestos claims under the premises and operations coverage of their liability policies, which may not be subject to similar aggregate limits. OneBeacon expects this trend to continue. However, to date there have been fewer of these premises and operations coverage claims than product liability coverage claims. This may be due to a variety of factors, including that it may be more difficult for underlying plaintiffs to establish losses as stemming from premises and operations exposures, which requires proof of the defendant's negligence, rather than products liability under which strict legal liability applies. Premises and operations claims may vary significantly and policyholders may seek large amounts, although such claims frequently settle for a fraction of the initial alleged amount. Accordingly, there is a great deal of variation in damages awarded for the actual injuries. As of December 31, 2012, there were approximately 379 active claims by insureds against OneBeacon without product liability coverage asserting operations or premises coverage, which may not be subject to aggregate limits under the policies. OneBeacon has a reinsurance contract with NICO under which OneBeacon is entitled to recover from NICO up to $2.5 billion in the future for asbestos claims arising from business written by OneBeacon in 1992 and prior, environmental claims arising from business written by OneBeacon in 1987 and prior, and certain other exposures. Under the terms of the NICO Cover, NICO receives the economic benefit of reinsurance recoverables from certain of OneBeacon's third-party reinsurers in existence at the time the NICO Cover was executed ("Third-Party Recoverables"). As a result, the Third-Party Recoverables serve to protect the $2.5 billion limit of NICO coverage for the benefit of OneBeacon. Any amounts uncollectible from third-party reinsurers due to dispute or the reinsurers' financial inability to pay are covered by NICO under its agreement with OneBeacon. Third-Party Recoverables are typically for the amount of loss in excess of a stated level each year. Of claim payments from 2000 through 2012, approximately 47% of asbestos and environmental losses have been recovered under the historical third-party reinsurance. During 2011, OneBeacon completed a study of its legacy A&E exposures. Reasonable estimates of potential adverse scenarios continue to be within the $2.5 billion reinsurance cover issued by NICO. Based on the results of the study, OneBeacon increased the point estimate of incurred losses ceded to NICO from $2.2 billion to $2.3 billion, an increase of $122 million for asbestos, environmental and other mass tort exposures, net of underlying reinsurance. Due to the NICO Cover, there was no impact to income or equity from the change in the estimate. As part of its previously described actuarial review process, OneBeacon reviews A&E activity each quarter and compares that activity to what was assumed in the most recently completed study. As of December 31, 2012, OneBeacon noted no change in the range of reasonable outcomes around its best estimate described above. As noted above, OneBeacon has ceded estimated incurred losses of approximately $2.3 billion to the NICO Cover at December 31, 2012. Since entering into the NICO Cover, approximately 9% of the $2.3 billion of utilized coverage relates to uncollectible Third Party Recoverables and settlements on Third Party Recoverables through December 31, 2012. Net losses paid totaled approximately $1.5 billion as of December 31, 2012. To the extent that actual experience differs from OneBeacon's estimate of incurred A&E losses and Third Party Recoverables, future losses could exceed the $198 million of protection remaining under the NICO Cover.                                         84 --------------------------------------------------------------------------------  OneBeacon's reserves for A&E losses, net of Third-Party Recoverables but prior to NICO recoveries, were $0.7 billion at December 31, 2012. An industry benchmark of reserve adequacy is the "survival ratio", computed as a company's reserves divided by its historical average yearly loss payments. This ratio indicates approximately how many more years of payments the reserves can support, assuming future yearly payments are equal to historical levels. OneBeacon's survival ratio was 10.4 years at December 31, 2012. This was computed as the ratio of A&E reserves, net of Third-Party Recoverables prior to the NICO Cover of $0.7 billion plus the remaining unused portion of the NICO Cover of $198 million, to the average A&E loss payments over the three-year period ended December 31, 2012, net of Third-Party Recoverables. OneBeacon's survival ratio was 13.3 years at December 31, 2011. OneBeacon believes that as a result of the NICO Cover and its historical third-party reinsurance programs, OneBeacon should not experience material financial loss from A&E exposures under current coverage interpretations and that its survival ratio compares favorably to industry survival ratios. However, the survival ratio is a simplistic measure estimating the number of years it would be before the current ending loss reserves for these claims would be paid using recent annual average payments subject to adjustments for unusual items. Many factors, such as aggressive settlement procedures, mix of business and coverage provided, have a significant effect on the amount of A&E reserves and payments and the resultant survival ratio. Thus, caution should be exercised in attempting to determine reserve adequacy for these claims based simply on this survival ratio. OneBeacon's reserves for A&E losses at December 31, 2012 represent management's best estimate of its ultimate liability based on information currently available. However, significant uncertainties, including but not limited to case law developments, medical and clean-up cost increases and industry settlement practices, limit management's ability to accurately estimate ultimate liability and OneBeacon may be subject to A&E losses beyond currently estimated amounts. In addition, OneBeacon remains liable for risks reinsured in the event that a reinsurer does not honor its obligations under reinsurance contracts. See Note 3-"Reserves for Unpaid Loss and LAE-Asbestos and environmental loss and LAE reserve activity" of the accompanying historical consolidated financial statements for more information regarding its A&E reserves.  OneBeacon A&E Claims Activity OneBeacon's A&E claims activity, substantially all of which relates to Runoff Business, the operations of which have been included in discontinued operations and the loss and LAE reserves of which are included in liabilities held for sale on the December 31, 2012 consolidated balance sheet, is illustrated in the table below:                                                                Year Ended December 31, A&E Claims Activity                                           2012               2011 Asbestos

Accounts with asbestos claims at the beginning of the year

                                                             460        

478

 Accounts reporting asbestos claims during the year               106        

94

Accounts on which asbestos claims were closed during the year

                                                         (85 )              (112 ) Accounts with asbestos claims at the end of the year             481        

460

Environmental

Accounts with environmental claims at the beginning of the year

                                                         315        

353

Accounts reporting environmental claims during the year

                                                             102        

57

Accounts on which environmental claims were closed during the year

                                                 (111 )      

(95 ) Accounts with environmental claims at the end of the year

                                                             306        

315

Total

Total accounts with A&E claims at the beginning of the year

                                                             775        

831

 Accounts reporting A&E claims during the year                    208        

151

Accounts on which A&E claims were closed during the year

                                                            (196 )              (207 ) Total accounts with A&E claims at the end of the year            787                 775                                            85

--------------------------------------------------------------------------------

Sirius Group

  The estimation of net reinsurance loss and LAE reserves is subject to the same risk as the estimation of insurance loss and LAE reserves. In addition to those risk factors which give rise to inherent uncertainties in establishing insurance loss and LAE reserves, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to: (1) the claim-tail for reinsurers being further extended because claims are first reported to the original primary insurance company and then through one or more intermediaries or reinsurers, (2) the diversity of loss development patterns among different types of reinsurance treaties or facultative contracts, (3) the necessary reliance on the ceding companies for information regarding reported claims and (4) the differing reserving practices among ceding companies.  Loss and LAE Reserves by Class of Business Sirius Group's net loss and LAE reserves by class of business at December 31, 2012 and 2011 were as follows: Net loss and LAE reserves by class of business                                         December 31, 2012                        December 31, 2011 Millions                                  Case         IBNR         Total         Case         IBNR          Total Casualty (excluding A&E)                $ 179.8     $  267.5     $   447.3      $ 218.8     $   344.4     $   563.2 Other property                            162.8        150.0         312.8        192.5         100.2         292.7 Property catastrophe excess               146.5         71.2         217.7        121.7         102.6         224.3 A&E (1)                                    59.0        130.4         189.4         55.6         107.1         162.7 Accident and health                        56.8         88.4         145.2         42.6          95.9         138.5 Aviation and space                         98.4         41.5         139.9         97.4          51.5         148.9 Marine                                     71.9         31.1         103.0         79.3          38.7         118.0 Trade Credit                               59.1         26.0          85.1         51.5          32.0          83.5 Agriculture                                 3.0         16.4          19.4            -          15.5          15.5 Contingency                                 3.6          5.5           9.1          5.4           5.1          10.5 Runoff (2)                                 84.8         93.6         178.4         86.7         159.5         246.2 Total                                   $ 925.7     $  921.6     $ 1,847.3      $ 951.5     $ 1,052.5     $ 2,004.0  

(1) Sirius Group's A&E exposures are principally the result of runoff of

businesses acquired in the 1990s.

(2) Included in this class are primarily the runoff exposures from various

        acquisitions.    In order to reduce the potential uncertainty of loss reserve estimation, Sirius Group obtains information from numerous sources to assist in the process. Sirius Group's underwriting and pricing actuaries devote considerable effort to understanding and analyzing each insured's operations and loss history during the underwriting of the business, using a combination of insured and industry statistics. Such statistics normally include historical premium and loss data by class of business, individual claim information for larger claims, distributions of insurance limits provided, loss reporting and payment patterns, and rate change history. This analysis is used to project expected loss ratios for each treaty during the upcoming contract period. These expected ultimate loss ratios are aggregated across all treaties and are input directly into the loss reserving process to generate the expected loss ratios that are used to estimate IBNR. Upon notification of a loss from an insured (typically a ceding company), Sirius Group establishes case reserves, including LAE reserves, based upon Sirius Group's share of the amount of reserves established by the insured and Sirius Group's independent evaluation of the loss. In cases where available information indicates that reserves established by a ceding company are inadequate, Sirius Group establishes case reserves or IBNR in excess of its share of the reserves established by the ceding company. Also, in certain instances, Sirius Group may decide not to establish case reserves or IBNR, when the information available indicates that reserves established by ceding companies are not adequately supported. In addition, specific claim information reported by insureds or obtained through claim audits can alert management to emerging trends such as changing legal interpretations of coverage and liability, claims from unexpected sources or classes of business, and significant changes in the frequency or severity of individual claims where customary. Generally, ceding company audits are not customary outside the United States. This information is often used to supplement estimates of IBNR. Although loss and LAE reserves are initially determined based on underwriting and pricing analyses, Sirius Group regularly reviews the adequacy of its recorded reserves by using a variety of generally accepted actuarial methods, including historical incurred and paid loss development methods. If actual loss activity differs substantially from expectations, an adjustment to recorded reserves may be warranted. As time passes, loss reserve estimates for a given year will rely more on actual loss activity and historical patterns than on initial assumptions based on pricing indications. Sirius Group's expected annual loss reporting assumptions are updated at least once a year. Expected loss ratios underlying the current accident year are updated quarterly, to reflect new business that is underwritten by the company.                                         86 --------------------------------------------------------------------------------  As mentioned above, there can be a considerable time lag from the time a claim is reported to a ceding company to the time it is reported to the reinsurer. The lag can be several years in some cases. This lag can be due to a number of reasons, including the time it takes to investigate a claim, delays associated with the litigation process, the deterioration in a claimant's physical condition many years after an accident occurs, etc. In its loss reserving process, Sirius Group assumes that such lags are predictable, on average, over time and therefore the lags are contemplated in the loss reporting patterns used in its actuarial projection methods. This means that, as a reinsurer, Sirius Group must rely on such actuarial estimates for a longer period of time after reserves are first estimated than does a primary insurance company. Backlogs in the recording of assumed reinsurance can also complicate the accuracy of loss reserve estimation. As of December 31, 2012, there were no significant backlogs related to the processing of assumed reinsurance information at Sirius Group. Sirius Group relies heavily on information reported by ceding companies, as discussed above. In order to determine the accuracy and completeness of such information, Sirius Group underwriters, actuaries, and claims personnel perform audits of certain ceding companies where customary. Generally, ceding company audits are not customary outside the United States. In such cases, Sirius Group reviews information from ceding companies for unusual or unexpected results. Any material findings are discussed with the ceding companies. Sirius Group sometimes encounters situations where it is determined that a claim presentation from a ceding company is not in accordance with contract terms.  Most situations are resolved amicably and without the need for litigation or arbitration. However, in the infrequent situations where a resolution is not possible, Sirius Group will vigorously defend its position in such disputes. Sirius Group also obtains reinsurance whereby another reinsurer contractually agrees to indemnify Sirius Group for all or a portion of the risks underwritten by Sirius Group. Such arrangements, where one reinsurer provides reinsurance to another reinsurer, are usually referred to as "retrocessional reinsurance" arrangements. Sirius Group establishes estimates of amounts recoverable from retrocessional reinsurance in a manner consistent with the loss and LAE liability associated with reinsurance contracts offered to its customers, net of an allowance for uncollectible amounts, if any. Net reinsurance loss reserves represent loss and LAE reserves reduced by ceded reinsurance recoverable on unpaid losses. In 2012, Sirius Group had net favorable loss reserve development of $34 million. The major reductions in loss reserve estimates were recognized in casualty runoff ($32 million), property ($28 million), marine/energy ($12 million), trade credit ($7 million) and aviation/space ($5 million) lines, partially offset by a $46 million increase in asbestos loss reserves and a $4 million increase in accident and health. In 2011, Sirius Group had net favorable loss reserve development of $47 million, primarily attributable to $41 million of favorable development on property lines, including $13 million of loss reserve reductions for the 2010 Chile earthquake, partially offset by asbestos and environmental increases of $12 million.  In 2010, Sirius Group had net favorable loss reserve development of $57 million, primarily related to short-tailed lines, such as property, accident and health, and marine, from recent underwriting years. Included in the $57 million favorable loss reserve development was the recognition of $16 million in deferred gains from a retrocessional reinsurance contract that incepted in 2000 and was fully collected in 2010. The actuarial methods described above are used to calculate a point estimate of loss and LAE reserves for each company within Sirius Group. These point estimates are then aggregated to produce an actuarial point estimate for the entire segment. Once a point estimate is established, Sirius Group's actuaries estimate loss reserve ranges to measure the sensitivity of the actuarial assumptions used to set the point estimates. These ranges are calculated from historical variations in loss ratios, payment and reporting patterns by class and type of business. The actuarial analysis is a primary consideration for management in determining its best estimate of loss and LAE reserves. In making its best estimate, management also considers other qualitative factors that may lead to a difference between its best estimate of loss and LAE reserves and the actuarial point estimate. Typically, these factors exist when management and the company's actuaries conclude that there is insufficient historical incurred and paid loss information or that trends included in the historical incurred and paid loss information are unlikely to repeat in the future. These factors may include, among others, changes in the techniques used to assess underwriting risk, more accurate and detailed levels of data submitted with reinsurance applications, the uncertainty of the current reinsurance pricing environment, the level of inflation in loss costs, changes in ceding company reserving practices, and legal and regulatory developments. At December 31, 2012 and 2011, total carried net reserves were 2.4% and 2.7% above the actuarial point estimate, respectively.                                         87 --------------------------------------------------------------------------------  The following table illustrates Sirius Group's recorded net loss and LAE reserves and high and low estimates for those classes of business for which a range is calculated, at December 31, 2012. Net loss and LAE reserves by class of business          December 31, 2012 Millions                                           Low       Recorded      

High

 Casualty (excluding A&E)                         $   402    $   447.3    $  

478

 Other property                                       289        312.8       

339

 Property catastrophe excess                          181        217.7        219 A&E                                                  172        189.4        208 Accident and health                                  132        145.2        155 Aviation and space                                   130        139.9        150 Marine                                                96        103.0        111 Trade Credit                                          74         85.1         89 Agriculture                                           18         19.4         21 Contingency                                            8          9.1         10 Runoff                                               148        178.4        188 Total                                            $ 1,650    $ 1,847.3    $ 1,968    The probability that ultimate losses will fall outside of the range of estimates by class of business is higher for each class of business individually than it is for the sum of the estimates for all classes taken together due to the effects of diversification. Management believes that it is reasonably likely that actual ultimate losses will fall within the total range noted above because the ranges were developed by using generally accepted actuarial methods supplemented with input of underwriting and claims staff. However, due to the inherent uncertainty, ultimate losses may deviate, perhaps materially, from the recorded reserve amounts and could be above or below the range of actuarial projections.  Sirius Group A&E Reserves Sirius Group's A&E exposure is primarily from reinsurance contracts written between 1974 through 1985 by acquired companies, mainly MONY Reinsurance Company and Christiania General Insurance Company. The exposures are mostly higher layer excess of loss treaty and facultative coverages with relatively low limits exposed for each claim. In 2012, Sirius Group increased its net A&E exposure through two incoming runoff portfolios acquired by White Mountains Solutions. These acquisitions added $11 million in net asbestos reserves and $1 million in net environmental reserves. The acquisition of companies having modest portfolios of A&E exposure has been typical of several prior White Mountains Solutions transactions and is likely to be an element of at least some future acquisitions. However, the acquisitions of new A&E liabilities is undertaken only after careful due diligence and utilizing conservative reserving assumptions in relation to industry benchmarks. In the case of those portfolios acquired during 2012, the exposures arise almost entirely from old assumed reinsurance contracts having small limits of liability. In addition to the $11 million increase in asbestos reserves from the two incoming portfolios acquired by White Mountains Solutions mentioned above, Sirius Group recorded $46 million and $10 million of asbestos-related incurred losses and LAE on its already existing asbestos reserves in 2012 and 2011, respectively.  In the first six months of 2012, Sirius Group increased net asbestos reserves by $12 million in response to its quarterly monitoring of newly reported claims. Based on the monitoring trends noted in the first six months 2012, Sirius Group conducted an in-depth analysis of its asbestos exposure, which was completed in third quarter. The main focus of the analysis was on the internal claims analysis of all treaty and facultative contracts likely to have asbestos exposure.  An external expert with extensive asbestos claims experience was utilized to enhance the review.  This analysis entailed examining total expected asbestos losses and LAE from a variety of information sources, including previous asbestos studies, reported client data and external benchmarking scenarios.  The analysis resulted in a net asbestos loss reserve increase of $33 million recognized in third quarter. An additional $2 million of asbestos losses were recognized in fourth quarter 2012. The 2011 incurred losses were primarily the result of management's monitoring of a variety of metrics including: actual paid and reported claims activity; net survival ratios; peer comparisons; and industry benchmarks. Offsetting the $1 million increase in environmental reserves mentioned above, Sirius Group recorded a decrease of $1 million in 2012 of environmental-related losses on its already existing reserves in 2012. In 2011, Sirius Group recorded $2 million of environmental losses.                                         88 --------------------------------------------------------------------------------

Net incurred loss activity for asbestos and environmental in the last two years was as follows:

                                          Year Ended Net incurred loss and LAE activity      December 31, Millions                               2012      2011 Asbestos                             $ 46.4     $ 10.3 Environmental                          (0.5 )      2.0 Total                                $ 45.9     $ 12.3    Sirius Group's net reserves for A&E losses were $189 million and $163 million at December 31, 2012 and 2011, respectively. Sirius Group's A&E three-year net loss paid survival ratio was approximately 9.0 years and 11.1 years at December 31, 2012 and 2011. The decrease in the paid survival ratio in 2012 was driven by an unusually high net paid loss of $9 million made in first quarter 2012 to commute one of Sirius Group's top five asbestos exposures. The following tables show gross and net loss and LAE payments for A&E exposures for the years ending December 31, 2003 through December 31, 2012:                                    Asbestos                    Environmental Millions                       paid loss and LAE             paid loss and LAE Year ended December 31,         Gross           Net           Gross           Net 2003                      $     10.7           $ 7.4    $     1.7            $ 1.1 2004                            19.3            14.3          1.5              1.4 2005                            11.7            12.2          4.8              4.0 2006                             9.8             7.9          0.6              0.5 2007                            12.3            10.7          2.0              1.7 2008                            19.7            14.3          2.2              1.6 2009                            11.4            10.3          1.5              1.5 2010                            14.5            12.1          0.8              0.9 2011                            20.4            15.6          3.2              3.6 2012                            34.7            29.4          2.3              1.5   

Sirius Group A&E Claims Activity

Sirius Group has a specialized unit that handles claims relating to A&E exposures. The issues presented by these types of claims require expertise and an awareness of the various trends and developments in relevant jurisdictions. Generally, Sirius Group sets up claim files for each reported claim by cedent for each individual insured. In many instances, a single claim notification from a cedent could involve several years and layers of coverage resulting in a file being set up for each involvement. Precautionary claim notices are submitted by the ceding companies in order to preserve their right to pursue coverage under the reinsurance contract. Such notices do not contain an incurred loss amount. Accordingly, an open claim file is not established. As of December 31, 2012, Sirius Group had 1,859 open claim files for asbestos and 281 open claim files for environmental exposures.                                         89 --------------------------------------------------------------------------------  Sirius Group's A&E claim activity for the last two years is illustrated in the table below.                                                             Year Ended December 31, A&E Claims Activity                                           2012           2011 Asbestos Total asbestos claims at the beginning of the year            1,261         

1,223

 Asbestos claims acquired during the year                        642         

-

 Asbestos claims reported during the year                        242         

358

 Asbestos claims closed during the year                         (286 )          (320 ) Total asbestos claims at the end of the year                  1,859         

1,261

Environmental

Total environmental claims at the beginning of the year 266

268

 Environmental claims reported during the year                    76         

87

 Environmental claims closed during the year                     (61 )           (89 ) Total environmental claims at the end of the year               281         

266

Total

 Total A&E claims at the beginning of the year                 1,527         

1,491

 A&E claims acquired during the year                             642         

-

 A&E claims reported during the year                             318         

445

 A&E claims closed during the year                              (347 )          (409 ) Total A&E claims at the end of the year                       2,140         

1,527

    The costs associated with administering the underlying A&E claims by Sirius Group's clients tend to be higher than non-A&E claims due to generally higher legal costs incurred by ceding companies in connection with A&E claims ceded to Sirius Group under the reinsurance contracts.  

2. Fair Value Measurements

General

 White Mountains measures certain assets and liabilities at estimated fair value in its consolidated financial statements, with changes therein recognized in current period earnings. In addition, White Mountains discloses estimated fair value for certain liabilities measured at historical or amortized cost. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at a particular measurement date. 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 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"). Assets and liabilities carried at fair value include substantially all of the investment portfolio; derivative instruments, both exchange traded and over the counter instruments; and reinsurance assumed liabilities associated with variable annuity benefit guarantees. Valuation of assets and liabilities measured at fair value require management to make estimates and apply judgment to matters that may carry a significant degree of uncertainty. In determining its estimates of fair value, White Mountains uses a variety of valuation approaches and inputs. Whenever possible, White Mountains estimates fair value using valuation methods that maximize the use of observable prices and other inputs. Where appropriate, assets and liabilities measured at fair value have been adjusted for the effect of counterparty credit risk.                                          90 --------------------------------------------------------------------------------  Invested Assets White Mountains' invested assets that are measured at fair value include fixed maturity securities, common and preferred equity securities, convertible fixed maturity securities and interests in hedge funds and private equity funds. Where available, the estimated fair value of investments is based upon quoted prices in active markets. In circumstances where quoted prices are unavailable, White Mountains uses fair value estimates based upon other observable inputs including matrix pricing, benchmark interest rates, market comparables, and other relevant inputs. Where observable inputs are not available, the estimated fair value is based upon internal pricing models using assumptions that include inputs that may not be observable in the marketplace but which reflect management's best judgment given the circumstances and consistent with what other market participants would use when pricing such instruments. As of December 31, 2012, approximately 95.0% of the investment portfolio recorded at fair value was priced based upon quoted market prices or other observable inputs. Investments valued using Level 1 inputs include fixed maturities, primarily investments in U.S. Treasuries, common equities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs comprise fixed maturities including corporate debt, state and other governmental debt, convertible fixed maturity securities and mortgage and asset-backed securities. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains' investments in hedge funds and private equity funds, as well as investments in certain debt securities, including asset-backed securities, where quoted market prices are unavailable. White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services used by White Mountains have indicated that if no observable inputs are available for a security, they will not provide a price. In those circumstances, White Mountains estimates the fair value using industry standard pricing models and observable inputs such as benchmark interest rates, matrix pricing, market comparables, broker quotes, issuer spreads, bids, offers, credit rating prepayment speeds and other relevant inputs. White Mountains performs procedures to validate the market prices obtained from the outside pricing sources. Such procedures, which cover substantially all of its fixed maturity investments include, but are not limited to, evaluation of model pricing methodologies and review of the pricing services' quality control processes and procedures on at least an annual basis, comparison of market prices to prices obtained from a different independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices, and review of assumptions utilized by the pricing service for selected measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1 million from the expected price based on these procedures are considered outliers. In circumstances where the results of White Mountains' review process do not appear to support the market price provided by the pricing services, White Mountains challenges the price.  During the past year, approximately fifteen securities fell outside White Mountains' expected results, thereby triggering the challenge with the pricing service. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question. The fair values of such securities are considered to be Level 3 measurements.                                         91 --------------------------------------------------------------------------------

The following table summarizes White Mountains' fair value measurements and the percentage of Level 3 investments at December 31, 2012:

                                                                     December 31, 2012                                                                                            Level 3                                                                                           Inputs as a                                                                                         % of total fair Millions                                           Fair value       Level 3 Inputs           value U.S. Government and agency obligations           $      440.1     $              -                - Debt securities issued by industrial corporations                                          2,385.1                    -                - Municipal obligations                                     5.2                    -                - Mortgage-backed and asset-backed securities           2,095.6                 22.1                1 % Foreign government, agency and provincial obligations                                             521.9                    -                - Preferred stocks                                         86.4                 70.8               82 % Fixed maturities (1)                                  5,534.3                 92.9                2 % Common equity securities                              1,029.7                 37.3                4 % Convertible fixed maturity investments                  127.4                    -                - Short-term investments                                  630.6                    -                - Other long-term investments (2)                         259.3                259.3              100 % Total investments                                $    7,581.3     $          389.5                5 %   (1)      Carrying value includes $338.1 that is classified as assets held for          sale relating to discontinued operations.   (2)      Excludes carrying value of $35.0 associated with other long-term

investments accounted for using the equity method and $(.1) related to

currency forward contracts.

    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 maturities at December 31, 2012 comprise 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 summarize the changes in White Mountains' fair value measurements by level for the year ended December 31, 2012 and December 31, 2011:                                                                                     Level 3 Investments                                                                                 Common          Convertible        Other long-                             Level 1          Level 2           Fixed            equity             fixed               term Millions                  Investments      Investments       Maturities       securities         maturities        investments         Total Balance at January 1, 2012                     $    1,879.1     $    6,088.2     $       78.9     $       32.3     $              -     $      268.3     $    8,346.8   (1)(2) Total realized and unrealized gains (losses)                         46.8             53.6              8.7             12.4                    -             (3.3 )          118.2 Foreign currency gains through OCI and other revenue                           8.9             81.9              0.8              0.2                    -              3.7             95.5 Amortization/Accretion           (0.8 )          (48.0 )           (0.8 )              -                    -                -            (49.6 ) Purchases                     7,266.5          4,927.1            144.4              3.1                    -             39.4         12,380.5 Sales                        (7,214.8 )       (5,937.0 )          (99.4 )          (10.1 )                  -            (48.8 )      (13,310.1 ) Transfers in                        -             62.4             22.1                -                    -                -             84.5 Transfers out                       -            (22.1 )          (61.8 )           (0.6 )                  -                -            (84.5 ) Balance at December 31, 2012        $    1,985.7     $    5,206.1     $       92.9     $       37.3     $              -     $      259.3     $    7,581.3   (1)(2)  

(1) Excludes carrying value of $33.0 and $35.0 at January 1, 2012 and December 31, 2012 associated with other long-term investments accounted for using the equity method and $(0.1) at December 31, 2012 related to forward contracts. (2) Carrying value includes $111.8 and $338.1 at January 1, 2012 and December 31, 2012 that is classified as assets held for sale relating to discontinued operations.

                                       92 --------------------------------------------------------------------------------

                                                                                                    Level 3 Investments                                                                                    Common          Convertible                                  Level 1          Level 2           Fixed          equity             fixed           Other long-term Millions                       Investments      Investments      Maturities      securities         maturities          investments             Total

Balance at January 1, 2011    $    1,894.4     $    5,477.4     $     128.4     $      71.2     $              -     $         330.2   (1)  $   7,901.6   (1) Total realized and unrealized (losses) gains             (1.4 )          113.2            (8.1 )          (4.7 )                  -                19.5              118.5 Foreign currency gains (losses) through OCI and other revenue                          4.6            (76.1 )          (4.4 )           1.6                    -                (5.0 )            (79.3 ) Amortization/Accretion                 2.3            (54.2 )           0.3               -                    -                   -              (51.6 ) Purchases                         10,653.6          8,905.6           213.7            19.7                    -                58.4           19,851.0 Sales                            (10,674.4 )       (8,528.7 )                         (55.5 )                  -              (134.8 )        (19,393.4 ) Transfers in                             -            269.2            18.2               -                    -                   -              287.4 Transfers out                            -            (18.2 )        (269.2 )             -                    -                   -             (287.4 ) Balance at December 31, 2011                          $    1,879.1     $    6,088.2     $      78.9     $      32.3     $              -     $         268.3   (1)  $   8,346.8   (1)(2)   (1) Excludes carrying value of $33.0 and $41.9 at December 31, 2011 and January 1, 2011 associated with other long-term investment limited partnerships accounted for using the equity method. (2) Carrying value includes $111.8 that is classified as assets held for sale relating to AutoOne discontinued operations.  

Fair Value Measurements - transfers between levels

  During 2012, two fixed maturity securities classified as Level 3 measurements in the prior period were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available at December 31, 2012.  These measurements comprise "Transfers out" of Level 3 and "Transfers in" to Level 2 of $61.8 million for the period ended December 31, 2012. For the year-ended December 31, 2012, "Transfers out" of Level 2 and "Transfers in" to Level 3 fixed maturity investments of $22.1 million consists of one asset-backed security for which the estimated fair value was determined using a single broker quote. At December 31, 2011, ten fixed maturity securities which had been classified as Level 3 measurements at January 1, 2011 were recategorized as Level 2 measurements because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available at December 31, 2011. These measurements comprise "Transfers out" of Level 3 and "Transfers in" to Level 2 of $269.2 million for the period ended December 31, 2011.  One security that was classified as a Level 2 investment at January 1, 2011 was priced with unobservable inputs and represents "Transfers in" of $18.2 million in Level 3 investments.  The fair value of this security was estimated using industry standard pricing models, in which management selected inputs using its best judgment.  The pricing models used by White Mountains use the same valuation methodology for all Level 3 measurements for fixed maturities. The security is considered to be Level 3 because the measurements are not directly observable. At December 31, 2011, the estimated fair value for this security determined using the industry standard pricing models was $1.6 million less than the estimated fair value based upon quoted prices provided by a third party pricing vendor. The following table summarizes the amount of total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for years ended December 31, 2012, 2011, and 2010:                                                               Year Ended December 31, Millions                                                  2012           2011          2010 Fixed maturities                                     $      7.7       $   (12.2 )   $    10.2 Common equity securities                                    3.0           (16.6 )       (19.2 ) Convertible fixed maturities                                  -               -             - Other long-term investments                                 7.0           (16.8 )        39.0 Total unrealized investment (losses) gains, pre-tax - Level 3 investments                        $     17.7       $   (45.6 )   $    30.0                                            93

--------------------------------------------------------------------------------  Symetra Warrants White Mountains holds warrants to acquire common shares of Symetra. The warrants are recorded at fair value. White Mountains uses a Black-Scholes valuation model to determine the fair value of the Symetra warrants. The major assumptions used in valuing the Symetra warrants at December 31, 2012 were a risk free rate of 0.21%, volatility of 38.9%, an expected life of 1.6 years, a strike price of $11.49 per share and a share price of $12.98 per share. The major assumptions used in valuing the Symetra warrants at December 31, 2011 were a risk free rate of 0.31%, volatility of 36.0%, an expected life of 2.6 years, a strike price of $11.49 per share and a share price of $9.07 per share.  The inputs used in the valuation model are observable inputs. However, since a quoted market price is not available for the warrants themselves, they are categorized as a Level 2 measurement.  Other Long-Term Investments Other long-term investments accounted for at fair value at December 31, 2012 consist of $115 million in hedge funds and $125 million in private equity funds.  At December 31, 2012, White Mountains held investments in 16 hedge funds and 38 private equity funds.  The largest investment in a single fund was $16.0 million and $27.4 million at December 31, 2012 and 2011. The fair value of White Mountains' investments in hedge funds and private equity funds is based upon White Mountains' proportionate interest in the underlying fund's net asset value, which is deemed to approximate fair value.  White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments including obtaining and reviewing each fund's audited financial statements and discussing each fund's pricing with the fund's manager.  However, since the fund managers do not provide sufficient information to independently evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable.  Accordingly, the fair values of White Mountains' investments in hedge funds and private equity funds have been classified as Level 3. In circumstances where the underlying investments are publicly traded, such as the investments made by hedge funds, the fund manager uses current market prices to determine fair value. In circumstances where the underlying investments are not publicly traded, such as the investments made by private equity funds, the private equity fund managers generally consider the need for a liquidity discount on each of the underlying investments when determining the fund's net asset value.  In circumstances where White Mountains' portion of a fund's net asset value is deemed to differ from fair value due to illiquidity or other factors associated with White Mountains' investment in the fund, the net asset value is adjusted accordingly.  At December 31, 2012, there were no circumstances where illiquidity or other factors required an adjustment to the net asset value related to any of its investments in hedge funds or private equity funds.  Sensitivity analysis of likely returns on hedge fund and private equity fund investments White Mountains' investment portfolio includes investments in hedge funds and private equity funds. At December 31, 2012, the value of investments in hedge funds and in private equity funds was $115 million and $125 million, respectively.  The underlying investments are typically publicly traded and private common equity investments, and, as such, are subject to market risks that are similar to White Mountains' common equity securities. The following illustrates the estimated effect on December 31, 2012 fair value resulting from a 10% change and a 30% change in market value:                                                 December 31, 2012                              Change in fair value               Change in fair value Millions                10% decline       10% increase     30% decline       30% increase Hedge funds            $     (11.5 )     $        11.5    $     (34.5 )     $        34.5 Private equity funds   $     (12.5 )     $        12.5    $     (37.5 )     $        37.5   

Hedge fund and private equity fund returns are commonly measured against the benchmark returns of hedge fund indices and/or the S&P 500 Index. The historical returns for each index in the past five years are listed below:

                                                 Year Ended December 31,                                       2012     2011      2010     2009      

2008

 HFRX Equal Weighted Strategies Index  2.5 %   (6.2 )%    5.3 %   11.4 %   (21.9 )% S&P 500 Index                        16.0 %    2.1  %   15.1 %   26.5 %   (37.0 )%                                            94

--------------------------------------------------------------------------------  Variable Annuity Reinsurance Liabilities White Mountains has entered into agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan. White Mountains carries the benefit guarantees at fair value. The fair value of the guarantees is estimated using actuarial and capital market assumptions related to the projected discounted cash flows over the term of the reinsurance agreement. The valuation uses assumptions about surrenders rates, market volatilities and other factors, and includes a risk margin which represents the additional compensation a market participant would require to assume the risks related to the business. The selection of surrender rates, market volatility assumptions, risk margins and other factors require the use of significant management judgment. Assumptions regarding future policyholder behavior, including surrender and lapse rates, are generally unobservable inputs and significantly impact the fair value estimate. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates as well as variations in actuarial assumptions regarding policyholder behavior may result in significant fluctuations in the fair value of the liabilities associated with these guarantees that could materially affect results of operations. All of White Mountains' variable annuity reinsurance liabilities ($442 million) were classified as Level 3 measurements at December 31, 2012. Generally, the liabilities associated with these guarantees increase with declines in the equity markets, interest rates and currencies against the Japanese yen, as well as with increases in market volatilities. In 2008, particularly in the fourth quarter, as a result of worldwide declines in equity markets, interest rates and the strengthening of the Japanese yen, the underlying investment accounts declined substantially and have stayed low. The collective account values were approximately 87% and 78% of the guarantee value at December 31, 2012 and December 31, 2011. The liability is also affected by annuitant related behavioral and actuarial assumptions, including surrender and mortality rates. WM Life Re lowered its projected surrender rates in 2011 and 2010 to reflect the behavior observed during the turbulent markets experienced throughout those years. WM Life Re uses derivative instruments, including put options, interest rate swaps, total return swaps on bond and equity indices and forwards and futures contracts on major equity indices, currency pairs and government bonds, to mitigate the risks associated with changes in the fair value of the reinsured variable annuity guarantees. The types of inputs used to estimate the fair value of these derivative instruments, with the exception of actuarial assumptions regarding policyholder behavior and risk margins, are generally the same as those used to estimate the fair value of the variable annuity liabilities. As of December 31, 2012, the value of bond funds tracking the WGBI was approximately ¥68 billion ($786 million). By country, the largest exposures, together comprising over 90% of the WGBI, were the United States (42%), France (10%), Germany (9%), the United Kingdom (8%), Italy (9%), Spain (4%), Canada (3%), the Netherlands (3%), and Belgium (3%). Eurozone countries together comprised approximately 41%. To reduce hedging basis risk (i.e., the risk that changes in the WGBI will cause WM Life Re's variable annuity guarantee liabilities to change in value at a different rate than the derivative hedges), in December 2009 WM Life Re entered into a series of total return swap contracts on the performance of the WGBI. As of December 31, 2010, approximately 49% of WM Life Re's WGBI-related liability was hedged with WGBI swaps. Because these swaps were denominated in US dollars, WM Life Re continued to hedge the results into Japanese yen to match the benchmark denominated in Japanese yen. In 2011, driven in large part by instability of Eurozone markets, WM Life Re significantly increased coverage of its WGBI exposure. Because the market for WGBI total return swaps was, and continues to be illiquid, WM Life Re entered into a series of total return swaps on the JP Morgan European Government Bond Index (JPM European GBI). Although the JPM European GBI is not an exact match for the European component of the WGBI, its construction rules and holdings are substantially similar. These swaps are denominated in Japanese yen and, therefore, need not be hedged into Japanese yen. As of December 31, 2012, the total notional amounts of WGBI and JPM European GBI swaps were $75 million and ¥28 billion ($324 million), respectively. At that date, approximately 64% and 96% of the total WGBI and European component of the WGBI, respectively, were hedged with total return swaps. All $75 million notional amount of WGBI swaps matured in January 2013, reducing coverage on the total WGBI by 3% to approximately 61%. The JPM European GBI total return swaps have maturities laddered during 2015 and 2016 to approximate the maturities of the policies reinsured. The residual WGBI exposure is hedged primarily with bond futures. Under the terms of these swap contracts, WM Life Re receives cash flows based on a fixed return, reset at the beginning of each month based on current LIBOR and is required to pay cash flows based on the performance of the WGBI or JPM European GBI during that month plus a fixed amount. WM Life Re hedges the remaining WGBI-related liability exposure with the limited types of available derivatives that most closely fit the country and term exposures of the WGBI. Since liability exposures are determined by the performance of the overall account value, including the funds that track the Nomura BPI, TOPIX, and MSCI Kokusai, periodic portfolio rebalancing may be required. At such times and within limits, exchange-traded futures may be used to maintain overall neutral exposure as opposed to entering into new, or unwinding existing, swaps.                                         95 --------------------------------------------------------------------------------  As of December 31, 2012, the value of bond funds tracking the Nomura BPI was approximately ¥73 billion ($844 million). In January 2010, because the types and tenors of liquid Japanese bond futures currently available are extremely limited, to more closely track the performance of bond funds tracking the Nomura BPI, WM Life Re entered into its first total return swap contract on the performance of that index. As of December 31, 2012, the total notional amount of Nomura BPI swaps was ¥57 billion ($662 million), covering approximately 90% of WM Life Re's Nomura BPI-related liability exposure. Of these swaps, ¥13 billion ($159 million), which mature between 2015 and 2016, track the government bond component of the index only (approximately 76% of the index), leaving WM Life Re exposed to credit spread risk on the non-government portion. However, WM Life Re was able to temporarily convert these swaps into swaps that track the complete index through August 2013, at which time they will revert back to swaps that track the government bond component only unless WM Life Re is able to roll the conversion for another period of time. The remaining ¥44 billion ($511 million) track the complete index. Of these, one with a notional amount of ¥10 billion ($130 million) matured in January 2013 and was replaced with a swap of equal size maturing January 2014. The remaining swaps on the complete index mature during 2013. WM Life Re will look for opportunities to replace these swaps as they mature; however, the market is extremely illiquid and there is no guaranty that WM Life Re will be able to do so. Under the contracts, WM Life Re receives cash flows based on a fixed return, reset at the beginning of each period (monthly for the complete index swaps and semi-annually for the government bond only swaps) based on current LIBOR and is required to pay cash flows based on the performance of the Nomura BPI during that period plus a fixed amount. Remaining Nomura BPI exposure is hedged with liquid Japanese bond futures and is subject to basis risk relating to the difference between the tenor of the bond futures and the tenor of the assets in the annuity funds covered by WM Life Re's variable annuity guarantees. As of December 31, 2012, the value of equity funds tracking the MSCI Kokusai was approximately ¥30 billion ($346 million). To reduce hedging basis risk, in 2011 WM Life Re entered into a series of total return swaps on the MSCI Kokusai, denominated in Japanese yen with maturities laddered during 2015 and 2016 to approximate the maturities of the policies reinsured. As of December 31, 2012, the total notional amount of MSCI Kokusai swaps was ¥14.5 billion ($177 million) and the percent of MSCI Kokusai fund exposure hedged by these swaps was approximately 60%. The remaining 40% of this exposure continues to be hedged with a variety of more liquid instruments, including exchange-traded futures. WM Life Re continues to assess ways to increase its coverage with total return swaps but there is no guaranty that WM Life Re will be able to do so. During 2009, WM Life Re entered into long term Japanese interest rate swaps, largely replacing its use of short term Japanese Government Bond ("JGB") futures to hedge its discount rate exposure.  By doing so, WM Life Re better matched the term structure of its discount rate exposure, substantially reduced its exposure to changes in Japanese interest rate swap spreads and significantly reduced the potential costs associated with rolling JGB futures contracts during times of relative market illiquidity.  During December 2012, after the relevant Japanese interest rate swap rates fell to their lowest level in many years, the resulting potential benefit, net of cost, to WM Life Re of maintaining its Japanese interest rate swap hedge portfolio was deemed to be limited. Therefore, the decision was made to unwind or offset these Japanese interest rate swaps. During December 2012, approximately 24% of the notional amount of Japanese interest rate swap contracts was unwound and during January 2013 the remaining 76% was unwound or offset. As of December 31, 2012 and 2011, the notional amount of Japanese interest rate swaps was ¥153 billion ($1.8 billion) and ¥183 billion ($2.4 billion), respectively. The following table summarizes the estimated financial impact on WM Life Re's derivatives and benefit guarantee liabilities of instantaneous changes in individual market variables as of December 31, 2012, proforma for the unwinding or offsetting of Japanese interest rate swaps in January of 2013. Remaining hedging coverage of Japanese interest rate swap exposure was 12%, primarily from WM Life Re's put option portfolio. The table below assumes that all other market variables are constant and does not reflect the inter-dependencies between individual variables.                         Equity Market            Foreign Currency                            Returns                 Exchange (1)              Interest Rates (2)             Market Volatility (3) Millions              20%         (20)%          15%          (15)%      Favorable       Unfavorable      Decrease         Increase Liabilities        $   (117 )   $    124     $    (191 )    $   235     $     (61 )     $        38     $      (7 )       $      24 Hedge Assets           (120 )        125          (188 )        227           (15 )              26           (10 )              15 Net                $     (3 )   $      1     $       3      $    (8 )   $      46       $       (12 )   $      (3 )       $      (9 )  

(1) The value of foreign currencies in Japanese yen terms.

(2) In the unfavorable scenario, Japanese interest rates are decreased 70 bps,

Japanese swap spreads are tightened by 25 bps, and foreign bond fund yields

are increased 70 bps. Conversely, in the favorable scenario, Japanese

interest rates are increased 70 bps, Japanese swap spreads are widened 25

bps and foreign bond fund yields are decreased 70 bps. Without taking into

account the proforma effect of Japanese interest rate swaps that were

unwound or offset in January of 2013, the favorable interest rate change

scenario results in an increase of the net value of WM Life Re's derivative

     assets and variable annuity guarantee liability of $10, while the      unfavorable scenario results in a decrease of $1.  

(3) White Mountains' sensitivities for market implied volatilities vary by term.

     For equity implied volatilities, White Mountains changes implied      volatilities by 15%, 13%, 11%, 9%, 7% and 7% for each of the terms to      maturity for years one through six, respectively. For foreign currency      implied volatilities, White Mountains changes implied volatilities by 6%,      5.5%, 5%, 4.5%, 4% and 4% for each of the terms to maturity for years one      through six, respectively.                                            96

--------------------------------------------------------------------------------  To test the impact of multiple variables moving simultaneously, WM Life Re performs capital market "shock" testing. Prior to 2009, in performing this testing, WM Life Re had not incorporated basis risk and other hedge underperformance relative to expectations in its models; it had assumed that its hedges would behave as modeled. However, the financial market turmoil of late 2008 and early 2009 demonstrated that, in periods of severe financial market disruption, various aspects of WM Life Re's hedging program may underperform or over-perform. As a result, WM Life Re now also estimates the efficacy of its hedging program in its "shock" testing. Estimated hedge effectiveness is based on actual results during the recent stressed market environment encompassing the fourth quarter of 2008 and the first quarter of 2009. Hedge effectiveness assumptions also incorporate any subsequent changes to the hedging program that were not in place during this stress period. Although this period captures a historically volatile period that included large market movements over short time periods, hedges may be less effective than the current assumptions to the extent future market movements of the magnitude of these "shocks" occur more quickly than during this recent stress period. The table below summarizes as of December 31, 2012 and 2011, the estimated financial impact of simultaneous market events, as well as December 31, 2012 on a proforma basis, adjusted for the unwinding or offsetting of the remaining Japanese interest rate swaps during January 2013. Unlike the individual sensitivity analysis illustrated above, the analysis in the table below reflects the inter-dependencies between individual variables.                         Proforma As of December 31, 2012             As of December 31, 2012              As of December 31, 2011 Change in Millions      Down Market            Up Market          Down Market         Up Market        Down Market         Up Market Liabilities          $         420         $          (367 )    $         420       $       (367 )   $         487       $       (454 ) Hedge Assets (1)               376                    (357 )              389               (384 )             453               (486 ) Net                  $         (44 )       $            10      $         (31 )     $        (17 )   $         (34 )     $        (32 )  

(1) Assumed hedge effectiveness in down and up markets of 93% and 106%,

respectively, as of December 31, 2012 and 93% and 107%, respectively, as</p>

of December 31, 2011. Hedge effectiveness as of December 31, 2012 has been

adjusted for 24% reduction in Japan interest rate swap coverage due to the

unwinding of Japanese interest rate swaps at the end of December. Proforma

       hedge effectiveness as of December 31, 2012 has been adjusted for the        unwinding or offsetting of the remaining Japanese interest rate swaps

during January 2013. Some Japanese interest rate swap coverage remains

primarily through WM Life Re's put option portfolio.

    WM Life Re applies shocks to the Japanese interest rates and foreign bond fund yields in opposite directions. In the down market scenario, Japanese interest rates are decreased 70 bps, Japanese interest rate swap spreads are tightened by 25 bps, and foreign bond fund yields are increased 70 bps. The "up market" scenario assumes opposite movements in the same variables. For other variables, the "down market" scenario assumes equity indices decrease 20%, foreign currencies depreciate by 15% against the Japanese yen and implied market volatility increases as described in footnote 3 to the table above.  The "up market" scenario assumes opposite movements in the same variables. Through December 31, 2012, both the up and down scenarios produce an expected net loss due to the convexity of the liability value, coupled with the assumption that the shock scenarios happen instantaneously without adjustment of the hedging portfolio. The proforma 2012 sensitivity analysis up market scenario results in a positive $10 million due to the reduction in the liability from higher discount rates that is no longer offset by losses from the Japanese interest rate swaps that have been unwound. However, this also causes the proforma 2012 down market scenario to be $13 million worse than the down market scenario as of December 31, 2012. WM Life Re projects future surrender rates by year for policies based on a combination of actual experience and expected policyholder behavior. Actual policyholder behavior, either individually or collectively, may differ from projected behavior as a result of a number of factors such as the level of the account value versus guarantee value and applicable surrender charge, views of the primary insurance company's financial strength and ability to pay the guarantee at maturity, annuitants' need for money in a prolonged recession and time remaining to receive the guarantee at maturity. Policyholder behavior is especially difficult to predict given that WM Life Re's reinsurance contracts are relatively new and the recent financial turmoil is unprecedented for this type of product in the Japanese market. Actual policyholder behavior may differ materially from WM Life Re's projections. During the third quarter of 2010, WM Life Re lowered the surrender assumptions that it uses to calculate its variable annuity guarantee liability. WM Life Re's previous assumptions reflected its expectation that surrenders would rise as the surrender charges in the underlying annuities decline. However, the persistent instability in financial and foreign exchange markets has kept surrenders low. The lower surrender assumptions resulted in a $48 million increase in WM Life Re's variable annuity guarantee liability, but reduced its exposure to adverse changes in surrender rates in the future. During the fourth quarter of 2011, WM Life Re lowered the surrender assumptions again to reflect the somewhat lower surrenders that emerged versus expected in the policy cohort that rolled into policy year seven, resulting in a $7.2 million increase in the variable annuity guaranty liability. No surrender assumption adjustments were required during 2012.                                         97 --------------------------------------------------------------------------------  As of December 31, 2012, WM Life Re's surrender assumptions vary from 0.1% currently to 3.0% depending on the level of account value versus guarantee value; at the account value levels as of December 31, 2012, the average assumed surrender rate was approximately 0.5% per annum. The potential increase in the fair value of the liability due to a change in current actuarial assumptions is as follows:                                            Increase in fair value                                                 of liability                                                 December 31, Millions                                        2012               2011 Decrease 50%                         $       3                    $   5 Decrease 100% (to zero surrenders)   $       5                    $  10    The amounts in the table above could increase in the future if the fair value of the variable annuity guarantee liability changes due to factors other than the surrender assumptions (e.g., a decline in the ratio of the annuitants' aggregate account values to their aggregate guarantee values). As of December 31, 2011, WM Life Re increased the variable annuity guaranty liability by $6 million to partially reflect a "basis swap" implied by foreign exchange rates which results in lower projected returns (in Japanese yen) for the portion of funds invested in countries outside of Japan. Since the financial crisis in 2008, there has been a break in expected arbitrage free relationships between swap interest rates and foreign exchange rates (in particular, between the U.S. and Japan). This adjustment recognizes that this anomaly of trading values may be more than temporary. The balance of this reserve was $2.2 million as of December 31, 2012. The following table summarizes the changes in White Mountains' variable annuity reinsurance liabilities and derivative contracts for the years ended December 31, 2012 and 2011:                                              Variable                                              Annuity                                            (Liabilities)                        Derivative Instruments Millions                                     Level 3         Level 3 (1)     Level 2 (1)(2)     Level 1 (3)     Total (4) Balance at January 1, 2012               $       (768.5 )   $     247.1     $        39.2      $       4.1     $    290.4 Purchases                                             -             6.1                 -                -            6.1 Realized and unrealized gains (losses)            327.0           (84.0 )          (186.9 )          (68.1 )       (339.0 ) Transfers in (out)                                    -               -                 -                -              - Sales/settlements                                     -           (28.7 )           127.2             42.3          140.8 Balance at December 31, 2012             $       (441.5 )   $     140.5     $       (20.5 )    $     (21.7 )   $     98.3                                                Variable                                              Annuity                                            (Liabilities)                        Derivative Instruments Millions                                     Level 3         Level 3 (1)     Level 2 (1)(2)     Level 1 (3)     Total (4) Balance at January 1, 2011               $       (610.2 )   $     275.3     $         72.2     $         -     $    347.5 Purchases                                             -             5.0                  -               -            5.0 Realized and unrealized gains (losses)           (158.3 )          14.5               67.7            10.7           92.9 Transfers in (out)                                    -               -                  -               -              - Sales/settlements                                     -           (47.7 )           (100.7 )          (6.6 )       (155.0 ) Balance at December 31, 2011             $       (768.5 )   $     247.1     $         39.2     $       4.1     $    290.4   (1)  Includes over-the-counter instruments.   (2)  Includes interest rate swaps, total return swaps and foreign currency

forward contracts. Fair value measurement based upon bid/ask pricing quotes

for similar instruments that are actively traded, where available. Swaps

for which an active market does not exist have been priced using observable

inputs including the swap curve and the underlying bond index.

(3) Includes exchange traded equity index, foreign currency and interest rate

futures. Fair value measurements based upon quoted prices for identical

instruments that are actively traded.

(4) In addition to derivative instruments, WM Life Re held cash, short-term and

fixed maturity investments of $393.6 and $485.3 at December 31, 2012

and 2011 posted as collateral to its counterparties.

                                       98 --------------------------------------------------------------------------------

3. Sirius Group Reinsurance Estimates

  There is a time lag from the point when premium and related commission and expense activity is recorded by a ceding company to the point when such information is reported by the ceding company to Sirius Group. This time lag can vary from one to several contractual reporting periods (i.e. quarterly/monthly). This lag is common in the reinsurance business, but slightly longer when a reinsurance intermediary is involved. As a result of this time lag in reporting, Sirius Group estimates a portion of its written premium and related commissions and expenses. Given the nature of Sirius Group's business, estimated premium balances, net of related commissions and expenses, comprise a large portion of total premium balances receivable. The estimation process begins by identifying which major accounts have not reported activity at the most recent period end. In general, premium estimates for excess of loss business are based on expected premium income included in the contractual terms. For proportional business, Sirius Group's estimates are derived from expected premium volume based on contractual terms or ceding company reports and other correspondence and communication with underwriters, intermediaries and ceding companies. Once premium estimates are determined, related commission and expense estimates are derived using contractual terms. Sirius Group closely monitors its estimation process on a quarterly basis and adjusts its estimates as more information and actual amounts become known. There is no assurance that the amounts estimated by Sirius Group will not deviate from the amounts reported by the ceding company or reinsurance intermediary. Any such deviations are reflected in the results of operations when they become known. The following table summarizes Sirius Group's premium estimates and related commissions and expenses:                                           December 31, 2012                                                 December 31, 2011                                                         Net          Net Amount                                           Net          Net Amount                                                     Commission       Included in                                      Commission       Included in                        Gross            Net            and           Reinsurance         Gross            Net            and           Reinsurance                       Premium         Premium         Expense         Balances          Premium         Premium         Expense         Balances Millions             Estimates       Estimates       Estimates       Receivable        Estimates       Estimates       Estimates       Receivable Property catastrophe excess             $      74.1     $      60.8     $      (5.4 )   $        55.4     $      68.3     $      56.0     $      (5.0 )   $        51.0 Other property            69.9            54.2           (22.4 )            31.8            64.9            48.7           (17.2 )            31.5 Accident and health                   100.6            79.2           (29.4 )            49.8            72.6            55.1           (25.6 )            29.5 Aviation and space                     41.7            34.6            (7.1 )            27.5            50.1            38.9            (8.5 )            30.4 Trade credit              36.3            26.1            (8.7 )            17.4            41.9            33.8           (13.1 )            20.7 Marine                    17.8            16.5            (2.7 )            13.8            19.0            17.5            (2.5 )            15.0 Casualty                   4.2             4.2              .4               4.6            10.1             9.9             (.6 )             9.3 Agriculture               10.9            10.8            (1.5 )             9.3            20.1            20.0            (2.8 )            17.2 Contingency                5.2             5.2            (1.9 )             3.3             6.0             6.0            (2.4 )             3.6 Total              $     360.7     $     291.6     $     (78.7 )   $       212.9     $     353.0     $     285.9     $     (77.7 )   $       208.2    The net amounts recorded in reinsurance balances receivable may not yet be due from the ceding company at the time of the estimate since actual reporting from the ceding company has not yet occurred. Therefore, based on the process described above, Sirius Group believes all of its estimated balances are collectible, and as such no allowance has been recorded.                                          99 --------------------------------------------------------------------------------

4. Reinsurance Transactions

White Mountains' insurance and reinsurance subsidiaries purchase reinsurance from time to time to protect their businesses from losses due to exposure aggregation, to manage their operating leverage ratios and to limit ultimate losses arising from catastrophic events. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. Amounts related to reinsurance contracts are recorded in accordance with ASC 944, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("ASC 944"). In connection with White Mountains' acquisition of OneBeacon in 2001, Aviva caused OneBeacon to purchase reinsurance contracts with two reinsurance companies rated "AA+" (Very Strong, the second highest of twenty-one financial strength ratings) by Standard & Poor's and "A++" (Superior, the highest of sixteen financial strength ratings) by A.M. Best. One is a reinsurance cover with NICO which entitles OneBeacon to recover up to $2.5 billion in ultimate loss and LAE incurred related primarily to claims arising from business written by its predecessor prior to 1992 for asbestos claims and 1987 for environmental claims, respectively. As of December 31, 2012, OneBeacon has ceded estimated incurred losses of approximately $2.3 billion to NICO under the NICO Cover. The other contract is a reinsurance cover with GRC for up to $570 million of additional losses on all claims arising from accident years 2000 and prior. As of December 31, 2012, OneBeacon has ceded estimated incurred losses of $562 million to GRC under the GRC Cover. The NICO Cover and GRC Cover, which were contingent on and occurred contemporaneously with the acquisition of OneBeacon, were put in place in lieu of a seller guarantee of loss and LAE reserves and are therefore accounted for as a seller guarantee under GAAP in accordance with Emerging Issues Task Force Topic No. D 54. NICO and GRC are wholly-owned subsidiaries of Berkshire. All of these balances relate to the Runoff Business, the results of which are included in discontinued operations and the balances as of December 31, 2012 of which have been included in assets or liabilities held for sale on the consolidated balance sheet. The collectibility of reinsurance recoverables is subject to the solvency and willingness to pay of the reinsurer. White Mountains is selective in choosing its reinsurers, placing reinsurance principally with those reinsurers with a strong financial condition, industry ratings and underwriting ability. Management monitors the financial condition and ratings of its reinsurers on an ongoing basis. See Note 4 -"Third-Party Reinsurance" in the accompanying Consolidated Financial Statements for additional information on White Mountains' reinsurance programs.  

5. White Mountains' Investment in Symetra Common Shares

  In September 2011, the U.S. Federal Reserve Bank (the "Fed") began "Operation Twist", which decreased long-term interest rates on fixed maturity investments. Under Operation Twist, the Fed sold shorter-term U.S. treasury securities, which have maturities of generally 3 years or less, to fund the purchase of longer-term U.S. securities, with maturities between 6 and 30 years. In December 2012, the Fed stated that it expects to continue to take actions to keep long-term interest rates low until unemployment reaches 6.5%. Lower long-term interest rates tend to reduce the return on equity that life insurers earn as they reinvest their cash flows from higher yielding long duration bonds into lower yielding long duration bonds. Quoted stock prices of life insurers tend to be highly correlated with their return on equity. Thus, as long-term interest rates decline, the quoted stock prices of life insurers tend to decline. At the same time, lower interest rates tend to increase the stated GAAP book values of life insurance companies, primarily from unrealized gains on fixed income investments, as the assets are marked-to-market, but the liabilities are not. Thus, the precipitous decline in long-term interest rates that occurred with Operation Twist caused a significant decline in the quoted stock prices of life insurance companies and an even more significant decline in those prices relative to stated GAAP book value. As a result, the quoted stock price of many life insurance companies at December 31, 2011, including Symetra, was well below their stated GAAP book value, a trend inconsistent with historical patterns. White Mountains accounts for its investment in Symetra common shares using the equity method of accounting. Under the equity method, the GAAP carrying value of White Mountains' investment in Symetra common shares is normally equal to the percentage of Symetra's GAAP book value represented by White Mountains' common share ownership, which was 15% at December 31, 2012 and 2011.  Under GAAP, a decline in the fair value of an investment is considered to be other-than-temporary when the fair value of the investment is not expected to recover to its GAAP carrying value in the near term.  Declines in the fair value of an investment that are considered to be other-than-temporary are recognized as a write-down to the GAAP carrying value of the investment. Having observed the divergence between the quoted market price for Symetra's common shares and its GAAP carrying value, management evaluated White Mountains' investment in Symetra common shares to determine whether an other-than-temporary impairment under GAAP existed at December 31, 2011.  As a result of this evaluation, management concluded that White Mountains' investment in Symetra common shares was other-than-temporarily impaired and wrote down the GAAP book value of the investment to its estimated fair value of $261 million at December 31, 2011, or approximately $15 per Symetra common share.                                        100 --------------------------------------------------------------------------------  The GAAP fair value of an investment is the price that would be paid by a market participant to acquire it in the investment's principal or most advantageous market.  For investments that are publicly traded, quoted market prices generally provide the best measurement of GAAP fair value. However, a decline in the quoted market price of an investment below its GAAP carrying value is not necessarily indicative of a loss in value that is other-than-temporary, and in circumstances where the characteristics of the investment being measured are not the same as those for which quoted market prices are available, unadjusted quoted market prices do not represent GAAP fair value.  White Mountains' investment in Symetra common shares is different than the shares that are traded on the public stock exchange, principally due to the size of its position and its representation on Symetra's Board of Directors.  In circumstances like this, GAAP requires that fair value be determined giving consideration to multiple valuation techniques.  Management considered three different valuation techniques to determine the GAAP fair value of White Mountains' investment in Symetra common shares at December 31, 2011. A description of each technique follows.  Valuation techniques based on actuarial appraisals When determining the value of life insurance holding companies that are acquisition targets, market participants commonly utilize an approach that values the company as the sum of (A) adjusted statutory net worth of any regulated life insurance companies (i.e. statutory surplus plus asset valuation reserve) plus the GAAP net assets of any non-life businesses, less holding company debt and (B) the present value of future earnings related to business in force as of the valuation date plus the present value of future earnings related to business written after the valuation date.  White Mountains used this approach when it acquired its initial investment in Symetra in 2004.  Part A of the calculation can be performed using observable inputs from the statutory and GAAP financial statements.  Part B of the calculation requires a large number of actuarial calculations including assumptions such as discount rates, mortality, persistency and future investment results that, while based on historical data and are supportable, are nonetheless judgmental and largely unobservable.  For Symetra, part A is approximately $15 per share as of December 31, 2011.  Symetra management provided White Mountains with an actuarial appraisal that demonstrates that part B would be a meaningful positive value in most reasonable scenarios.  When determining the GAAP fair value of White Mountains' investment in Symetra common shares at December 31, 2011, management ascribed the greatest weight to part A, as it is observable and less subjective.  Valuation techniques based on multiples from recent transactions As described in "Non-GAAP Financial Measures", White Mountains uses growth in adjusted book value to assess Symetra's financial performance.  Adjusted book value excludes unrealized gains and losses from Symetra's fixed maturity investment portfolio.  Life insurance industry analysts and market participants commonly use multiples of adjusted book value per share to determine relative values of companies in the life insurance industry. In December 2011, Tokio Marine announced that it had agreed to acquire Delphi Financial Group ("Delphi") for $2.7 billion. The acquisition price for that transaction represented a multiple of approximately 1.6 times Delphi's September 30, 2011 adjusted book value of $1.6 billion. The acquisition price of $43.875 per share represented a premium of approximately 73% over Delphi's last traded market price prior to the announcement of the acquisition.  If the same adjusted book value and market price multiples were applied to Symetra at December 31, 2011, the estimated fair value would range from $16 to $30 per share. The Delphi acquisition highlights the wide disparity between values of life insurance companies based on quoted market prices and the value of those companies in a private market transaction.  However, the range of fair value estimates generated by applying the adjusted book value per share multiple and market premium observed in the Delphi acquisition is wide, and there have been no other significant acquisitions of life insurance companies in 2011. Therefore, management did not ascribe significant weight to valuations determined using the adjusted book value per share multiple or market price premium observed in recent acquisition activity when determining the GAAP fair value of White Mountains' investment in Symetra common shares at December 31, 2011.  Valuation techniques based on quoted market prices White Mountains' representation on Symetra's Board of Directors gives it the ability to exercise significant influence over Symetra's operations and policies.  Generally, market participants are willing to pay a premium to obtain the ability to exert influence over the operations and policies of an investee, which is not reflected in the quoted market price of Symetra's common shares. There is no reliable means to calculate the value of this premium for an investment in a life insurance company.  The actuarial appraisals used by market participants described above implicitly consider the ability to influence an investee's operations and policies in the actuarial assumptions underlying projected future earnings, but the value associated with the ability to exert influence is not explicitly calculated separately from other components of value.  As a result, management did not ascribe significant weight to valuations based on quoted market prices when determining the GAAP fair value of White Mountains' investment in Symetra common shares at December 31, 2011, as the premium associated with the ability to exert influence over the operations and policies of Symetra is unobservable and highly subjective.                                        101 --------------------------------------------------------------------------------  After considering all of the above, management determined that the best estimate of the GAAP fair value of White Mountains' investment in Symetra's common shares at December 31, 2011 was $15 per share, which approximated Symetra's adjusted statutory-basis net worth. The write down of $199 million to $261 million represented management's best estimate of the amount by which the value of the investment had been other-than-temporarily impaired for GAAP at that date. After-tax, this represented a reduction of White Mountains adjusted book value per share of $6. Given the scarcity of relevant observable inputs and the wide range of estimates developed under the approaches used, the estimated GAAP fair value of White Mountains' investment in Symetra's common shares involved a significant degree of judgment, is very subjective in nature and, accordingly, is considered a Level 3 fair value measurement. An other-than-temporary impairment for GAAP does not equate to a permanent impairment in value. The reasons why management concluded that an other-than-temporary impairment for GAAP existed at December 31, 2011 related to the environment in which life insurance companies operated and not from reasons specific to Symetra itself.  Symetra has recorded solid growth in adjusted book value per share since the financial crisis at the end of 2008, continues to pay quarterly dividends to its shareholders and has maintained strong financial strength and creditworthiness ratings and capital ratios.  Management does not believe that the write-down in 2011 is an indication of impairment in Symetra's long-term intrinsic business value. At December 31, 2012 the GAAP carrying value of White Mountains' investment in the Symetra common shares was $351 million, which reflects White Mountains' equity in Symetra's earnings and unrealized investment gains as well as the amortization of the basis difference that arose upon recognition of the impairment in 2011 (see Note 15). Management does not believe that the investment in Symetra's common shares is other-than-temporarily impaired at December 31, 2012.  

FORWARD-LOOKING STATEMENTS

  The information contained in this report may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this report which address activities, events or developments which White Mountains expects or anticipates will or may occur in the future are forward-looking statements. The words "will", "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains:  

• changes in adjusted book value per share or return on equity;

• business strategy;

• financial and operating targets or plans;

• incurred losses and the adequacy of its loss and LAE reserves and related

reinsurance;

• projections of revenues, income (or loss), earnings (or loss) per share,

dividends, market share or other financial forecasts;

• expansion and growth of its business and operations; and

• future capital expenditures.

    These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform with its expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including:  

• the risks associated with Item 1A of this Report on Form 10-K;

• claims arising from catastrophic events, such as hurricanes, earthquakes,

floods or terrorist attacks;

• the continued availability of capital and financing;

• general economic, market or business conditions;

  •       business opportunities (or lack thereof) that may be presented to it and         pursued;  

• competitive forces, including the conduct of other property and casualty

        insurers and reinsurers;   •       changes in domestic or foreign laws or regulations, or their         interpretation, applicable to White Mountains, its competitors or its         clients;  

• an economic downturn or other economic conditions adversely affecting its

financial position;

• recorded loss reserves subsequently proving to have been inadequate;

• actions taken by ratings agencies from time to time, such as financial

strength or credit ratings downgrades or placing ratings on negative

watch; and

• other factors, most of which are beyond White Mountains' control.

                                      102

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  Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, White Mountains or its business or operations. White Mountains assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. 

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