WHITE MOUNTAINS INSURANCE GROUP LTD – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
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's actual results could be materially different from and worse than its expectations. See "FORWARD-LOOKING STATEMENTS" on page 97 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements. The following discussion also includes thirteen non-GAAP financial measures: (i) adjusted book value per share, (ii) growth in adjusted book value per share excluding net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha , (iii) BAM's gross written premiums and MSC from new business, (iv) Ark's adjusted loss and loss adjustment expense ratio, (v) Ark's adjusted insurance acquisition expense ratio, (vi) Ark's adjusted other underwriting expense ratio, (vii) Ark's adjusted combined ratio, (viii) NSM's earnings before interest, taxes, depreciation and amortization ("EBITDA"), (ix) NSM's adjusted EBITDA, (x) Kudu's EBITDA, (xi) Kudu's adjusted EBITDA, (xii) total consolidated portfolio returns excludingMediaAlpha and (xiii) adjusted capital, that have been reconciled from their most comparable GAAP financial measures on page 71.White Mountains believes these measures to be useful in evaluatingWhite Mountains's financial performance and condition. RESULTS OF OPERATIONS FOR THE YEARS ENDEDDECEMBER 31, 2021 , 2020 AND 2019 Overview-Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 White Mountains ended 2021 with book value per share of$1,176 and adjusted book value per share of$1,190 , a decrease of 6.5% and 5.7% in the year, including dividends. Comprehensive (loss) income attributable to common shareholders was$(273) million in 2021 compared to$716 million in 2020. The results in 2021 included$380 million of net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha . Excluding net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha , adjusted book value per share increased 4.3% in 2021, including dividends, reflecting strong results withinWhite Mountains's operating businesses. The results in 2020 included$746 million of net investment income and net realized and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . The results in 2020 also included$131 million from the release of a deferred tax liability as a result of an internal reorganization in connection with the MediaAlpha IPO. At theDecember 31, 2021 closing price of$15.44 per share, which was down from$39.07 atDecember 31, 2020 , the value ofWhite Mountains's investment inMediaAlpha was$262 million , which was down from$802 million atDecember 31, 2020 . Based onWhite Mountains's ownership of 16.9 million shares ofMediaAlpha as ofDecember 31, 2021 , each$1.00 per share increase or decrease in the stock price ofMediaAlpha will result in an approximate$5.65 per share increase or decrease inWhite Mountains's book value per share and adjusted book value per share. OnMarch 23, 2021 ,MediaAlpha completed a secondary offering of 8.05 million shares at$46.00 per share ($44.62 per share net of underwriting fees). In the secondary offering,White Mountains sold 3.6 million shares for net proceeds of$160 million .White Mountains capital base was, more or less, fully deployed at the end of 2020 with approximately$150 million of undeployed capital. During 2021,White Mountains repurchased and retired 98,511 of its common shares for$108 million . This was more than offset by (i) the$160 million of net proceeds from theMediaAlpha secondary offering and (ii) the termination ofWhite Mountains commitment to provide up to$200 million of additional equity capital to Ark as a result of Ark raising$163 million in new subordinated debt during the third quarter. As a result,White Mountains finished 2021 with approximately$400 million of undeployed capital. In the HG Global/BAM segment, gross written premiums and MSC collected totaled$118 million in 2021 compared to$131 million in 2020. Total pricing was 67 basis points in 2021 compared to 76 basis points in 2020. BAM insured municipal bonds with par value of$17.5 billion in 2021 compared to$17.3 billion in 2020. During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$806 million . During 2020, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$37 million . InDecember 2021 , BAM made a$34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InDecember 2020 , BAM made a$30 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InJanuary 2020 , BAM made a one-time$65 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. BAM's total claims paying resources were$1,192 million as ofDecember 31, 2021 compared to$987 million as ofDecember 31, 2020 . During 2021, BAM completed a reinsurance agreement with Fidus Re that increased BAM's claims paying resources by$150 million . 39 -------------------------------------------------------------------------------- OnJanuary 1, 2021 ,White Mountains closed the Ark Transaction. Ark's GAAP combined ratio was 87% in 2021. Ark's adjusted combined ratio, which adds back amounts ceded to TPC Providers, was 85% in 2021. The adjusted combined ratio in 2021 included 10 points of catastrophe losses and six points of net favorable prior year reserve development. Ark reported gross written premiums of$1,059 million , net written premiums of$859 million and net earned premiums of$637 million in 2021. Ark reported pre-tax income of$53 million in 2021, which reflected$25 million of transaction expenses related to the Ark Transaction. In theJanuary 2022 renewal season, Ark wrote gross written premiums in excess of$500 million . NSM reported commission and other revenues of$330 million , pre-tax loss of$28 million and adjusted EBITDA of$71 million in 2021 compared to commission and other revenues of$285 million , pre-tax loss of$13 million and adjusted EBITDA of$59 million in 2020. OnApril 12, 2021 , NSM sold itsFresh Insurance motor business, which resulted in a loss of$29 million recorded in the first quarter of 2021. Results in 2021 include the results ofJ.C. Taylor fromAugust 6, 2021 , the date of its acquisition. Results in 2021 and 2020 include the results of Kingsbridge fromApril 7, 2020 , the date of its acquisition. Kudu reported total revenues of$134 million , pre-tax income of$108 million and adjusted EBITDA of$33 million in 2021 compared to total revenues of$46 million , pre-tax income of$28 million and adjusted EBITDA of$22 million in 2020. Total revenues and pre-tax income included$22 million of realized gains and$68 million of unrealized gains on Kudu's Participation Contracts in 2021 compared to$16 million of unrealized gains on Kudu's Participation Contracts in 2020. Kudu deployed$225 million , including transaction costs, in six asset management firms in 2021. As ofDecember 31, 2021 , Kudu had deployed$612 million in 17 asset and wealth management firms globally, including one that was exited. As ofDecember 31, 2021 , the asset and wealth management firms have combined assets under management of approximately$66 billion , spanning a range of asset classes, including real estate, real assets, wealth management, hedge funds, private equity and alternative credit strategies.White Mountains's pre-tax total consolidated portfolio return on invested assets was -3.4% in 2021. This return included$380 million of net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 6.4% in 2021. ExcludingMediaAlpha , investment returns in 2021 were driven primarily by favorable other long-term investments results.White Mountains's pre-tax total consolidated portfolio return on invested assets was 31.9% in 2020. This return included$746 million of net investment income and net realized and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 4.6% in 2020. ExcludingMediaAlpha , investment returns in 2020 were impacted byWhite Mountains's decision to liquidate its portfolio of common equity securities in the second half of 2020 in preparation for funding the Ark Transaction as equity markets rallied in the fourth quarter. Overview-Year EndedDecember 31, 2020 versus Year EndedDecember 31, 2019 White Mountains ended 2020 with book value per share of$1,259 and adjusted book value per share of$1,264 , an increase of 23.1% and 24.2% in the year, including dividends. Comprehensive income (loss) attributable to common shareholders was$716 million in 2020 compared to$413 million in 2019. The results in 2020 included$746 million of net investment income and net realized and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . The results in 2020 also included$131 million from the release of a deferred tax liability as a result of an internal reorganization in connection with the MediaAlpha IPO. The results in 2019 included$256 million of net investment income, realized gains and net unrealized investment gains fromWhite Mountains's investment inMediaAlpha ,$182 million of which was from the 2019 MediaAlpha Transaction. OnOctober 30, 2020 ,MediaAlpha completed the MediaAlpha IPO. In the offering,White Mountains sold 3.6 million shares and received total proceeds of$64 million . Following the MediaAlpha IPO,White Mountains owned 20.5 millionMediaAlpha shares. At theDecember 31, 2020 MediaAlpha closing price of$39.07 per share, the value ofWhite Mountains's remaining investment inMediaAlpha was$802 million . OnOctober 1, 2020 ,White Mountains entered into a subscription and purchase agreement (the "Ark SPA") with Ark and certain selling shareholders (collectively with Ark, the "Ark Sellers"). Under the terms of theArk SPA ,White Mountains agreed to contribute$605 million of equity capital to Ark, at a pre-money valuation of$300 million , and to purchase$41 million of shares from the Ark Sellers.White Mountains also agreed to contribute up to an additional$200 million of equity capital to Ark in 2021. In accordance with theArk SPA , in the fourth quarter of 2020White Mountains pre-funded/placed in escrow a total of$646 million in preparation for closing the transaction, which is reflected on the balance sheet within the Other Operations segment as ofDecember 31, 2020 . 40 -------------------------------------------------------------------------------- OnJanuary 1, 2021 ,White Mountains closed the Ark Transaction in accordance with the terms of theArk SPA . At closing,White Mountains owned 72.0% of Ark on a basic shares outstanding basis (63.0% after taking account of management's equity incentives). Management's equity incentives are subject to an 8% rate of return threshold with no catch-up. The remaining shares are owned by employees. In the future, management rollover shareholders could earn additional shares in Ark if and to the extent thatWhite Mountains achieves certain multiple of invested capital return thresholds. These additional shares are generally eligible to vest in three equal tranches at multiple on invested capital ("MOIC") thresholds of 2.0x, 2.5x and 3.0x. If fully earned, these additional shares would represent 13% of the shares outstanding at closing. In theJanuary 2021 renewal season, Ark wrote gross written premiums in excess of$270 million . During 2020,White Mountains deployed approximately$1.0 billion in new business opportunities, including commitments related to the Ark Transaction, which closed onJanuary 1, 2021 . Also during 2020,White Mountains repurchased and retired 99,087 of its common shares for$85 million . As a result,White Mountains's capital base was, more or less fully deployed at the end of 2020 with approximately$150 million of undeployed capital. Gross written premiums and MSC collected in the HG Global/BAM segment totaled$131 million in 2020 compared to$107 million in 2019. Total pricing was 76 basis points in 2020 compared to 83 basis points in 2019. BAM insured municipal bonds with par value of$17.3 billion in 2020 compared to$12.8 billion in 2019. During 2020, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$37 million . During 2019, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$1.1 billion . InDecember 2020 , BAM made a$30 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InJanuary 2020 , BAM made a one-time$65 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InDecember 2019 , BAM made a$32 million cash payment (which included a one-time$10 million cash payment) of principal and interest on the BAM Surplus Notes held by HG Global. BAM's total claims paying resources were$987 million as ofDecember 31, 2020 compared to$938 million as ofDecember 31, 2019 . NSM reported commission and other revenues of$285 million , pre-tax loss of$13 million and adjusted EBITDA of$59 million in 2020 compared to commission and other revenues of$233 million , pre-tax loss of$2 million and adjusted EBITDA of$48 million in 2019. Results in the year endedDecember 31, 2020 include the results of Kingsbridge fromApril 7, 2020 , the date of its acquisition. Results in the years endedDecember 31, 2020 and 2019 include the results of Embrace, a nationwide provider of pet health insurance for dogs and cats, fromApril 1, 2019 , the date of its acquisition. Kudu reported total revenues of$46 million , pre-tax income of$28 million and adjusted EBITDA of$22 million in 2020 compared to total revenues of$21 million , pre-tax income of$11 million and adjusted EBITDA of$9 million for the period fromApril 4, 2019 , the date of the Kudu Transaction, throughDecember 31, 2019 . Total revenues and pre-tax income included$16 million of unrealized gains on Kudu's Participation Contracts in 2020 compared to$6 million in the period fromApril 4, 2019 toDecember 31, 2019 . Kudu deployed$121 million , including transaction costs, in five asset management firms in 2020. As ofDecember 31, 2020 , Kudu had deployed a total of$386 million , including transaction costs, in 13 asset management firms with combined assets under management of approximately$45 billion .White Mountains's pre-tax total return on invested assets was 31.9% in 2020. This return included$746 million of net investment income and net realized and unrealized investment gains fromMediaAlpha . ExcludingMediaAlpha , the total return on invested assets was 4.6% in 2020. Investment returns in 2020 were impacted byWhite Mountains's decision to liquidate its portfolio of common equity securities in the second half of 2020 in preparation for funding the Ark Transaction as equity markets rallied in the fourth quarter.White Mountains's pre-tax total return on invested assets was 20.4% in 2019. This return included$188 million of net investment income and net unrealized investment gains fromMediaAlpha . ExcludingMediaAlpha , the total return on invested assets was 13.0% in 2019. Investment returns in 2019 benefited fromWhite Mountains's decision to increase equity exposure after markets declined sharply at the end of 2018 ahead of the strong rally in equity markets during 2019. 41 --------------------------------------------------------------------------------
Adjusted Book Value Per Share
The following table presentsWhite Mountains's adjusted book value per share, a non-GAAP financial measure, as ofDecember 31, 2021 , 2020 and 2019 and reconciles this non-GAAP measure to book value per share, the most comparable GAAP measure. See "NON-GAAP FINANCIAL MEASURES" on page 71.
2021 2020 2019 Book value per share numerators (in millions):White Mountains's common shareholders' equity - GAAP book value per share numerator$ 3,548.1 $ 3,906.0 $ 3,261.5 Time-value of money discount on expected future payments on the BAM Surplus Notes (1) (125.9) (142.5) (151.6) HG Global's unearned premium reserve (1) 214.6 190.0 156.7 HG Global's net deferred acquisition costs (1) (60.8) (52.4) (41.5) Adjusted book value per share numerator$ 3,576.0 $ 3,901.1 $ 3,225.1 Book value per share denominators (in thousands of shares): Common shares outstanding - GAAP book value per share denominator 3,017.8 3,102.0 3,185.4 Unearned restricted common shares (13.7) (14.8) (18.5) Adjusted book value per share denominator 3,004.1 3,087.2 3,166.9 GAAP book value per share$ 1,175.73 $ 1,259.18 $ 1,023.91 Adjusted book value per share$ 1,190.39 $ 1,263.64 $ 1,018.41 Year-to-date dividends paid per share$ 1.00 $
1.00
(1) Amounts reflects
96.9%.
The following tables presents goodwill and other intangible assets that are included inWhite Mountains's adjusted book value as ofDecember 31, 2021 , 2020 and 2019: December 31, Millions 2021 2020 2019Goodwill : Ark$ 116.8 $ - $ - NSM 503.2 506.4 381.6 Kudu 7.6 7.6 7.6 Other Operations 17.9 11.5 5.5 Total goodwill 645.5 525.5 394.7 Other intangible assets: Ark 175.7 - - NSM 222.2 230.4 241.4 Kudu 1.3 1.6 2.0 Other Operations 21.2 24.9 16.6 Total other intangible assets 420.4 256.9 260.0 Total goodwill and other intangible assets (1) 1,065.9
782.4 654.7
Total goodwill and other intangible assets attributed to
non-controlling
interests (117.6)
(28.1) (23.4)
Total goodwill and other intangible assets included in
Mountains's
common shareholders' equity$ 948.3
(1) See Note 4 - "
of other intangible assets.
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Summary of Consolidated Results
The following table presents
industry for the years ended
Year Ended December 31, Millions 2021 2020 2019 Revenues Financial Guarantee revenues$ 23.0 $ 68.5 $ 66.6 P&C Insurance and Reinsurance revenues 668.5 - - Specialty Insurance Distribution revenues 330.4 285.1 233.1 Asset Management revenues 134.0 45.7 21.2 Marketing Technology revenues - - 48.8 Other Operations revenues (211.1) 781.4 523.7 Total revenues 944.8 1,180.7 893.4 Expenses Financial Guarantee expenses 65.4 63.8 56.6 P&C Insurance and Reinsurance expenses 615.6 - - Specialty Insurance Distribution expenses 358.5 297.7 235.2 Asset Management expenses 26.5 18.1 10.4 Marketing Technology expenses - - 54.9 Other Operations expenses 180.8 155.9 131.2 Total expenses 1,246.8 535.5 488.3 Pre-tax income (loss) Financial Guarantee pre-tax income (loss) (42.4) 4.7 10.0 P&C Insurance and Reinsurance pre-tax income (loss) 52.9 - - Specialty Insurance Distribution pre-tax income (loss) (28.1) (12.6) (2.1) Asset Management, pre-tax income (loss) 107.5 27.6 10.8 Marketing Technology pre-tax income (loss) - - (6.1) Other Operations pre-tax income (loss) (391.9) 625.5 392.5 Total pre-tax income (loss) (302.0) 645.2 405.1 Income tax (expense) benefit (38.6) 20.5 (29.3) Net income (loss) from continuing operations (340.6)
665.7 375.8
Gain (loss) on sale of discontinued operations, net of tax 18.7 (2.3) .8 Net income (loss) (321.9) 663.4 376.6 Net (income) loss attributable to non-controlling interests 46.5
45.3 37.9
Net income (loss) attributable to
common shareholders
(275.4) 708.7 414.5 Other comprehensive income (loss), net of tax 1.9
7.3 (1.4)
Comprehensive income (loss) (273.5) 716.0 413.1 Comprehensive (income) loss attributable to non-controlling interests .2 (.5) - Comprehensive income (loss) attributable toWhite Mountains's common shareholders$ (273.3) $ 715.5 $ 413.1 43
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I. Summary of Operations By Segment
As ofDecember 31, 2021 ,White Mountains conducted its operations through five segments: (1) HG Global/BAM, (2) Ark, (3) NSM, (4) Kudu and (5) Other Operations. In addition,MediaAlpha was consolidated as a reportable segment until the date of the 2019 MediaAlpha Transaction. A discussion ofWhite Mountains's consolidated investment operations is included after the discussion of operations by segment.White Mountains's segment information is presented in Note 16 - "Segment Information" on page F-68. As a result of the Ark Transaction,White Mountains began consolidating Ark in its financial statements as ofJanuary 1, 2021 . See Note 2 - "Significant Transactions" on page F-17. As a result of the Kudu Transaction,White Mountains began consolidating Kudu in its financial statements in the second quarter of 2019.White Mountains's segment disclosures for the year endedDecember 31, 2019 include Kudu's results of operations for the period fromApril 4, 2019 , the date of the Kudu Transaction, toDecember 31, 2019 . See Note 2 - "Significant Transactions" on page F-17 As a result of the 2019 MediaAlpha Transaction,White Mountains no longer consolidatedMediaAlpha , and consequently it was no longer a reportable segment.White Mountains's segment disclosures for the year endedDecember 31, 2019 includeMediaAlpha's results of operations for the period fromJanuary 1, 2019 toFebruary 26, 2019 , the date of the 2019 MediaAlpha Transaction. See Note 2 - "Significant Transactions" on page F-17.
HG Global/BAM
The following tables present the components of pre-tax income (loss) included inWhite Mountains's 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 years endedDecember 31, 2021 , 2020 and 2019: December 31, 2021 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 51.2 $ -$ 51.2 Assumed written premiums 47.6 4.6 (47.6) 4.6 Gross written premiums 47.6 55.8 (47.6) 55.8 Ceded written premiums - (47.6) 47.6 - Net written premiums$ 47.6 $ 8.2 $ -$ 55.8 Earned insurance and reinsurance premiums$ 22.2
Net investment income (loss) 7.2 10.3 - 17.5 Net investment income (loss) - BAM Surplus Notes 12.0 - (12.0) - Net realized and unrealized investment gains (losses) (13.7) (9.2) - (22.9) Other revenues .5 1.0 - 1.5 Total revenues 28.2 6.8 (12.0) 23.0 Insurance and reinsurance acquisition expenses 5.7 2.6 - 8.3 General and administrative expenses 2.0 55.1 - 57.1 Interest expense - BAM Surplus Notes - 12.0 (12.0) - Total expenses 7.7 69.7 (12.0) 65.4 Pre-tax income (loss)$ 20.5 $ (62.9) $ -$ (42.4) Supplemental information: MSC collected (1) $ -$ 62.2 $ -$ 62.2
(1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
44 -------------------------------------------------------------------------------- December 31, 2020 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 61.5 $ -$ 61.5 Assumed written premiums 53.0 .2 (53.0) .2 Gross written premiums 53.0 61.7 (53.0) 61.7 Ceded written premiums - (53.0) 53.0 - Net written premiums$ 53.0 $ 8.7 $ -$ 61.7 Earned insurance and reinsurance premiums$ 18.7
Net investment income (loss)
7.8 11.7 - 19.5 Net investment income (loss) - BAM Surplus Notes 18.8 - (18.8) - Net realized and unrealized investment gains (losses) 11.8 11.9 - 23.7 Other revenues .3 2.2 - 2.5 Total revenues 57.4 29.9 (18.8) 68.5 Insurance and reinsurance acquisition expenses 4.7 2.3 - 7.0 General and administrative expenses 2.6 54.2 - 56.8 Interest expense - BAM Surplus Notes - 18.8 (18.8) - Total expenses 7.3 75.3 (18.8) 63.8 Pre-tax income (loss)$ 50.1 $ (45.4) $ -$ 4.7 Supplemental information: MSC collected (1) $ -$ 68.9 $ -$ 68.9
(1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
December 31, 2019 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 28.1 (2) $ -$ 28.1 Assumed written premiums 33.6 10.6 (33.6) 10.6 Gross written premiums 33.6 38.7 (33.6) 38.7 Ceded written premiums - (33.6) (2) 33.6 - Net written premiums$ 33.6 $ 5.1 $ -$ 38.7 Earned insurance and reinsurance premiums$ 13.1 $ 3.2 $ -$ 16.3 Net investment income (loss) 7.5 14.1 - 21.6 Net investment income (loss) - BAM Surplus Notes 27.4 - (27.4) - Net realized and unrealized investment losses 11.0 16.1 - 27.1 Other revenues - 1.6 - 1.6 Total revenues 59.0 35.0 (27.4) 66.6 Insurance and reinsurance acquisition expenses 3.3 2.4 - 5.7 General and administrative expenses 1.6 49.3 - 50.9 Interest expense - BAM Surplus Notes - 27.4 (27.4) - Total expenses 4.9 79.1 (27.4) 56.6 Pre-tax income (loss)$ 54.1 $ (44.1) $ -$ 10.0 Supplemental information: MSC collected (1) (2) $ -$ 68.0 $ -$ 68.0 (1) MSC collected are recorded directly to BAM's equity, which is recorded as non-controlling interest onWhite Mountains's balance sheet. (2) During 2019, BAM issued policy endorsements for certain policies issued in periods prior to the second quarter of 2018. The impact of the policy endorsements for the year endedDecember 31, 2019 was a decrease to BAM's gross written premiums of$13.4 and an increase to MSC collected of$13.4 . 45 -------------------------------------------------------------------------------- HG Global/BAM Results-Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 BAM is required to prepare its financial statements on a statutory accounting basis for the NYDFS and does not report stand-alone GAAP financial results. BAM is owned by its members, the municipalities that purchase BAM's insurance for their debt issuances. BAM charges an insurance premium on each municipal bond insurance policy it writes. A portion of the premium is MSC and the remainder is a risk premium. In the event of a municipal bond refunding, a portion of the MSC from original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond. Gross written premiums and MSC collected in the HG Global/BAM segment totaled$118 million and$131 million in 2021 and 2020. BAM insured$17.5 billion of municipal bonds,$15.6 billion of which were in the primary market, in 2021 compared to$17.3 billion of municipal bonds,$15.3 billion of which were in the primary market, in 2020. During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$806 million . During 2020, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$37 million . Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.1% in 2021 compared to 7.6% in 2020. Total pricing, which reflects both gross written premiums and MSC from new business, decreased to 67 basis points in 2021 compared to 76 basis points in 2020. See "NON-GAAP FINANCIAL MEASURES" on page 71. The decrease in total pricing was driven primarily by a decrease in pricing and the amount of par insured in the secondary market during 2021, partially offset by the assumed reinsurance transaction in the first quarter of 2021. Additionally, during 2021 BAM wrote more higher credit quality business, which can pressure absolute pricing but, at the same time, improve risk-adjusted pricing. Pricing in the primary market decreased to 57 basis points in 2021 compared to 59 basis points in 2020, driven primarily by a decrease in credit spreads. Pricing in the secondary and assumed reinsurance markets, which is more transaction-specific than pricing in the primary market, decreased to 155 basis points in 2021 compared to 197 basis points in 2020. The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the years endedDecember 31, 2021 and 2020: Year Ended December 31, $ in Millions 2021 2020 Gross par value of primary market policies issued$ 15,560.8 $ 15,279.6 Gross par value of secondary market policies issued 1,118.9 2,022.9 Gross par value of assumed reinsurance 805.5 36.9 Total gross par value of market policies issued$ 17,485.2 $ 17,339.4 Gross written premiums$ 55.6 $ 61.7 MSC collected 62.2 68.9 Total gross written premiums and MSC collected$ 117.8 $ 130.6 Present value of future installment MSC collections - .3
Gross written premium adjustments on existing installment
policies
.2 .4 Gross written premiums and MSC from new business (1)$ 118.0 $ 131.3 Total pricing 67 bps 76 bps
(1) See "NON-GAAP FINANCIAL MEASURES" on page 71.
HG Global reported pre-tax income of$21 million in 2021 compared to$50 million in 2020. The decrease in pre-tax income was driven primarily by lower investment returns on the HG Global investment portfolio and a decrease in interest income on the BAM Surplus Notes. HG Global's results in 2021 included$12 million of interest income on the BAM Surplus Notes compared to$19 million in 2020. BAM is a mutual insurance company that is owned by its members. BAM's results are consolidated intoWhite Mountains's GAAP financial statements and attributed to non-controlling interests.White Mountains reported pre-tax loss from BAM of$63 million in 2021 compared to$45 million in 2020. The increase in the pre-tax loss was driven primarily by lower investment returns on the BAM investment portfolio partially offset by a decrease in interest expense on the BAM surplus notes. BAM's results included$12 million of interest expense on the BAM Surplus Notes and$55 million of general and administrative expenses in 2021 compared to$19 million of interest expense on the BAM Surplus Notes and$54 million of general and administrative expenses in 2020. 46 -------------------------------------------------------------------------------- InDecember 2021 , BAM made a$34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$24 million was a repayment of principal held in theSupplemental Trust and$10 million was a payment of accrued interest held outside theSupplemental Trust . InDecember 2020 , BAM made a$30 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$22 million was a repayment of principal held in theSupplemental Trust and$8 million was a payment of accrued interest held outside theSupplemental Trust . InJanuary 2020 , BAM made a one-time$65 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$48 million was a repayment of principal held in theSupplemental Trust ,$1 million was a payment of accrued interest held in theSupplemental Trust and$16 million was a payment of accrued interest held outside theSupplemental Trust . As ofDecember 31, 2021 ,White Mountains's debt service model indicated that the BAM Surplus Notes would be fully repaid between six and seven years prior to final maturity, which is generally consistent with the results of the update of the debt service model as ofDecember 31, 2020 . Through the COVID-19 pandemic, BAM's portfolio has performed well. All BAM-insured bond payments due throughFebruary 15, 2022 have been made by insureds, and there are no credits on BAM's watchlist. HG Global/BAM Results-Year EndedDecember 31, 2020 versus Year EndedDecember 31, 2019 Gross written premiums and MSC collected in the HG Global/BAM segment totaled$131 million and$107 million in 2020 and 2019. BAM insured$17.3 billion of municipal bonds,$15.3 billion of which were in the primary market, in 2020 compared to$12.8 billion of municipal bonds,$10.4 billion of which were in the primary market, in 2019. During 2020, BAM completed assumed reinsurance transactions to insure municipal bonds with a par value of$37 million . During 2019, BAM completed assumed reinsurance transactions to insure municipal bonds with a par value of$1.1 billion . Demand increased for insured bonds in the primary market as a result of the COVID-19 pandemic, as insured penetration in the primary market was 7.6% in 2020 compared to 5.9% in 2019. Total pricing, which reflects both gross written premiums and MSC from new business, decreased to 76 basis points in 2020 compared to 83 basis points in 2019. See "NON-GAAP FINANCIAL MEASURES" on page 71. The mix of business impacted 2020 total pricing as BAM wrote proportionally more lower-priced primary business and less higher-priced secondary market and assumed reinsurance business. Additionally, during 2020 BAM wrote more higher credit quality business, which can pressure absolute pricing but, at the same time, improve risk-adjusted pricing. Pricing in the primary market increased to 59 basis points in 2020 compared to 51 basis points in 2019, driven primarily by increased demand for insurance and wider credit spreads as a result of the COVID-19 pandemic. Pricing in the secondary and assumed reinsurance markets, which is more transaction-specific than pricing in the primary market, decreased to 197 basis points in 2020 compared to 219 basis points in 2019. The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the years endedDecember 31, 2020 and 2019: Year Ended December 31, $ in Millions 2020 2019 Gross par value of primary market policies issued$ 15,279.6 $ 10,405.1 Gross par value of secondary market policies issued 2,022.9 1,311.8 Gross par value of assumed reinsurance 36.9 1,130.7 Total gross par value of market policies issued$ 17,339.4 $ 12,847.6 Gross written premiums$ 61.7 (2)$ 38.7 MSC collected 68.9 (2) 68.0 Total gross written premiums and MSC collected$ 130.6 $ 106.7 Present value of future installment MSC collections .3 .3
Gross written premium adjustments on existing installment
policies
.4 (.1) Gross written premiums and MSC from new business (1)$ 131.3 $ 106.9 Total pricing 76 bps 83 bps (1) See "NON-GAAP FINANCIAL MEASURES" on page 71. (2) During 2019, BAM issued policy endorsements for certain policies issued in periods prior to the second quarter of 2018. The impact of the policy endorsements for the year endedDecember 31, 2019 was a decrease to BAM's gross written premiums of$13.4 and an increase to MSC collected of$13.4 . 47 -------------------------------------------------------------------------------- HG Global reported pre-tax income of$50 million in 2020 compared to$54 million in 2019. The decrease in pretax income was driven primarily by a decrease in interest income on the BAM Surplus Notes partially offset by an increase in income from insurance operations. HG Global's results in 2020 included$19 million of interest income on the BAM Surplus Notes compared to$27 million in 2019.White Mountains reported pre-tax loss from BAM of$45 million in 2020 compared to$44 million in 2019. The increase in the pre-tax loss was driven primarily by lower investment returns on the BAM investment portfolio and higher general and administrative expenses partially offset by a decrease in interest expense on BAM surplus notes. BAM's results included$19 million of interest expense on the BAM Surplus Notes and$54 million of general and administrative expenses in 2020 compared to$27 million of interest expense on the BAM Surplus Notes and$49 million of general and administrative expenses in 2019. InDecember 2020 , BAM made a$30 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$22 million was a repayment of principal held in theSupplemental Trust and$8 million was a payment of accrued interest held outside theSupplemental Trust . InJanuary 2020 , HG Global and BAM agreed to amend the BAM Surplus Notes to extend the end of the variable interest rate period from 2021 to 2024, to extend the initial 10-year term of the FLRT to the end of 2022 and to enter into the XOLT. See "HG Global/BAM - Reinsurance Treaties" on page F-58. In connection with these actions, and reflecting changes inStandard & Poor's insurance rating methodology, inJanuary 2020 , BAM made a one-time$65 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$48 million was a repayment of principal held in theSupplemental Trust ,$1 million was a payment of accrued interest held in theSupplemental Trust and$16 million was a payment of accrued interest held outside theSupplemental Trust . InDecember 2019 , BAM made a$32 million cash payment (which included a one-time$10 million cash payment) of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$24 million was a repayment of principal held in theSupplemental Trust and$8 million was a payment of accrued interest held outside theSupplemental Trust . As ofDecember 31, 2020 ,White Mountains's debt service model indicated that the BAM Surplus Notes would be fully repaid between six and seven years prior to final maturity, which is generally consistent with the results of the update of the debt service model as ofDecember 31, 2019 . Claims Paying Resources BAM's claims paying resources represent the capital and other financial resources BAM has available to pay claims and, as such, is a key indication of BAM's financial strength. BAM's claims paying resources were$1,192 million as ofDecember 31, 2021 compared to$987 million as ofDecember 31, 2020 and$938 million as ofDecember 31, 2019 . The increase in claims paying resources was driven primarily by the Fidus Re 2021 Agreement and increases in the statutory value of the collateral trusts resulting from positive cash flow from operations, partially offset by the portion of cash payments on the BAM surplus notes related to accrued interest held outside theSupplemental Trust . The following table presents BAM's total claims paying resources as ofDecember 31, 2021 , 2020 and 2019: December 31, Millions December 31, 2021 December 31, 2020 2019 Policyholders' surplus $ 298.1 324.7$ 402.4 Contingency reserve 101.8 86.4 68.2 Qualified statutory capital 399.9 411.1 470.6 Net unearned premiums 49.5 45.2 39.3 Present value of future installment premiums and MSC 13.8 14.0 13.7 HG Re Collateral Trusts at statutory value 478.9 417.0 314.0 Fidus Re collateral trust at statutory value 250.0 100.0 100.0 Claims paying resources$ 1,192.1 987.3$ 937.6 48
-------------------------------------------------------------------------------- HG Global/BAM Balance Sheets The following table presents amounts from HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM that are contained withinWhite Mountains's consolidated balance sheet as ofDecember 31, 2021 and 2020: December 31, 2021 Eliminations and Millions HG Global BAM Segment Adjustment Total Segment Assets Fixed maturity investments$ 461.7 $ 472.4 $ -$ 934.1 Short-term investments 17.8 14.6 - 32.4 Total investments 479.5 487.0 - 966.5 Cash 13.4 6.4 - 19.8 BAM Surplus Notes 364.6 - (364.6) - Accrued interest receivable on BAM Surplus Notes 157.6 - (157.6) - Insurance premiums receivable 4.3 6.9 (4.3) 6.9 Deferred acquisition costs 62.7 33.1 (62.7) 33.1 Other assets 2.1 16.6 (.2) 18.5 Total assets$ 1,084.2 $ 550.0 $ (589.4)$ 1,044.8 Liabilities BAM Surplus Notes (1) $ -$ 364.6 $ (364.6) $ -
Accrued interest payable on
BAM Surplus Notes (2) - 157.6 (157.6) -
Preferred dividends payable
to
subsidiaries (3) 400.5 - - 400.5
Preferred dividends payable
to non-controlling interests 14.2 - - 14.2 Unearned insurance premiums 221.5 44.8 - 266.3 Accrued incentive compensation 1.1 23.6 - 24.7 Other liabilities .5 83.4 (67.2) 16.7 Total liabilities 637.8 674.0 (589.4) 722.4 Equity
shareholders' equity (3) 437.5 - - 437.5 Non-controlling interests 8.9 (124.0) - (115.1) Total equity 446.4 (124.0) - 322.4 Total liabilities and equity$ 1,084.2 $ 550.0 $
(589.4)
(1) Under GAAP, the BAM Surplus Notes are classified as debt by the issuer. UnderU.S. Statutory accounting, they are classified as policyholders' surplus. (2) Under GAAP, interest accrues daily on the BAM Surplus Notes. UnderU.S. Statutory accounting, interest is not accrued on the BAM Surplus Notes until it has been approved for payment by insurance regulators. (3) HG Global preferred dividends payable toWhite Mountains's subsidiaries is eliminated inWhite Mountains's consolidated financial statements. For segment reporting, the HG Global preferred dividends payable toWhite Mountains's subsidiaries included within the HG Global/BAM segment are eliminated against the offsetting receivable included within the Other Operations segment, and therefore are added back toWhite Mountains's common shareholders' equity within the HG Global/BAM segment. 49 -------------------------------------------------------------------------------- December 31, 2020 Eliminations and Millions HG Global BAM Segment Adjustment Total Segment Assets Fixed maturity investments$ 415.9 $ 443.6 $ -$ 859.5 Short-term investments 16.5 43.9 - 60.4 Total investments 432.4 487.5 - 919.9 Cash 23.8 19.0 - 42.8 BAM Surplus Notes 388.2 - (388.2) - Accrued interest receivable on BAM Surplus Notes 155.7 - (155.7) - Insurance premiums receivable 4.4 6.9 (4.4) 6.9 Deferred acquisition costs 54.1 27.8 (54.1) 27.8 Other assets 2.0 18.8 (.4) 20.4 Total assets$ 1,060.6 $ 560.0 $ (602.8)$ 1,017.8 Liabilities BAM Surplus Notes (1) $ -$ 388.2 $ (388.2) $ -
Accrued interest payable on
BAM Surplus Notes (2) - 155.7 (155.7) -
Preferred dividends payable
to
subsidiaries (3) 363.9 - - 363.9
Preferred dividends payable
to non-controlling interests 12.7 - - 12.7 Unearned insurance premiums 196.1 41.4 - 237.5 Accrued incentive compensation 1.2 24.5 - 25.7 Other liabilities 1.0 73.5 (58.9) 15.6 Total liabilities 574.9 683.3 (602.8) 655.4 Equity
shareholders' equity (3) 472.2 - - 472.2 Non-controlling interests 13.5 (123.3) - (109.8) Total equity 485.7 (123.3) - 362.4 Total liabilities and equity$ 1,060.6 $ 560.0 $
(602.8)
(1) Under GAAP, the BAM Surplus Notes are classified as debt by the issuer. UnderU.S. Statutory accounting, they are classified as policyholders' surplus. (2) Under GAAP, interest accrues daily on the BAM Surplus Notes. UnderU.S. Statutory accounting, interest is not accrued on the BAM Surplus Notes until it has been approved for payment by insurance regulators. (3) HG Global preferred dividends payable toWhite Mountains's subsidiaries is eliminated inWhite Mountains's consolidated financial statements. For segment reporting, the HG Global preferred dividends payable toWhite Mountains's subsidiaries included within the HG Global/BAM segment are eliminated against the offsetting receivable included within the Other Operations segment, and therefore are added back toWhite Mountains's common shareholders' equity within the HG Global/BAM segment. 50
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Ark
OnJanuary 1, 2021 ,White Mountains completed the Ark Transaction. See Note 2 - "Significant Transactions". Ark is a specialty property and casualty insurance and reinsurance company that offers a wide range of niche insurance and reinsurance products, including property, marine & energy, specialty, accident & health and casualty. Ark underwrites select coverages through its two major subsidiaries in theUnited Kingdom andBermuda . In the third quarter of 2021, Ark issued$163 million of floating rate unsecured subordinated notes (the "Ark 2021 Subordinated Notes") in three separate transactions. See Note 7 - "Debt". In connection with the issuance of the Ark 2021 Subordinated Notes,White Mountains and Ark terminatedWhite Mountains's commitment to provide up to$200 million of additional equity capital to Ark. The following table presents the components of pre-tax income (loss) included inWhite Mountains's Ark segment for the year-endedDecember 31, 2021 : Millions Year Ended December 31, 2021 Earned insurance and reinsurance premiums $ 637.3 Net investment income 2.9 Net realized and unrealized investment gains (losses) 16.5 Other revenues 11.8 Total revenues 668.5 Losses and LAE 314.8 Insurance and reinsurance acquisition expenses 178.0 General and administrative expenses - other underwriting 64.6 General and administrative expenses - all other 50.9 Interest expense 7.3 Total expenses 615.6 Pre-tax income (loss) $ 52.9 For the years of account prior to the Ark Transaction, a significant proportion of the Syndicates' underwriting capital was provided by TPC Providers using whole account reinsurance contracts with Ark's corporate member. The TPC Providers' participation in the Syndicates for the 2020 and 2019 open years of account is 43% and 58% of the total net result of the Syndicates. For the years of account subsequent to the Ark Transaction, Ark is no longer using TPC Providers to provide underwriting capital for the Syndicates. Captions within Ark's results of operations are shown net of amounts relating to the TPC Providers share of the Syndicates' results, including investment results. 51 -------------------------------------------------------------------------------- Ark Results-Year endedDecember 31, 2021 Ark's GAAP combined ratio was 87% in 2021. The GAAP combined ratio included 10 points of catastrophe losses, driven primarily by Hurricane Ida (five points), Winter Storm Uri (three points) and the European floods (two points), partially offset by three points of net favorable prior year reserve development. The net favorable prior year reserve development was driven by positive claims experience in several lines of business, particularly property and accident & health. Ark's adjusted combined ratio, which adds back amounts ceded to TPC Providers, was 85% in 2021. The adjusted combined ratio included 10 points of catastrophe losses, driven primarily by Hurricane Ida (four points), Winter Storm Uri (four points) and the European floods (two points), partially offset by six points of net favorable prior year reserve development. The net favorable prior year reserve development was driven by positive claims experience in several lines of business, particularly property and accident & health. Ark reported pre-tax income of$53 million in 2021, which reflected$25 million of transaction expenses related to the Ark Transaction. The following table presents Ark's loss and loss adjustment expense, insurance acquisition expense, other underwriting expense and combined ratios on both a GAAP-basis and an adjusted basis, which adds back amounts ceded to TPC Providers, for the year endedDecember 31, 2021 : Year Ended December 31, 2021 TPC Providers' Share $ in Millions GAAP (1) Adjusted Insurance premiums: Gross written premiums$ 1,058.7 $ -$ 1,058.7 Net written premiums$ 859.1 $ (6.5)$ 852.6 Net earned premiums$ 637.3 $ 76.3$ 713.6 Insurance expenses: Loss and loss adjustment expenses$ 314.8 $ 39.8$ 354.6 Insurance acquisition expenses 178.0 - 178.0 Other underwriting expenses 64.6 9.2 73.8 Total insurance expenses$ 557.4 $ 49.0$ 606.4 Ratios: Loss and loss adjustment expense 49.4 % 49.7 % Insurance acquisition expense 27.9 % 24.9 % Other underwriting expense 10.1 % 10.3 % Combined Ratio 87.4 % 84.9 %
(1) See "NON-GAAP FINANCIAL MEASURES" on page 71.
Gross Written Premiums The following table presents Ark's gross written premiums by line of business for the years endedDecember 31, 2021 , 2020 and 2019, which includes periods prior toWhite Mountains's ownership of Ark.White Mountains believes this is useful in understanding the underwriting growth in the newly acquired business. Gross written premiums increased 77% to$1,059 million in 2021 compared to 2020, with risk adjusted rate change up approximately 8%. In 2021, in response to an improved underwriting environment, Ark substantially increased its gross written premiums, principally in the property, specialty and marine & energy lines of business. Ark decreased its gross written premiums in the accident & health line of business in response to a lack of adequate risk adjusted pricing in light of recent market developments, including COVID-19. Year Ended December 31, Millions 2021 2020 2019 Property$ 438.4 $ 235.7 $ 134.4 Specialty 256.7 118.3 103.4 Marine & Energy 242.2 129.1 107.6 Accident & Health 67.0 90.6 86.0 Casualty 54.4 24.4 40.6 Total Gross Written Premium$ 1,058.7 $ 598.1 $ 472.0 52
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NSM
NSM is a full-service MGA and program administrator with delegated binding authorities for specialty property and casualty insurance. The company places insurance in niche sectors such as specialty transportation, real estate, social services and pet. On behalf of its insurance carrier partners, NSM typically manages all aspects of the placement process, including product development, marketing, underwriting, policy issuance and claims. NSM earns commissions based on the volume and profitability of the insurance that it places. NSM does not take insurance risk. The following table presents the components of GAAP net income (loss), EBITDA and adjusted EBITDA included inWhite Mountains's NSM segment for the years endedDecember 31, 2021 , 2020 and 2019: Year Ended December 31, Millions 2021 2020 2019 Commission revenues$ 258.0 $ 232.5 $ 193.4 Broker commission expense 80.2 75.3 64.8 Gross profit 177.8 157.2 128.6 Other revenues 72.4 52.6 39.7 General and administrative expenses 190.1
176.9 132.2
Change in fair value of contingent consideration 1.0
(3.3) 2.1
Amortization of other intangible assets 35.2
26.7 19.4
Loss on assets held for sale 28.7 - - Interest expense 23.3 22.1 16.7 GAAP pre-tax income (loss) (28.1) (12.6) (2.1) Income tax (expense) benefit 5.6 5.7 .6 GAAP net income (loss) (22.5) (6.9) (1.5) Add back: Interest expense 23.3 22.1 16.7 Income tax expense (benefit) (5.6)
(5.7) (.6)
General and administrative expenses - depreciation 5.4
4.5 2.8
Amortization of other intangible assets 35.2
26.7 19.4
EBITDA (1) 35.8
40.7 36.8
Exclude:
Change in fair value of contingent consideration 1.0
(3.3) 2.1
Non-cash equity-based compensation expense 2.0 2.4 - Impairments of intangible assets -
6.2 2.4
Loss on assets held for sale 28.7 - - Transaction expenses 4.8
7.2 3.2
Fair value purchase accounting adjustment for
deferred revenue - - .9
Investments made in the development of
new business lines .8 .9 .3 Restructuring expenses 5.4 4.8 2.3 Legal settlements (7.6) - - Adjusted EBITDA (1)$ 70.9 $ 58.9 $ 48.0
(1) See "NON-GAAP FINANCIAL MEASURES" on page 71.
53 -------------------------------------------------------------------------------- NSM Results-Year endedDecember 31, 2021 versus Year endedDecember 31, 2020 NSM reported commission and other revenues of$330 million , pre-tax loss of$28 million and adjusted EBITDA of$71 million in 2021. NSM reported commission and other revenues of$285 million , pre-tax loss of$13 million and adjusted EBITDA of$59 million in 2020. NSM's pre-tax loss included interest expense of$23 million and amortization of other intangible assets of$35 million in 2021 compared to$22 million and$27 million , respectively, in 2020. NSM's pre-tax loss in 2021 also includes a loss of$29 million related to the sale of itsFresh Insurance motor business. Results in the year endedDecember 31, 2021 include the results ofJ.C. Taylor fromAugust 6, 2021 , the date of its acquisition. Results in the years endedDecember 31, 2021 and 2020 include the results of Kingsbridge fromApril 7, 2020 , the date of its acquisition. In addition to the acquisitions ofJ.C. Taylor and Kingsbridge, commission and other revenues, pre-tax loss and adjusted EBITDA benefited from growth in the pet and specialty transportation verticals, partially offset by a decline in the real estate vertical, in 2021. Broker commission expenses and general and administrative expenses were$80 million and$190 million in 2021 compared to$75 million and$177 million , respectively, in 2020. The increase in NSM's broker commission expenses and general and administrative expenses in 2021 compared to 2020 was driven primarily by the acquisitions ofJ.C. Taylor and Kingsbridge and increased technology costs and professional fees related to information systems projects. NSM Results-Year endedDecember 31, 2020 versusDecember 31, 2019 NSM reported commission and other revenues of$285 million in 2020, pre-tax loss of$13 million and adjusted EBITDA of$59 million in 2020. NSM reported commission and other revenues of$233 million , pre-tax loss of$2 million and adjusted EBITDA of$48 million in 2019. NSM's pre-tax loss included interest expense of$22 million and amortization of other intangible assets of$27 million in 2020 compared to$17 million and$19 million , respectively, in 2019. Results in the year endedDecember 31, 2020 include the results of Kingsbridge fromApril 7, 2020 , the date of its acquisition. Results in the years endedDecember 31, 2020 and 2019 include the results of Embrace fromApril 1, 2019 , the date of its acquisition. Broker commission expenses and general and administrative expenses were$75 million and$177 million in 2020 compared to$65 million and$132 million , respectively, in 2019. The increase in NSM's broker commission expenses and general and administrative expenses in 2020 compared to 2019 was driven primarily by the acquisitions of Kingsbridge and Embrace. In addition, NSM's general and administrative expenses for 2020 and 2019 included a$6 million and$2 million impairment of intangible assets related to itsU.K. vertical. NSM Business Trends NSM's business consists of approximately 25 active programs that are broadly categorized into six market verticals.J.C. Taylor was added to the Specialty Transportation vertical in the third quarter of 2021 and Kingsbridge was added to theU.K. vertical in the second quarter of 2020. The following table presents the controlled premium and commission and other revenues by vertical for the years endedDecember 31, 2021 , 2020 and 2019: Year Ended December 31, 2021 2020 2019 Controlled Commission and Controlled Commission and Controlled Commission and Millions Premium (1) Other Revenue Premium (1) Other Revenue Premium (1) Other Revenue Specialty Transportation$ 344.7 $ 97.2 $ 310.2 $ 85.5 $ 290.2 $ 77.6 United Kingdom 195.2 53.1 179.5 49.4 155.5 45.9 Pet 184.9 76.3 131.9 55.0 67.6 30.0 Real Estate 153.9 34.4 189.1 44.9 157.2 34.7 Social Services 136.7 33.9 115.5 28.9 102.7 25.9 Other 165.8 35.5 134.5 21.4 124.5 19.0 Total$ 1,181.2 $ 330.4 $ 1,060.7 $ 285.1 $ 897.7 $ 233.1
(1) Controlled premium are total premiums placed by NSM during the period.
54 -------------------------------------------------------------------------------- Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 Specialty Transportation: NSM's specialty transportation controlled premium and commission and other revenues increased 11% and 14% in 2021 compared to 2020, driven primarily by the impact of higher commission levels and fees in the collector car and the trucking business and the acquisition ofJ.C. Taylor , partially offset by lower contingent commissions.J.C. Taylor contributed$13 million of controlled premium and$4 million of commission and other revenues from the date of acquisition.United Kingdom : NSM'sUnited Kingdom controlled premium and commission and other revenues increased 9% and 8% in 2021 compared to 2020, driven primarily by growth in the MGA business and the Kingsbridge acquisition. Excluding Kingsbridge,United Kingdom controlled premium increased 1% and commission and other revenues decreased 8% in 2021 compared to 2020. Excluding Kingsbridge, commission and other revenues decreased as a result of changes in product mix, as the brokerage business, which has higher commission rates than the MGA business, declined due to disruption to the travel and leisure markets resulting from a full year impact of the COVID-19 pandemic, while the MGA business grew. Pet: NSM's pet controlled premium and commission and other revenues increased 40% and 39% in 2021 compared to 2020, driven primarily by substantial growth in units from continuing strong demand as a result of marketing efforts. Real Estate: NSM's real estate controlled premium and commission and other revenues decreased 19% and 23% in 2021 compared to 2020, driven primarily by declines in both rates and units in the coastal condominium program, partially offset by growth in the excess and surplus habitational program. The declines in the coastal condominium program were driven primarily by lower insurance carrier capacity available for the program as NSM is transitioning to a new insurance carrier platform. Social Services: NSM's social services controlled premium and commission and other revenues increased 18% and 17% in 2021 compared to 2020, driven primarily by rate increases and unit growth. Other: NSM's other controlled premium and commission and other revenues increased 23% and 66% in 2021 compared to 2020. The increase in controlled premium was driven primarily by increases in the workers compensation and staffing markets resulting from the emergence from COVID-19 lockdowns. Commission and other revenues increased more than controlled premium driven primarily by an increase in profit commissions and product mix shifts into higher rate workers compensation programs.
Year Ended
Specialty Transportation: NSM's specialty transportation controlled premium and commission and other revenues increased 7% and 10% in 2020 compared to 2019, driven primarily by rate increases and unit growth in the collector car and tow truck markets.United Kingdom : NSM'sUnited Kingdom controlled premium and commission and other revenues increased 15% and 8% in 2020 compared to 2019, driven primarily by the acquisition of Kingsbridge. Kingsbridge contributed$26 million of controlled premium and$12 million of commission and other revenues in 2020. Excluding Kingsbridge,United Kingdom controlled premium decreased 1% in 2020 compared to 2019, as growth in the MGA business was offset by declines in the brokerage business caused by disruption to the travel and non-standard auto markets in theUnited Kingdom resulting from the COVID-19 pandemic. Excluding Kingsbridge,United Kingdom commission and other revenues declined 19% due to COVID-related challenges and changes in product mix, as the brokerage business, which has higher commission rates than the MGA business, declined while the MGA business grew. Pet: NSM's pet controlled premium and commission and other revenues increased 95% and 83% in 2020 compared to 2019, driven primarily by the acquisition of Embrace inApril 2019 and strong demand in 2020 as pet adoption increased substantially as a result of the COVID-19 pandemic. The increase in commission and other revenues was less than the increase in premium due to business mix, as affinity business grew faster than direct market business. Real Estate: NSM's real estate controlled premium and commission and other revenues increased 20% and 29% in 2020 compared to 2019, driven primarily by rate increases and strong retention rates in coverages for coastal condominium associations combined with rate increases and unit growth in the excess and surplus habitational program. Social Services: NSM's social services controlled premium and commission and other revenues both increased 12% in 2020 compared to 2019, driven primarily by rate increases and unit growth. Other: NSM's other controlled premium and commission and other revenues increased 8% and 13% in 2020 compared to 2019. The increase in controlled premium was driven primarily by rate increases. Commission and other revenues increased as the professional liability business, which has higher commission rates than retail, grew while the retail business declined. 55 --------------------------------------------------------------------------------
Kudu
Kudu provides capital solutions for boutique asset and wealth managers for a variety of purposes including generational ownership transfers, management buyouts, acquisition and growth finance and legacy partner liquidity. Kudu also provides strategic assistance to investees from time to time. As ofDecember 31, 2021 , Kudu has deployed a total of$612 million in 17 asset and wealth management firms globally, including one that was exited. As ofDecember 31, 2021 , the asset and wealth management firms have combined assets under management of approximately$66 billion , spanning a range of asset classes, including real estate, real assets, wealth management, hedge funds, private equity and alternative credit strategies. Kudu's capital was deployed at an average gross cash yield at inception of 10.1%. OnMarch 23, 2021 , Kudu replaced the Kudu Bank Facility with the Kudu Credit Facility. Subject to maximum loan to value ("LTV") levels, the total borrowing capacity of the Kudu Credit Facility is$300 million (which includes the current advanced amount of$225 million ). See Note 7 - "Debt". The following table presents the components of GAAP net income, EBITDA and adjusted EBITDA included inWhite Mountains's Kudu segment for the years endedDecember 31, 2021 andDecember 31, 2020 and for the period fromApril 4, 2019 , the date of the Kudu Transaction, toDecember 31, 2019 : Year Ended December Year Ended December April 4, 2019 to Millions 31, 2021 31, 2020 December 31, 2019 Net investment income $ 43.9 $ 29.5 $ 14.7 Net realized and unrealized investment gains (losses) 89.9 15.9 6.3 Other revenues .2 .3 .2 Total revenues 134.0 45.7 21.2 General and administrative expenses 14.5 11.8 10.1 Amortization of other intangible assets .3 .3 .2 Interest expense 11.7 6.0 .1 Total expenses 26.5 18.1 10.4 GAAP pre-tax income (loss) $ 107.5 $ 27.6 $ 10.8 Income tax (expense) benefit (29.5) (7.0) (2.8) GAAP net income (loss) 78.0 20.6 8.0 Add back: Interest expense 11.7 6.0 .1 Income tax expense (benefit) 29.5 7.0 2.8 General and administrative expenses - depreciation - - - Amortization of other intangible assets .3 .3 .2 EBITDA (1) 119.5 33.9 11.1
Exclude:
Net realized and unrealized investment (gains) losses (89.9) (15.9) (6.3) Non-cash equity-based compensation expense 1.2 .4 1.3 Transaction expenses 2.0 3.7 2.9 Adjusted EBITDA (1) $ 32.8 $ 22.1 $ 9.0
(1) See "NON-GAAP FINANCIAL MEASURES" on page 71.
56 -------------------------------------------------------------------------------- Kudu Results-Year endedDecember 31, 2021 versus Year endedDecember 31, 2020 Kudu reported total revenues of$134 million , pre-tax income of$108 million and adjusted EBITDA of$33 million in 2021 compared to total revenues of$46 million , pre-tax income of$28 million and adjusted EBITDA of$22 million in 2020. Total revenues and pre-tax income for 2021 included$22 million of realized gains and$68 million of unrealized gains on Kudu's Participation Contracts in 2021 compared to$16 million of unrealized gains on Kudu's Participation Contracts in 2020. The increase in net unrealized and realized investment gains on Kudu's Participation Contracts was driven primarily by asset growth, the performance of Kudu's underlying asset management businesses and proceeds received from a sale transaction. Total revenues, pre-tax income and adjusted EBITDA in 2021 also included$44 million of net investment income compared to$30 million in 2020. The increase in net investment income was driven primarily by amounts earned from the$347 million (including$5 million of transaction costs) in new deployments that Kudu made in 2021 and 2020. Kudu Results-Year endedDecember 31, 2020 versus Year endedDecember 31, 2019 Kudu reported total revenues of$46 million , pre-tax income of$28 million and adjusted EBITDA of$22 million for 2020 compared to total revenues of$21 million , pre-tax income of$11 million and adjusted EBITDA of$9 million for the period fromApril 4, 2019 , the date of the Kudu Transaction, toDecember 31, 2019 . Total revenues and pre-tax income included$16 million of unrealized gains on Kudu's Participation Contracts in 2020 compared to$6 million in the period fromApril 4, 2019 toDecember 31, 2019 . Total revenues, pre-tax income and adjusted EBITDA in 2020 also included$30 million of net investment income compared to$15 million in 2019. The increases in Kudu's total revenues, pre-tax income and adjusted EBITDA in 2020 were driven primarily by net investment income earned from the$121 million (including$3 million of transaction costs) in new deployments that Kudu made in 2020 and 2019.
OnFebruary 26, 2019 ,MediaAlpha completed the 2019 MediaAlpha Transaction.White Mountains deconsolidatedMediaAlpha as a result of the 2019MediaAlpha Transaction and stopped reporting it as a segment. OnOctober 30, 2020 ,MediaAlpha completed the MediaAlpha IPO. Prior to the MediaAlpha IPO,White Mountains's non-controlling equity interest inMediaAlpha was accounted for at fair value within other long-term investments. Following the MediaAlpha IPO,White Mountains's non-controlling equity interest inMediaAlpha is accounted for at fair value based on the publicly traded share price ofMediaAlpha's common stock. See Summary of Investment Results on page 59. The following table presents the components of pre-tax income (loss) included inWhite Mountains's MediaAlpha segment for the period ofJanuary 1, 2019 toFebruary 26, 2019 : January 1, 2019 to Millions February 26, 2019 Advertising and commission revenues $ 48.8 Cost of sales 40.6 Gross profit 8.2 Other revenue - General and administrative expenses 5.7
General and administrative expenses -
the 2019 MediaAlpha Transaction related costs 6.8 Amortization of other intangible assets 1.6 Interest expense .2 Pre-tax income (loss) $ (6.1) MediaAlpha Results-For the Period fromJanuary 1, 2019 toFebruary 26, 2019 MediaAlpha reported pre-tax loss of$6 million and revenues of$49 million fromJanuary 1, 2019 toFebruary 26, 2019 , the date of the 2019MediaAlpha Transaction. During the period fromJanuary 1, 2019 toFebruary 26, 2019 , revenues were driven primarily by the P&C and Health, Medicare and Life verticals, which had revenues of$26 million and$17 million . During the period fromJanuary 1, 2019 toFebruary 26, 2019 ,MediaAlpha recognized$7 million of costs related to the 2019 MediaAlpha Transaction in general and administrative expenses. 57 --------------------------------------------------------------------------------
Other Operations
The following table presents
Operations segment for the years ended
Year Ended December 31, Millions 2021 2020 2019 Net investment income$ 18.2 $ 82.0 $ 43.4 Net realized and unrealized investment gains (losses) 50.7
(8.8) 219.8
Net realized and unrealized investment gains (losses) from
investment in
(380.3) 686.0 180.0 Realized gain from the 2019 MediaAlpha Transaction - - 67.5 Commission revenues 9.6 8.3 6.9 Other revenues 90.7 13.9 6.1 Total revenues (211.1) 781.4 523.7 Cost of sales 69.3 11.3 7.5 General and administrative expenses 105.7 141.9 122.5 Amortization of other intangible assets 4.3 1.3 .6 Interest expense 1.5 1.4 .6 Total expenses 180.8 155.9 131.2 Pre-tax income (loss)$ (391.9) $ 625.5 $ 392.5
Other Operations Results-Year Ended
White Mountains's Other Operations segment reported pre-tax (loss) income of$(392) million in 2021 compared to$626 million in 2020.White Mountains's Other Operations segment reported net realized and unrealized investment (losses) gains from its investment inMediaAlpha of$(380) million in 2021 compared to$686 million in 2020.White Mountains's Other Operations segment reported net realized and unrealized investment gains (losses) of$51 million in 2021 compared to$(9) million in 2020.White Mountains's Other Operations segment reported net investment income of$18 million in 2021 compared to$82 million in 2020. Net investment income in the year endedDecember 31, 2020 included$55 million of net proceeds received from a dividend recapitalization atMediaAlpha . See "Summary of Investment Results" on page 59. The Other Operations segment reported$91 million of other revenues in 2021 compared to$14 million in 2020. The Other Operations segment reported$69 million of cost of sales in 2021 compared to$11 million in 2020. The increases in other revenues and cost of sales were driven primarily by an acquisition within the Other Operations segment. The Other Operations segment reported general and administrative expenses of$106 million in 2021 compared to$142 million in 2020. The decrease in general and administrative expenses was driven primarily by lower incentive compensation costs, driven primarily by a decrease in the assumed harvest percentage on outstanding performance shares. Share repurchases For the year endedDecember 31, 2021 ,White Mountains repurchased and retired 98,511 of its common shares for$108 million . Other Operations Results-Year EndedDecember 31, 2020 versus Year EndedDecember 31, 2019 White Mountains's Other Operations segment reported pre-tax income of$626 million in 2020 compared to$393 million in 2019.White Mountains's Other Operations segment reported net realized and unrealized investment gains from its investment inMediaAlpha of$686 million in 2020 compared to$180 million in 2019.White Mountains's Other Operations segment reported net realized and unrealized investment (losses) gains of$(9) million in 2020 compared to$220 million in 2019.White Mountains's Other Operations segment reported net investment income of$82 million in 2020, which was driven primarily by$55 million of net proceeds received in the third quarter of 2020 from a dividend recapitalization atMediaAlpha compared to net investment income of$43 million in 2019. See "Summary of Investment Results" on page 59. Pre-tax income for the year endedDecember 31, 2019 also included$68 million of realized gains from the 2019 MediaAlpha Transaction. The Other Operations segment reported general and administrative expenses of$142 million in 2020 compared to$123 million in 2019. The increase was driven primarily by higher incentive compensation costs, driven primarily by an increase in the assumed harvest percentage on outstanding performance shares. 58 -------------------------------------------------------------------------------- Share repurchases For the year endedDecember 31, 2020 ,White Mountains repurchased and retired 99,087 of its common shares for$85 million .
II. Summary of Investment Results
White Mountains's total investment results include results from all segments. For purposes of discussing rates of return, all percentages are presented gross of management fees and trading expenses and are calculated before any adjustments for TPC Providers in order to produce a better comparison to benchmark returns.
Gross Investment Returns and Benchmark Returns
Prior to the MediaAlpha IPO,White Mountains's investment inMediaAlpha was presented within other long-term investments. Following the MediaAlpha IPO,White Mountains presents its investment inMediaAlpha in a separate line item on the balance sheet. Amounts for periods prior to the MediaAlpha IPO have been reclassified to be comparable to the current period. The following table presents the pre-tax investment returns forWhite Mountains's consolidated portfolio for the years endedDecember 31, 2021 , 2020 and 2019: Year Ended December 31, 2021 2020 2019 Fixed income investments (0.4) % 4.9 % 6.1 % Bloomberg BarclaysU.S. Intermediate Aggregate Index (1.3) % 5.6 % 6.7 % Common equity securities 11.0 % 3.6 % 29.1 % Investment in MediaAlpha (60.1) % 520.3 % 65.9 % Other long-term investments 20.7 % 2.5 % 6.1 % Total common equity securities, investment in MediaAlpha and other long-term investments (7.1) % 80.0 % 36.9 % Total common equity securities and other long-term investments 19.3 % 4.9 % 20.8 % S&P 500 Index (total return) 28.7 % 18.4 % 31.5 % Total consolidated portfolio (3.4) % 31.9 % 20.4 % Total consolidated portfolio - excluding MediaAlpha 6.4 % 4.6 % 13.0 %
Investment Returns-Year Ended
2020
White Mountains's pre-tax total consolidated portfolio return on invested assets was -3.4% in 2021. This return included$380 million of net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 6.4% in 2021. ExcludingMediaAlpha , investment returns in 2021 were driven primarily by favorable other long-term investments results.White Mountains's pre-tax total consolidated portfolio return on invested assets was 31.9% in 2020. This return included$746 million of net investment income and net realized and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 4.6% in 2020. ExcludingMediaAlpha , investment returns in 2020 were impacted byWhite Mountains's decision to liquidate its portfolio of common equity securities in the second half of 2020 in preparation for funding the Ark Transaction as equity markets rallied in the fourth quarter. Fixed Income ResultsWhite Mountains's fixed income portfolio, including short-term investments, was$2.4 billion and$1.4 billion as ofDecember 31, 2021 and 2020, which represented 56% and 46% of total invested assets. The increase was driven primarily by the inclusion of Ark's invested assets as a result of the Ark Transaction. The duration ofWhite Mountains's fixed income portfolio, including short-term investments, was 2.6 years and 3.2 years as ofDecember 31, 2021 and 2020.White Mountains's fixed income portfolio includes fixed maturity investments and short-term investments in the HG Re Collateral Trusts of$480 million and$432 million as ofDecember 31, 2021 and 2020.White Mountains's fixed income portfolio returned -0.4% in 2021 compared to 4.9% in 2020, outperforming and underperforming the Bloomberg BarclaysU.S. Intermediate Aggregate Index returns of -1.3% and 5.6% for the comparable periods. The results in 2021 were driven primarily by the short duration positioning ofWhite Mountains's fixed income portfolio as interest rates increased during the period, partially offset by currency losses. The results in 2020 were driven primarily by the short duration positioning ofWhite Mountains's fixed income portfolio as interest rates declined significantly during the period. 59 --------------------------------------------------------------------------------Common Equity Securities , Investment inMediaAlpha and Other Long-Term Investments ResultsWhite Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments was$1.9 billion and$1.6 billion as ofDecember 31, 2021 and 2020, which represented 44% and 54% of total invested assets. See Note 3 - "Investment Securities ". The change was driven primarily by an increase in the fair value of Kudu's Participation Contracts, the inclusion of Ark's invested assets as a result of the Ark Transaction and the addition of international listed common equity funds and a bank loan fund at Ark, partially offset by a decline in the fair value ofWhite Mountains's investment inMediaAlpha .White Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments returned -7.1% in 2021, driven primarily by$380 million of net realized and unrealized investment losses from its investment inMediaAlpha .White Mountains's portfolio of common equity securities and other long-term investments returned 19.3% in 2021.White Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments returned 80.0% in 2020, which included$746 million of net investment income and net realized and unrealized investment gains from its investment inMediaAlpha .White Mountains's portfolio of common equity securities and other long-term investments returned 4.9% in 2020. During the second half of 2020,White Mountains liquidated its portfolio of common equity securities, including its portfolio of ETFs and international common equity securities, in preparation for funding the Ark Transaction. Following the Ark Transaction,White Mountains's portfolio of common equity securities consists of international listed funds held in the Ark portfolio. As ofDecember 31, 2021 , the fair value ofWhite Mountains's international listed common equity funds was$251 million .White Mountains's portfolio of common equity securities returned 11.0% in 2021 compared to 3.6% in 2020, underperforming the S&P 500 Index returns of 28.7% and 18.4% for the comparable periods. The results for 2021 were driven primarily by relative underperformance inWhite Mountains's non-U.S. common equity positions versus the S&P 500 Index. The results for 2020 were driven primarily byWhite Mountains's lack of common equity exposure during the fourth quarter equity market rally and the relative underperformance fromWhite Mountains's international common equity portfolios versus the S&P 500 Index prior to the liquidation of these positions. Historically,White Mountains's portfolio of ETFs was designed to provide investment results that generally corresponded to the performance of the S&P 500 Index.White Mountains's portfolio of ETFs was fully liquidated in the fourth quarter of 2020. In 2020,White Mountains's portfolio of ETFs essentially earned the effective index return, before expenses, over the period in whichWhite Mountains was invested in these funds.White Mountains also maintained relationships with a small number of third-party registered investment advisers (the "actively managed common equity portfolio"), who primarily invested in non-U.S. equity securities through unit trusts. At the end of the third quarter of 2020,White Mountains fully redeemed its actively managed common equity portfolio.White Mountains's actively managed common equity portfolio returned -11.0% in 2020, underperforming the S&P 500 Index return of 18.4%. The results were driven primarily by the lack of exposure to actively managed common equities in the fourth quarter of 2020 and relative underperformance in international stocks versus the S&P 500 Index.White Mountains maintains a portfolio of other long-term investments that consists primarily of unconsolidated entities, including Kudu's Participation Contracts, a bank loan fund, private equity funds, hedge funds, Lloyd's trust deposits, ILS funds and private debt investments.White Mountains's portfolio of other long-term investments was$1.4 billion and$787 million as ofDecember 31, 2021 and 2020. The change in other long-term investments was driven primarily by an increase in the fair value of Kudu's Participation Contracts, the inclusion of invested assets relating to the Ark Transaction and the addition of a bank loan fund at Ark.White Mountains's other long-term investments portfolio returned 20.7% in 2021 compared to 2.5% in 2020. Investment returns for 2021 were driven primarily by$134 million of net investment income and realized and unrealized investment gains from Kudu's Participation Contracts,$51 million of net investment income and realized and unrealized investment gains from private equity funds, and a$25 million increase in the fair value ofWhite Mountains's investment in PassportCard/DavidShield. Investment returns fromWhite Mountains's investment in PassportCard/DavidShield were driven primarily by growth in leisure travel premiums and commission revenues as the global economy recovered from the COVID-19 pandemic. Investment returns for 2020 were driven primarily by$45 million of net investment income and net unrealized gains from Kudu's Participation Contracts, partially offset by a$10 million decrease in the fair value ofWhite Mountains's investment in PassportCard/DavidShield, where the global slowdown in travel activity in reaction to the COVID-19 pandemic caused a significant decline in premiums and revenues, and unrealized investment losses from hedge funds and private debt investments. 60 -------------------------------------------------------------------------------- Investment Returns-Year EndedDecember 31, 2020 versus Year EndedDecember 31, 2019 White Mountains's pre-tax total return on invested assets was 31.9% in 2020. This return included$746 million of net investment income and net realized and unrealized investment gains fromMediaAlpha . ExcludingMediaAlpha , the total return on invested assets was 4.6% in 2020. Investment returns in 2020 were impacted byWhite Mountains's decision to liquidate its portfolio of common equity securities in the second half of 2020 in preparation for funding the Ark Transaction as equity markets rallied in the fourth quarter.White Mountains's pre-tax total return on invested assets was 20.4% in 2019. This return included$188 million of net investment income and net unrealized investment gains fromMediaAlpha . ExcludingMediaAlpha , the total return on invested assets was 13.0% in 2019. Investment returns in 2019 benefited fromWhite Mountains's decision to increase equity exposure after markets declined sharply at the end of 2018 ahead of the strong rally in equity markets during 2019. Fixed Income ResultsWhite Mountains's fixed income portfolio, including short-term investments, was$1.4 billion as ofDecember 31, 2020 and 2019, which represented 46% and 48% of total invested assets. The duration ofWhite Mountains's fixed income portfolio, including short-term investments, was 3.2 years and 2.8 years as ofDecember 31, 2020 and 2019.White Mountains's fixed income portfolio included fixed maturity investments and short-term investments in the HG Re Collateral Trusts of$432 million and$320 million as ofDecember 31, 2020 and 2019.White Mountains's fixed income portfolio returned 4.9% in 2020 compared to 6.1% in 2019, underperforming the Bloomberg BarclaysU.S. Intermediate Aggregate Index returns of 5.6% and 6.7% for the comparable periods. The results for both periods were driven primarily by the short duration positioning ofWhite Mountains's fixed income portfolio as interest rates declined significantly during the periods.Common Equity Securities , Investment inMediaAlpha and Other Long-Term Investments ResultsWhite Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments was$1.6 billion and$1.5 billion as ofDecember 31, 2020 and 2019, which represented 54% and 52% of total invested assets. See Note 3 - "Investment Securities ". The change was primarily driven by an increase in the fair value ofWhite Mountains's investment inMediaAlpha and an increase in other long-term investments, partially offset by the sale of common equity securities during the second half of 2020 in preparation for funding the Ark Transaction.White Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments returned 80.0% in 2020, which included$746 million of net investment income and net realized and unrealized investment gains fromMediaAlpha .White Mountains's portfolio of common equity securities and other long-term investments returned 4.9% in 2020.White Mountains's portfolio of common equity securities, its investment inMediaAlpha and other long-term investments returned 36.9% in 2019, which included$188 million of net investment income and unrealized investment gains fromMediaAlpha .White Mountains's portfolio of common equity securities and other long-term investments returned 20.8% in 2019. Historically,White Mountains's portfolio of common equity securities consisted of a portfolio of ETFs and publicly-traded common equity securities actively managed by select third-party registered investment advisers. During the second half of 2020,White Mountains liquidated its portfolio of common equity securities, including its portfolio of ETFs and international common equity securities, in preparation for funding the Ark Transaction. As ofDecember 31, 2019 ,White Mountains's portfolio of common equity securities was$684 million as ofDecember 31, 2019 .White Mountains's portfolio of common equity securities returned 3.6% in 2020 compared to 29.1% in 2019, underperforming the S&P 500 Index returns of 18.4% and 31.5% for the comparable periods. The results for 2020 were driven primarily byWhite Mountains's lack of common equity exposure during the fourth quarter equity market rally and the relative underperformance fromWhite Mountains's international common equity portfolios versus the S&P 500 Index prior to the liquidation of these positions. The results for 2019 were driven primarily by relative underperformance inWhite Mountains's international common equity portfolios versus the S&P 500 Index.White Mountains's portfolio of ETFs was fully liquidated as ofDecember 31, 2020 and totaled$536 million as ofDecember 31, 2019 . In 2020 and 2019,White Mountains's portfolio of ETFs essentially earned the effective index return, before expenses, over the period in whichWhite Mountains was invested in these funds. At the end of the third quarter of 2020,White Mountains fully redeemed its actively managed common equity portfolio.White Mountains's actively managed common equity portfolio was$147 million as ofDecember 31, 2019 .White Mountains's actively managed common equity portfolio returned -11.0% in 2020 compared to 24.2% in 2019, underperforming the S&P 500 Index return of 18.4% and 31.5% for the comparable periods. The 2020 results were driven primarily by the lack of exposure to actively managed common equities in the fourth quarter of 2020 and relative underperformance in international stocks versus the S&P 500 Index. The 2019 results were driven primarily by relative underperformance inWhite Mountains's international common equity portfolios versus the S&P 500 Index.White Mountains's portfolio of other long-term investments was$787 million and$676 million as ofDecember 31, 2020 and 2019. The change in other long-term investments was primarily driven by an increase in the fair value of Kudu's Participation Contracts. 61 --------------------------------------------------------------------------------White Mountains other long-term investments portfolio returned 2.5% in 2020 compared to 6.1% in 2019. Investment returns for 2020 were driven primarily by$45 million of net investment income and net unrealized gains from Kudu's Participation Contracts, partially offset by a$10 million decrease in the fair value ofWhite Mountains's investment in PassportCard/DavidShield, where the global slowdown in travel activity in reaction to the COVID-19 pandemic caused a significant decline in premiums and revenues and unrealized investment losses from hedge funds and private debt investments. Investment returns for 2019 were driven primarily by$21 million of net investment income and net unrealized gains from Kudu's Participation Contracts and$15 million of net investment income and realized and unrealized investment gains from private equity funds.
Portfolio Composition
The following table presents the composition of
operations investment portfolio as of
December 31, 2021 December 31, 2020 $ in Millions Carrying Value % of Total Carrying Value % of Total Fixed maturity investments$ 1,908.9 44.8 %$ 1,207.2 41.1 % Short-term investments 465.9 10.9 142.8 4.9 Common equity securities 251.1 5.9 - - Investment in MediaAlpha 261.6 6.1 802.2 27.3 Other long-term investments 1,377.8 32.3 786.8 26.7 Total investments$ 4,265.3 100.0 %$ 2,939.0 100.0 % The following table presents the breakdown ofWhite Mountains's fixed maturity investments as ofDecember 31, 2021 by credit class, based upon issuer credit ratings provided byStandard & Poor's , or if unrated byStandard & Poor's , long-term obligation ratings provided by Moody's: December 31, 2021 Amortized Carrying $ in Millions Cost % of Total Value % of Total
entities (1)$ 467.7 24.7 %$ 467.4 24.5 % AAA/Aaa 135.7 7.2 136.5 7.1 AA/Aa 332.6 17.5 343.4 18.0 A/A 546.5 28.8 549.1 28.7 BBB/Baa 404.7 21.4 403.8 21.2 Other/not rated 8.3 0.4 8.7 0.5 Total fixed maturity investments$ 1,895.5 100.0 %
(1)Includes mortgage-backed securities, which carry the full faith and credit guaranty of theU.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e.,FNMA , FHLMC). The following table presents the cost or amortized cost and carrying value ofWhite Mountains's fixed maturity investments by contractual maturity as ofDecember 31, 2021 . Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. December 31, 2021 Cost or Amortized Carrying Millions Cost Value Due in one year or less $ 136.7$ 137.3 Due after one year through five years
866.2 865.0
Due after five years through ten years
365.7 371.5
Due after ten years
113.2 122.5
Mortgage and asset-backed securities and
collateralized loan obligations
413.7 412.6
Total fixed maturity investments $
1,895.5
62 --------------------------------------------------------------------------------
The following table presents the composition of
long-term investments portfolio as of
December 31, 2021 December 31, 2020 Carrying Carrying $ in Millions Value % of Total Value % of Total Kudu Participation Contracts$ 669.5 48.6 %$ 400.6 50.9 % PassportCard/DavidShield 120.0 8.7 95.0 12.1 Elementum Holdings L.P. 45.0 3.3 55.1 7.0 Other unconsolidated entities 34.4 2.5 42.4 5.4 Total unconsolidated entities 868.9
593.1
Bank loan fund 163.0 11.8 - - Private equity funds and hedge funds 153.8 11.2 121.2 15.4 Lloyd's trust deposits 113.8 8.3 - - ILS funds 51.9 3.8 51.4 6.5 Private debt investments 14.1 1.0 21.1 2.7 Other 12.3 0.8 - -
Total other long-term investments
Foreign Currency Exposure As ofDecember 31, 2021 ,White Mountains had foreign currency exposure on$311 million of net assets primarily related to Ark's non-U.S. business, NSM'sU.K. -based operations, Kudu's non-U.S. Participation Contracts, and certain other foreign consolidated and unconsolidated entities. The following table presents the fair value ofWhite Mountains's foreign denominated net assets (net liabilities) by segment as ofDecember 31, 2021 : Currency Total Fair % of Total Shareholders' $ in Millions Ark NSM Kudu Other Operations Value Equity CAD$ 55.4 $ -$ 81.3 $ -$ 136.7 3.7 % GBP 7.7 118.6 - - 126.3 3.4 AUD 23.3 - 44.7 - 68.01.8 EUR (56.2) - - 32.3 (23.9) (.6) All other - - - 3.6 3.6 .1 Total$ 30.2 $ 118.6 $ 126.0 $ 35.9$ 310.7 8.4 % 63
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III. Income Taxes
The Company and itsBermuda domiciled subsidiaries are not subject toBermuda income tax under currentBermuda law. In the event there is a change in the current law and taxes are imposed, the Bermuda Exempted Undertakings Tax Protection Act of 1966 states that the Company and itsBermuda domiciled subsidiaries would be exempt from such tax untilMarch 31, 2035 . 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. As ofDecember 31, 2021 , the primary jurisdictions in which the Company's subsidiaries and branches were subject to tax areIreland ,Israel , Luxembourg, theUnited Kingdom andthe United States . OnDecember 14, 2021 , theOECD issued a report on the Global Anti-Base Erosion ("GloBE") rules. The GloBE rules provide for a coordinated system of taxation intended to ensure large multinational enterprise groups pay a minimum level of tax of 15% on the income arising in each of the jurisdictions where they operate. It would do so by imposing a top-up tax on profits arising in a jurisdiction whenever the effective tax rate is below the minimum rate. Expanded guidance on the GloBE rules is forthcoming. Depending on which countries implement legislation under the GloBE rules, the income of members of the Company's group could be subject to higher rates of tax. While theOECD is targeting 2023 as the year for implementation, the actual implementation will depend on each country implementing specific legislation. The timing and impact of these rules on the Company remain uncertain. OnJanuary 1, 2020 ,White Mountains adopted ASU 2019-12, Simplifying the Accounting for Income Taxes (ASC740) ("ASU 2019-12"). For periods subsequent to the adoption of ASU 2019-12,White Mountains has recorded both the tax expense related to BAM's MSC and the related valuation allowance on such taxes through non-controlling interest equity. Prior to the adoption of ASU 2019-12,White Mountains recorded the tax expense related to BAM's MSC directly to non-controlling interest equity, while the valuation allowance on such taxes was recorded through the income statement.White Mountains reported income tax expense of$39 million in 2021 on pre-tax loss from continuing operations of$302 million . The difference betweenWhite Mountains's effective tax rate and the currentU.S. statutory rate of 21% was driven primarily by losses generated in jurisdictions with lower tax rates thanthe United States , a full valuation allowance on net deferred tax assets in certainU.S. operations, consisting of theWM Adams Holdings, Inc. consolidated tax group included within the Other Operations segment and BAM, and state income taxes. The effective rate was also different from theU.S. statutory rate of 21% due to additional tax expense related to the revaluation ofU.K. deferred tax assets and liabilities. OnJune 10, 2021 , theU.K. enacted an increase in its corporate tax rate from 19% to 25% for periods afterApril 1, 2023 . During 2021,White Mountains increased its netU.K. deferred tax liability to reflect the higher tax rate.White Mountains reported income tax benefit of$21 million in 2020 on pre-tax income from continuing operations of$645 million . The difference betweenWhite Mountains's effective tax rate and the currentU.S. federal statutory rate of 21% was driven primarily by a$131 million release of a deferred tax liability as a result of an internal reorganization in connection with the MediaAlpha IPO and income generated in jurisdictions with lower tax rates thanthe United States . Also in 2020,$43 million of tax expense was recorded for state income taxes, withholding taxes and the establishment of a partial valuation allowance on deferred tax assets of various companies, entities and investments that are included in the Other Operations segment.White Mountains reported income tax expense of$29 million in 2019 on pre-tax income from continuing operations of$405 million . The difference betweenWhite Mountains's effective tax rate and the currentU.S. federal statutory rate of 21% was driven primarily by income generated in jurisdictions with lower tax rates thanthe United States , state income taxes and a tax benefit recorded at BAM related to its MSC collected. The effective tax rate was also different from theU.S statutory rate of 21% due to the release of a valuation allowance on the net deferred tax assets of theU.S. consolidated groupGuilford Holdings, Inc. and subsidiaries, which included Kudu,White Mountains's investment inMediaAlpha , WM Capital,WM Advisors and certain other entities and investments that are included in the Other Operations segment. In 2019, BAM recorded a tax benefit of$10 million associated with the valuation allowance on taxes related to MSC collected that was included in the effective tax rate. 64 --------------------------------------------------------------------------------
IV. Discontinued Operations
Sirius Group OnApril 18, 2016 ,White Mountains completed the sale ofSirius International Insurance Group, Ltd. ("Sirius Group ") toCM International Pte. Ltd. andCM Bermuda Limited (collectively "CMI"). In connection with the sale,White Mountains indemnifiedSirius Group against the loss of certain interest deductions claimed bySirius Group related to periods prior to the sale ofSirius Group to CMI that had been disputed by theSwedish Tax Agency (STA). In lateOctober 2018 , the Swedish Administrative Court ruled againstSirius Group on its appeal of the STA's denial of these interest deductions. As a result, in 2018White Mountains recorded a loss of$17 million within net gain (loss) on sale of discontinued operations reflecting the value of these interest deductions. InApril 2021 , the STA informed theSwedish Administrative Court of Appeal thatSirius Group should prevail in its appeal and that the interest deductions should not be disallowed. InJune 2021 , theSwedish Administrative Court of Appeal ruled inSirius Group's favor. As a result, in 2021White Mountains recorded a gain of$19 million in discontinued operations to reverse the accrued liability, including foreign currency translation. See Note 21 - "Held for Sale and Discontinued Operations" on page F-76.
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 from its insurance, reinsurance and other operating subsidiaries, net investment income, proceeds from sales, repayments and maturities of investments, capital raising activities and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be general and administrative expenses, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of its debt obligations, dividend payments to holders of the Company's common shares, distributions to non-controlling interest holders of consolidated subsidiaries, contributions to operating subsidiaries and, from time to time, purchases of operating subsidiaries and repurchases of the Company's common shares. Operating Subsidiary Level The primary sources of cash forWhite Mountains's insurance, reinsurance and other operating subsidiaries are expected to be premium and fee collections, commissions, net investment income, proceeds from sales, repayments 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, general and administrative expenses, broker commission expenses, cost of sales, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of its debt obligations, distributions made to holding companies, distributions to non-controlling interest holders and, from time to time, purchases of operating subsidiaries. Both internal and external forces influenceWhite Mountains's financial condition, results of operations and cash flows. Premium and fee collections, investment returns, claim payments and cost of sales may be impacted by changing rates of inflation and other economic conditions. Some time may lapse between the occurrence of an insured loss, the reporting of the loss toWhite Mountains's insurance and reinsurance operating subsidiaries and the settlement of the liability for that loss. The exact timing of the payment of losses and benefits cannot be predicted with certainty.White Mountains's 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 thatWhite Mountains's cash balances, cash flows from operations and routine sales and maturities of investments are adequate to meet expected cash requirements for the foreseeable future on both a holding company and insurance, reinsurance and other operating subsidiary level. 65 --------------------------------------------------------------------------------
Dividend Capacity
Following is a description of the dividend capacity of
reinsurance and other operating subsidiaries:
HG Global/BAM As ofDecember 31, 2021 , HG Global had$619 million face value of preferred shares outstanding, of whichWhite Mountains owned 96.9%. 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. During 2021, HG Global declared and paid a$22 million preferred dividend, of which$21 million was paid toWhite Mountains . As ofDecember 31, 2021 , HG Global had accrued$415 million of dividends payable to holders of its preferred shares, of which$401 million was payable toWhite Mountains and eliminated in consolidation. As ofDecember 31, 2021 , HG Global and its subsidiaries had$3 million of cash outside of HG Re. 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 to amounts held outside of the Collateral Trusts pursuant to the FLRT with BAM. As ofDecember 31, 2021 , HG Re had$760 million of statutory capital and surplus and$852 million of assets held in the Collateral Trusts pursuant to the FLRT with BAM. On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT directly into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to gross ceded unearned premiums and unpaid ceded loss and LAE, if any. If, at the end of any quarter, the Regulation 114 Trust balance is below the target balance, funds will be withdrawn from theSupplemental Trust and deposited into the Regulation 114 Trust in an amount equal to the shortfall. If, at the end of any quarter, the Regulation 114 Trust balance is above 102% of the target balance, funds will be withdrawn from the Regulation 114 Trust and deposited into theSupplemental Trust . The Supplemental Trust Target Balance is$603 million , less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance.
If,
at the end of any quarter, the
Supplemental Trust Target Balance, such excess may be distributed to HG Re.
The
distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities. As the BAM Surplus Notes are repaid over time, the BAM Surplus Notes will be replaced in theSupplemental Trust by cash and fixed income securities. As ofDecember 31, 2021 , the Collateral Trusts held assets of$852 million , which included$481 million of cash and investments,$365 million of BAM Surplus Notes and$6 million of interest receivable on the BAM Surplus Notes. As ofDecember 31, 2021 , HG Re had$9 million of cash and investments and$117 million of accrued interest on the BAM Surplus Notes held outside the Collateral Trusts. Through 2024, the interest rate on the BAM Surplus Notes is a variable rate equal to the one-yearU.S. Treasury rate plus 300 basis points, set annually. During 2022, the interest rate on the BAM Surplus Notes will be 3.2%. Beginning in 2025, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. BAM is required to seek regulatory approval to pay interest and principal on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its "AA/stable" rating fromStandard & Poor's . No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS. InDecember 2021 , BAM made a$34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$24 million was a repayment of principal held in theSupplemental Trust and$10 million was a payment of accrued interest held outside theSupplemental Trust .
Ark
During any 12-month period, GAIL, a class 4 licensedBermuda insurer, has the ability to (i) make capital distributions based on 15% of its total statutory capital per the previous year's statutory financial statements, or (ii) make dividend payments based on 25% of its total statutory capital and surplus per the previous year's statutory financial statements, without prior approval ofBermuda regulatory authorities. Accordingly,White Mountains expects GAIL will have the ability to make capital distributions of$114 million during 2022, which is equal to 15% of itsDecember 31, 2021 statutory capital of$758 million , subject to meeting all appropriate liquidity and solvency requirements and the filing of itsDecember 31, 2021 statutory financial statements. During 2021, GAIL did not pay a dividend to its immediate parent. As ofDecember 31, 2021 , Ark and its intermediate holding companies had$4 million of net unrestricted cash, short-term investments and fixed maturity investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries. During 2021, Ark did not pay any dividends to its immediate parent. 66 --------------------------------------------------------------------------------
NSM
During 2021, NSM distributed$8 million to unitholders, substantially all of which was paid toWhite Mountains . As ofDecember 31, 2021 , NSM had$22 million of net unrestricted cash and short-term investments.
Kudu
During 2021, Kudu distributed$19 million to unitholders, substantially all of which was paid toWhite Mountains . As ofDecember 31, 2021 , Kudu had$17 million of net unrestricted cash and short-term investments. Other Operations During 2021,White Mountains paid a$3 million common share dividend. As ofDecember 31, 2021 , the Company and its intermediate holding companies had$454 million of net unrestricted cash, short-term investments and fixed maturity investments,$262 million ofMediaAlpha common stock, and$171 million of private equity funds and ILS funds.
Financing
The following table summarizes
December 31, $ in Millions 2021 2020 Ark 2007 Subordinated Notes (1)$ 30.0
$ -
Ark 2021 Subordinated Notes (1)(2) 155.9 - NSM Bank Facility (1)(2) 271.2 271.3 Other NSM debt (1) .9 1.3 Kudu Credit Facility (1)(2) 218.2 - Kudu Bank Facility (1)(2) - 86.3 Other Operations debt (1)(2) 16.8 17.5 Total debt 693.0 376.4 Non-controlling interests - excluding BAM 280.6
35.2
Total White Mountains's common shareholders' equity 3,548.1
3,906.0
Total capital 4,521.7
4,317.6
Time-value discount on expected future payments on the BAM
Surplus Notes (3) (125.9)
(142.5)
HG Global's unearned premium reserve (3) 214.6
190.0
HG Global's net deferred acquisition costs (3) (60.8)
(52.4)
Total adjusted capital$ 4,549.6
Total debt to total adjusted capital 15.2
% 8.7 %
(1)See Note 7 - "Debt" for details of debt arrangements. (2) Net of unamortized issuance costs (3) Amount reflectsWhite Mountains's preferred share ownership in HG Global of 96.9%. Management believes thatWhite Mountains has the flexibility and capacity to obtain funds externally 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. It is possible that, in the future, one or more of the rating agencies may lowerWhite Mountains's 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.
Covenant Compliance
As of
respects with all of the covenants under all of its debt instruments.
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Contractual Obligations and Commitments
The following table presents
and commitments as of
Due in Less Due in Two to Due in Four Due After Millions Than One Year Three Years to Five Years Five Years Total Loss and LAE reserves (1)$ 326.7 $ 365.7 $ 122.0 $ 80.3 $ 894.7 Debt 5.7 14.5 221.6 470.4 712.2 Interest on debt 42.8 78.8 65.9 158.7 346.2 Long-term incentive compensation 25.9 31.6 - - 57.5 Contingent consideration (2) 38.2 - - - 38.2 Operating leases (3) 10.9 18.4 11.1 11.9 52.3 Total contractual obligations and commitments$ 450.2 $ 509.0
(1) Represents expected future cash outflows resulting from loss and LAE payments. The amounts presented are gross of reinsurance recoverables on unpaid losses of$428.9 as ofDecember 31, 2021 . (2) The contingent consideration liabilities are primarily related toWhite Mountains's acquisition of Ark and NSM's previous acquisitions of KBK and its otherU.K. -based operations. See Note 2 - "Significant Transactions" on page F-17. (3) Amounts include BAM's operating lease amounts of$2.2 ,$4.0 ,$2.4 and$0 that are due in less than one year, two to three years, four to five years, and due after five years, which are attributed to non-controlling interests. The long-term incentive compensation balances included in the table above include amounts payable for performance shares. 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 ofWhite Mountains and the market price of the Company'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 ofDecember 31, 2021 . There are no provisions withinWhite Mountains's operating leasing agreements that would trigger acceleration of future lease payments.White Mountains does not finance its operations through the securitization of its trade receivables, through special purpose entities or through synthetic leases. Further,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.White Mountains also has future binding commitments to fund certain other long-term investments. These commitments, which totaled approximately$44 million as ofDecember 31, 2021 , do not have fixed funding dates and, are therefore, excluded from the table above.
Share Repurchase Programs
White Mountains's board of directors has authorized the Company to repurchase its common shares from time to time, subject to market conditions. The repurchase authorizations do not have a stated expiration date. As ofDecember 31, 2021 ,White Mountains may repurchase an additional 451,224 shares under these board authorizations. In addition, from time to timeWhite Mountains has also repurchased its common shares through tender offers that were separately approved by its board of directors. The following table presents common shares repurchased by the Company as well as the average price per share as a percent ofDecember 31, 2021 adjusted book value per share and market value per share. Average Price Per Average Price Per Share as % of Share as % of Average December 31, 2021 December 31, 2021 Shares Cost Price Adjusted Book Market Value Year Ended Repurchased (Millions) Per Share Value Per Share Per Share December 31, 2021 98,511$ 107.5 $ 1,091.29 92% 108% December 31, 2020 99,087$ 85.1 $ 858.81 72% 85% . December 31, 2019 5,679$ 4.9 $ 857.69 72% 85% 68
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Cash Flows
Detailed information concerning
and 2019 follows:
Cash flows from operations for the years ended 2021, 2020 and 2019
Net cash flows provided from (used for) operations was$39 million ,$(61) million and$(121) million for the years endedDecember 31, 2021 , 2020 and 2019. Cash provided from operations was higher in 2021 compared to 2020, driven primarily by the cash inflow from Ark's operations, partially offset by the deployments in Kudu's participation contracts and Ark's transaction expenses. Cash used for operations was lower in 2020 compared to 2019, driven primarily by$55 million of net investment income received in 2020 from a dividend recapitalization atMediaAlpha .White Mountains does not believe these trends will have a meaningful impact on its future liquidity or its ability to meet its future cash requirements. As ofDecember 31, 2021 , the Company and its intermediate holding companies had$454 million of net unrestricted cash, short-term investments and fixed maturity investments,$262 million ofMediaAlpha common stock, and$171 million of private equity funds and ILS funds.
Cash flows from investing and financing activities for the year ended
31, 2021
Financing and Other Capital Activities During 2021, the Company declared and paid a$3 million cash dividend to its common shareholders. During 2021,White Mountains repurchased and retired 98,511 of its common shares for$108 million , 7,218 of which were repurchased under employee benefit plans for statutory withholding tax payments. During 2021, BAM received$62 million in MSC. During 2021, BAM repaid$24 million of principal and paid$10 million of accrued interest on the BAM Surplus Notes. During 2021, Ark issued$163 million face value floating rate unsecured subordinated notes at par in three transactions for proceeds of$158 million , net of debt issuance costs, and repaid €12 million ($14 million based upon the foreign exchange spot rate at the date of repayment) of the outstanding principal balance on the subordinated note toDekania Europe CDO II plc ("Ark 2007 Notes Tranche 2"). During 2021, NSM repaid$3 million in term loans, borrowed$35 million in revolving loans to fund the acquisition ofJ.C. Taylor and repaid$32 million in revolving loans under the Ares Capital Corporation secured credit facility (the "NSM Bank Facility"). During 2021, Kudu borrowed$3 million in term loans under theKudu Bank Facility. OnMarch 23, 2021 , Kudu entered into the Kudu Credit Facility with an initial draw of$102 million , of which$92 million was used to repay the outstanding principal balance on its term loans under the Kudu Bank Facility. During 2021, Kudu borrowed an additional$130 million and repaid$7 million in term loans under the Kudu Credit Facility. During 2021,White Mountains's Other Operations segment borrowed$3 million and repaid$8 million under its three secured credit facilities. Acquisitions and Dispositions OnJanuary 1, 2021 White Mountains completed the Ark Transaction, which included contributing$605 million of equity capital to Ark, at a pre-money valuation of$300 million , and purchasing$41 million of shares from certain selling shareholders. In the fourth quarter of 2020,White Mountains prefunded/placed in escrow a total of$646 million in preparation for closing the Ark Transaction. OnMarch 23, 2021 ,MediaAlpha completed a secondary offering of 8.05 million shares. In the secondary offering,White Mountains sold 3.6 million shares at$46.00 per share ($44.62 per share net of underwriting fees) for net proceeds of$160 million . OnAugust 6, 2021 , NSM acquired 100% ofJ.C. Taylor for$50 million of upfront cash consideration. 69
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Cash flows from investing and financing activities for the year ended
31, 2020
Financing and Other Capital Activities During 2020, the Company declared and paid a$3 million cash dividend to its common shareholders. During 2020,White Mountains repurchased and retired 99,087 of its common shares for$85 million , 5,899 of which were repurchased under employee benefit plans for statutory withholding tax payments. During 2020, BAM received$69 million in MSC. During 2020, BAM repaid$70 million of principal and paid$25 million of accrued interest on the BAM Surplus Notes. During 2020, HG Global declared and paid$23 million of preferred dividends, of which$22 million was paid toWhite Mountains . During 2020, NSM borrowed £43 million ($52 million based upon the foreign exchange spot rate at the date of acquisition) of term loans under theNSM Bank Facility to fund the acquisition of Kingsbridge. Additionally, during 2020 NSM repaid$2 million of term loans under the NSM Bank Facility. During 2020, Kudu borrowed$32 million in term loans under theKudu Bank Facility. During 2020,White Mountains's Other Operations segment made no borrowings and repaid$2 million in term loans under its credit facilities. Acquisitions and Dispositions OnApril 7, 2020 , NSM acquired 100% of Kingsbridge for £107 million ($132 million based upon the foreign exchange spot rate at the date of acquisition). OnMay 7, 2020 ,White Mountains made an additional$15 million investment in PassportCard/DavidShield. OnOctober 30, 2020 ,MediaAlpha completed its initial public offering. In the offering,White Mountains sold 3,609,894 shares and received total proceeds of$64 million .White Mountains also received$55 million of net proceeds related to a dividend recapitalization atMediaAlpha , which was recorded as net investment income. In the fourth quarter of 2020,White Mountains pre-funded/placed in escrow a total of$646 million in preparation for closing the Ark Transaction.
Cash flows from investing and financing activities for the year ended
31, 2019
Financing and Other Capital Activities During 2019, the Company declared and paid a$3 million cash dividend to its common shareholders. During 2019,White Mountains repurchased and retired 5,679 of its common shares for$5 million , all of which were repurchased under employee benefit plans for statutory withholding tax payments. During 2019, BAM received$55 million in MSC. During 2019, BAM repaid$24 million of principal and paid$8 million of accrued interest on the BAM Surplus Notes. During 2019, NSM borrowed$43 million of term loans under the NSM Bank Facility, which included$20 million and$23 million to fund the acquisitions of Embrace and the Renewal Rights from AIG, and$7 million of revolving credit loans. Additionally, during 2019 NSM repaid$2 million of term loans and$7 million of revolving credit loans under the NSM Bank Facility. During 2019, Kudu borrowed$57 million in term loans under theKudu Bank Facility and distributed$54 million to unitholders, of which$53 million was paid toWhite Mountains . As ofDecember 31, 2019 , Kudu had not made any payment of principal on the Kudu Bank Facility. Acquisitions and Dispositions OnFebruary 26, 2019 ,White Mountains received net cash proceeds of$89 million from the 2019 MediaAlpha Transaction. OnApril 1, 2019 , NSM acquired 100% of Embrace for$72 million , net of cash acquired. OnApril 4, 2019 ,White Mountains completed the Kudu Transaction for$81 million . In addition,White Mountains assumed all of Oaktree's unfunded capital commitments to Kudu, increasingWhite Mountains's total capital commitment to$250 million . During the fourth quarter of 2019,White Mountains increased its total capital commitment to Kudu by an additional$100 million to$350 million . Also during the fourth quarter of 2019, Kudu obtained a committed$124 million credit facility. OnMay 31, 2019 ,White Mountains completed the Elementum Transaction for$55 million . As part of the Elementum Transaction,White Mountains also committed to invest$50 million in ILS funds managed byElementum . OnJune 28, 2019 , NSM acquired the Renewal Rights from AIG for$83 million . 70 --------------------------------------------------------------------------------
TRANSACTIONS WITH RELATED PERSONS
NON-GAAP FINANCIAL MEASURES
This report includes thirteen non-GAAP financial measures that have been
reconciled with their most comparable GAAP financial measures.
Adjusted book value per share Adjusted book value per share is a non-GAAP financial measure which is derived by adjusting (i) the GAAP book value per share numerator and (ii) the common shares outstanding denominator, as described below. The GAAP book value per share numerator is adjusted (i) to include a discount for the time value of money arising from the modeled timing of cash payments of principal and interest on the BAM Surplus Notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. Under GAAP,White Mountains is required to carry the BAM Surplus Notes, including accrued interest, at nominal value with no consideration for time value of money. Based on a debt service model that forecasts operating results for BAM through maturity of the BAM Surplus Notes, the present value of the BAM Surplus Notes, including accrued interest and using an 8.0% discount rate, was estimated to be$130 million ,$147 million and$157 million less than the nominal GAAP carrying values as ofDecember 31, 2021 , 2020 and 2019, respectively. The value of HG Global's unearned premium reserve, net of deferred acquisition costs, was$159 million ,$142 million and$119 million as ofDecember 31, 2021 , 2020 and 2019, respectively.White Mountains believes these adjustments are useful to management and investors in analyzing the intrinsic value of HG Global, including the value of the BAM Surplus Notes and the value of the in-force business at HG Re, HG Global's reinsurance subsidiary. The denominator used in the calculation of adjusted book value per share equals the number of common shares outstanding adjusted to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized. Restricted common shares are earned on a straight-line basis over their vesting periods. The reconciliation of GAAP book value per share to adjusted book value per share is included on page 42. Growth in adjusted book value per share excludingMediaAlpha The growth in adjusted book value per share excluding net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha on page 42 is a non-GAAP financial measure.White Mountains believes this measure to be useful to management and investors by showing the underlying performance ofWhite Mountains in 2021 without regard to the impact of changes inMediaAlpha's share price. A reconciliation from GAAP to the reported percentages is as follows: Year EndedDecember 31, 2021 Growth in GAAP book value per share (6.5)%
Adjustments to book value per share (see reconciliation on page 42)
0.8%
Remove net realized and unrealized investment losses from
White Mountains's investment inMediaAlpha 10.0%
Growth in adjusted book value per share excluding net realized and
unrealized investment losses fromWhite Mountains's investment in MediaAlpha 4.3% BAM's gross written premiums and MSC from new business BAM's gross written premiums and MSC from new business is a non-GAAP financial measure, which is derived by adjusting gross written premiums and MSC collected (i) to include the present value of future installment MSC not yet collected and (ii) to exclude the impact of gross written premium adjustments related to policies closed in prior periods.White Mountains believes these adjustments are useful to management and investors in evaluating the volume and pricing of new business closed during the period. The reconciliation from GAAP gross written premiums to gross written premiums and MSC from new business is included on page 46. 71 -------------------------------------------------------------------------------- Ark's adjusted loss and loss adjustment expense, adjusted insurance acquisition expense, adjusted other underwriting expense and adjusted combined ratios Ark's adjusted loss and loss adjustment expense ratio, adjusted insurance acquisition expense ratio, adjusted other underwriting expense ratio and adjusted combined ratio are non-GAAP financial measures, which are derived by adjusting the GAAP ratios to add back the impact of whole-account quota-share reinsurance arrangements related to TPC Providers for the Syndicates. The impact of these reinsurance arrangements relates to years of account prior to the Ark Transaction.White Mountains believes these adjustments are useful to management and investors in evaluating Ark's results on a fully aligned basis (i.e., 100% of the Syndicates' results). The reconciliation from the GAAP ratios to the adjusted ratios is included on page 52. NSM's EBITDA and NSM's adjusted EBITDA NSM's EBITDA and adjusted EBITDA are non-GAAP financial measures. EBITDA is a non-GAAP financial measure that excludes interest expense on debt, income tax (expense) benefit, depreciation and amortization of other intangible assets from GAAP net income (loss). Adjusted EBITDA is a non-GAAP financial measure that excludes certain other items in GAAP net income (loss) in addition to those excluded from EBITDA. The adjustments relate to (i) change in fair value of contingent consideration liabilities, (ii) non-cash equity-based compensation expense, (iii) impairments of intangible assets, (iv) loss on assets held for sale, (v) transaction expenses, (vi) fair value purchase accounting adjustment for deferred revenue, (vii) investments made in the development of new business lines, (viii) restructuring expenses and (ix) legal settlements. A description of each follows: •Change in fair value of contingent consideration liabilities - Contingent consideration liabilities are amounts payable to the sellers of businesses purchased by NSM that are contingent on the earnings of such businesses in periods subsequent to their acquisition. Under GAAP, contingent consideration liabilities are initially recorded at fair value as part of purchase accounting, with the periodic change in the fair value of these liabilities recorded as income or an expense. •Non-cash equity-based compensation expense - Represents non-cash expenses related to NSM's management compensation emanating from the grants of equity units. •Impairments of intangible assets - Represents expense related to NSM's write-off of intangible assets. For the periods presented, the impairments related primarily to NSM's write-off of intangible assets in itsU.K. vertical. The impairments related to lower premium volumes, including due to the impact of the COVID-19 pandemic, and certain reorganization initiatives in theU.K. vertical. • Loss on assets held for sale - Represents the loss on net assets held for sale related to theFresh Insurance motor business. •Transaction expenses - Represents costs directly related to NSM's mergers and acquisitions activity, such as transaction-related compensation, banking, accounting and external lawyer fees, which are not capitalized and are expensed under GAAP. •Fair value purchase accounting adjustment for deferred revenue - Represents the amount of deferred revenue that had already been collected but subsequently written down in connection with establishing the fair value of deferred revenue as part of NSM's purchase accounting for Embrace. •Investments made in the development of new business lines - Represents the net loss related to the start-up of newly established lines of business, which NSM views as investments. •Restructuring expenses - Represents expenses associated with eliminating redundant work force and facilities that often arise as a result of NSM's post-acquisition integration strategies. For the periods presented, this adjustment relates primarily to NSM's expenses incurred in certain reorganization initiatives in theU.K. vertical. •Legal settlements - Represents amounts recognized from legal settlements.White Mountains believes that these non-GAAP financial measures are useful to management and investors in evaluating NSM's performance. See page 53 for the reconciliation of NSM's GAAP net income (loss) to EBITDA and adjusted EBITDA. 72 -------------------------------------------------------------------------------- Kudu's EBITDA and Kudu's adjusted EBITDA Kudu's EBITDA and adjusted EBITDA are non-GAAP financial measures. EBITDA is a non-GAAP financial measure that excludes interest expense on debt, income tax (expense) benefit, depreciation and amortization of other intangible assets from GAAP net income (loss). Adjusted EBITDA is a non-GAAP financial measure that excludes certain other items in GAAP net income (loss) in addition to those excluded from EBITDA. The adjustments relate to (i) net realized and unrealized investment gains (losses) on Kudu's Participation Contracts, (ii) non-cash equity-based compensation expense and (iii) transaction expenses. A description of each adjustment follows: •Net realized and unrealized investment gains (losses) - Represents net unrealized investment gains and losses on Kudu's Participation Contracts, which are recorded at fair value under GAAP, and realized investment gains and losses on Kudu's Participation Contracts sold during the period. •Non-cash equity-based compensation expense - Represents non-cash expenses related to Kudu's management compensation that are settled with equity units in Kudu. •Transaction expenses - Represents costs directly related to Kudu's mergers and acquisitions activity, such as external lawyer, banker, consulting and placement agent fees, which are not capitalized and are expensed under GAAP.White Mountains believes that these non-GAAP financial measures are useful to management and investors in evaluating Kudu's performance. The reconciliation of Kudu's GAAP net income (loss) to EBITDA and adjusted EBITDA is included on page 56. Total consolidated portfolio returns excludingMediaAlpha Total consolidated portfolio return excludingMediaAlpha is a non-GAAP financial measure that removes the net investment income and net realized and unrealized investment gains (losses) fromWhite Mountains's investment inMediaAlpha .White Mountains believes this measure to be useful to management and investors by showing the underlying performance ofWhite Mountains's investment portfolio without regard toMediaAlpha . The following tables present reconciliations from GAAP to the reported percentages: For the Year Ended December 31, 2021 For the Year Months Ended December 31, 2020 Returns - Excluding Returns - Excluding GAAP Returns Remove MediaAlpha MediaAlpha GAAP Returns Remove MediaAlpha MediaAlpha Total consolidated portfolio returns (3.4) % 9.8 % 6.4 % 31.9 % (27.3) % 4.6 % Adjusted capital Total capital atWhite Mountains is comprised ofWhite Mountains's common shareholders' equity, debt and non-controlling interests other than non-controlling interests attributable to BAM. Total adjusted capital is a non-GAAP financial measure, which is derived by adjusting total capital (i) to include a discount for the time value of money arising from the expected timing of cash payments of principal and interest on the BAM Surplus Notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. 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 condition, results of operations and cash flows ofWhite 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 and bases its 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. Fair Value Measurements
General
White Mountains records certain assets and liabilities at 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, and derivative instruments, both exchange-traded and over the counter instruments. 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 quoted market prices or other observable inputs. Where appropriate, assets and liabilities measured at fair value have been adjusted for the effect of counterparty credit risk.
Invested Assets
White Mountains uses outside pricing services and brokers to assist in determining fair values. The outside pricing servicesWhite Mountains uses have indicated that they will only provide prices where observable inputs are available. As ofDecember 31, 2021 , approximately 68% of the investment portfolio recorded at fair value was priced based upon quoted market prices or other observable inputs. Level 1 Measurements Investments valued using Level 1 inputs includeWhite Mountains's fixed maturity investments, primarily investments inU.S. Treasuries and short-term investments, which includeU.S. Treasury Bills, common equity securities, and its investment inMediaAlpha following the MediaAlpha IPO. For investments in active markets,White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. Level 2 Measurements Investments valued using Level 2 inputs include fixed maturity investments which have been disaggregated into classes, including debt securities issued by corporations, municipal obligations, mortgage and asset-backed securities and collateralized loan obligations. Investments valued using Level 2 inputs also include certain common equity listed funds traded on foreign exchanges, whichWhite Mountains values using the fund manager's published NAV to account for the difference in market close times. In circumstances where quoted market prices are unavailable or are not considered reasonable,White Mountains estimates the fair value using industry standard pricing methodologies and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, credit ratings, prepayment speeds, reference data including research publications and other relevant inputs. Given that many fixed maturity investments do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable fixed maturity investments vary by asset type and take into account market convention. 74 --------------------------------------------------------------------------------White Mountains's process to assess the reasonableness of the market prices obtained from the outside pricing sources covers substantially all of its fixed maturity investments and includes, but is not limited to, the evaluation of pricing methodologies and a review of the pricing services' quality control procedures on at least an annual basis, a comparison of its invested asset prices obtained from alternate independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices and a review of the underlying assumptions utilized by the pricing services for select measurements on an ad hoc basis throughout the year.White Mountains also performs back-testing of selected investment 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 of the security on an ad hoc basis throughout the year. Prices provided by the pricing services that vary by more than$0.5 million and 5% from the expected price based on these assessment procedures are considered outliers, as are prices that have not changed from period to period and prices that have trended unusually compared to market conditions. In circumstances where the results ofWhite Mountains's review process does not appear to support the market price provided by the pricing services,White Mountains challenges the vendor provided price. IfWhite Mountains cannot gain satisfactory evidence to support the challenged price,White Mountains will rely upon its own internal pricing methodologies to estimate the fair value of the security in question. The valuation process described above is generally applicable to all ofWhite Mountains's fixed maturity investments. The techniques and inputs specific to asset classes withinWhite Mountains's fixed maturity investments for Level 2 securities that use observable inputs are as follows: Debt Securities Issued by Corporations: The fair value of debt securities issued by corporations is determined from a pricing evaluation technique that uses information from market sources and integrates relative credit information, observed market movements, and sector news. Key inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications. Municipal Obligations: The fair value of municipal obligations is determined from a pricing evaluation technique that uses information from market makers, brokers-dealers, buy-side firms, and analysts along with general market information. Key inputs include benchmark yields, reported trades, issuer financial statements, material event notices and new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including type, coupon, credit quality ratings, duration, credit enhancements, geographic location and market research publications.Mortgage and Asset-Backed Securities and Collateralized Loan Obligations: The fair value of mortgage and asset-backed securities and collateralized loan obligations is determined from a pricing evaluation technique that uses information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data, collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings and market research publications. 75 -------------------------------------------------------------------------------- Level 3 Measurements Fair value estimates for investments that trade infrequently and have few or no quoted market prices or other observable inputs are classified as Level 3 measurements. Investments valued using Level 3 fair value estimates are based upon unobservable inputs and include investments in certain fixed maturity investments, common equity securities and other long-term investments where quoted market prices or other observable inputs are unavailable or are not considered reliable or reasonable. Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable inputs reflectWhite Mountains's assumptions of what market participants would use in valuing the investment. In certain circumstances, investment securities may start out as Level 3 when they are originally issued, but as observable inputs become available in the market, they may be reclassified to Level 2. Transfers of securities between levels are based on investments held as of the beginning of the period. OtherLong-Term Investments As ofDecember 31, 2021 ,White Mountains owned a portfolio of other long-term investments valued at$1.4 billion , that consisted primarily of unconsolidated entities, including Kudu's Participation Contracts, a bank loan fund, private equity funds, a hedge fund, Lloyd's trust deposits, ILS funds and private debt investments. As ofDecember 31, 2021 ,$891 million ofWhite Mountains's other long-term investments consisting primarily of unconsolidated entities, including Kudu's Participation Contracts and private debt investments, were classified as Level 3 investments in the GAAP fair value hierarchy, were not actively traded in public markets, and did not have readily observable market prices. The determination of the fair value of these securities involves significant management judgment and the use of valuation models and assumptions that are inherently subjective and uncertain. See Item 1A. Risk Factors, "Our investment portfolio includes securities that do not have readily observable market prices. We use valuation methodologies that are inherently subjective and uncertain to value these securities. The values of securities established using these methodologies may never be realized, which could materially adversely affect our results of operations and financial condition." on page 27. As ofDecember 31, 2021 ,$483 million ofWhite Mountains's other long-term investments, consisting of a bank loan fund, private equity funds, a hedge fund, Lloyd's trust deposits, and ILS funds, were valued at fair value using NAV as a practical expedient. Investments for which fair value is measured at NAV using the practical expedient are not classified within the fair value hierarchy.White Mountains may use a variety of valuation techniques to determine fair value depending on the nature of the investment, including a discounted cash flow analysis, market multiple approach, cost approach and/or liquidation analysis. On an ongoing basis,White Mountains also considers qualitative changes in facts and circumstances, which may impact the valuation of its unconsolidated entities, including economic and market changes in relevant industries, changes to the entity's capital structure, business strategy and key personnel, and any recent transactions relating to the unconsolidated entity. On a quarterly basis,White Mountains evaluates the most recent qualitative and quantitative information of the business and completes a fair valuation analysis for all Level 3 other long-term investments. Periodically, and at least on an annual basis,White Mountains uses a third-party valuation firm to complete an independent valuation analysis of significant unconsolidated entities. As ofDecember 31, 2021 ,White Mountains's most significant other long-term investments that are valued using Level 3 measurements include Kudu's Participation Contracts and PassportCard/DavidShield. 76 --------------------------------------------------------------------------------
Valuation of Kudu's Participation Contracts
Kudu's Participation Contracts comprise non-controlling equity interests in the form of revenue and earnings participation contracts. As ofDecember 31, 2021 , the combined fair value of Kudu's Participation Contracts was$670 million . On a quarterly basis,White Mountains values each of Kudu's Participation Contracts using discounted cash flow models. As ofDecember 31, 2021 , one of Kudu's Participation Contracts with a total fair value of$79 million was valued using a probability weighted expected return method, which was based on a discounted cash flow analysis and the expected value to be received in a pending sale transaction. The discounted cash flow models include key inputs such as projections of future revenues and earnings of Kudu's clients, a discount rate and a terminal cash flow exit multiple. The expected future cash flows are based on management judgment, considering current performance, budgets and projected future results. The discount rates reflect the weighted average cost of capital, considering comparable public company data, adjusted for risks specific to the business and industry. The terminal exit multiple is generally based on expectations of annual cash flow to Kudu from each of its clients in the terminal year of the cash flow model. In determining fair value,White Mountains considers factors such as performance of underlying products and vehicles, expected client growth rates, new fund launches, fee rates by products, capacity constraints, operating cash flow of underlying manager and other qualitative factors, including the assessment of key personnel. The inputs to each discounted cash flow analysis vary depending on the nature of each client. As ofDecember 31, 2021 ,White Mountains concluded that pre-tax discount rates in the range of 18% to 23%, and terminal cash flow exit multiples in the range of 7 to 13 times were appropriate for the valuations of Kudu's Participation Contracts. With a discounted cash flow analysis, small changes to inputs in a valuation model may result in significant changes to fair value. The following table presents the estimated effect on the fair value of Kudu's Participation Contracts as ofDecember 31, 2021 , resulting from increases and decreases to the discount rates and terminal cash flow exit multiples used in the discounted cash flow analysis: Millions Discount Rate(1) Terminal Exit Multiple -2% -1% 18% - 23% +1% +2% +2$ 782 $ 741 $ 705 $ 670 $ 638 +1$ 758 $ 720 $ 685 $ 652 $ 621 7x to 13x$ 739 $ 703 $ 670 $ 638 $ 609 -1$ 712 $ 677 $ 646 $ 616 $ 588 -2$ 689 $ 657 $ 628 $ 600 $ 574
(1) Since Kudu's Participation Contracts are not subject to corporate taxes
within
pre-tax cash flows in determining fair values.
Valuation of PassportCard/DavidShield
On a quarterly basis,White Mountains values its investment in PassportCard/DavidShield using a discounted cash flow model. The discounted cash flow valuation model includes key inputs such as projections of future revenues and earnings, a discount rate and a terminal revenue growth rate. The expected future cash flows are based on management judgment, considering current performance, budgets and projected future results. The discount rate reflects the weighted average cost of capital, considering comparable public company data, adjusted for risks specific to the business and industry. The terminal revenue growth rate is based on company, industry and macroeconomic expectations of perpetual revenue growth subsequent to the end of the discrete period in the discounted cash flow analysis. When making its fair value selection, which is within a range of reasonable values derived from the discounted cash flow model,White Mountains considers all available information, including any relevant market multiples and multiples implied by recent transactions, facts and circumstances specific to PassportCard/DavidShield's businesses and industries, and any infrequent or unusual results for the period.White Mountains concluded that an after-tax discount rate of 23% and a terminal revenue growth rate of 4% was appropriate for the valuation of its investment in PassportCard/DavidShield as ofDecember 31, 2021 . Utilizing these assumptions,White Mountains determined that the fair value of its investment in PassportCard/DavidShield was$120 million as ofDecember 31, 2021 . Premiums and commission revenues from leisure travel insurance placed by PassportCard declined dramatically in the year endedDecember 31, 2020 due to the COVID-19 pandemic. This decline was modestly offset by increased premiums and commission revenues from international private medical insurance placed by DavidShield. During the third quarter of 2020, PassportCard/DavidShield curtailed its global expansion efforts in response to the impact of the COVID-19 pandemic. 77 -------------------------------------------------------------------------------- Sustained progress with COVID-19 vaccinations inIsrael and abroad led to theIsraeli airport reopening inMarch 2021 . The reopening resulted in steadily improving leisure travel and the placement of leisure travel insurance by PassportCard. PassportCard's premiums and commission revenues continued to recover significantly. In the fourth quarter of 2021, PassportCard's written premium exceeded pre-pandemic premium levels. Premiums and commission revenues from international private medical insurance placed by DavidShield continued to grow in 2021. With a discounted cash flow analysis, small changes to inputs in a valuation model may result in significant changes to fair value. The following table presents the estimated effect on the fair value ofWhite Mountains's investment in PassportCard/DavidShield as ofDecember 31, 2021 , resulting from changes in key inputs to the discounted cash flow analysis, including the discount rate and terminal revenue growth rate: Millions Discount Rate Terminal Revenue Growth Rate 21% 22% 23% 24% 25% 4.5%$ 142 $ 131 $ 122 $ 113 $ 106 4.0%$ 139 $ 129 $ 120 $ 111 $ 104 3.5%$ 136 $ 126 $ 117 $ 110 $ 102 Other Long-term Investments - NAVWhite Mountains's portfolio of other long-term investments includes investments in a bank loan fund, private equity funds, hedge funds, Lloyd's trust deposits and ILS funds, which are valued at fair value using NAV as a practical expedient.White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for other long-term investments measured at NAV, including obtaining and reviewing periodic and audited annual financial statements as well as periodically discussing each fund's pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing methods and inputs for each underlying investment,White Mountains considers the valuation inputs to be unobservable. The fair value ofWhite Mountains's other long-term investments measured at NAV are generally determined using the fund manager's NAV. In the event thatWhite Mountains believes the fair value differs from the NAV reported by the fund manager due to illiquidity or other factors,White Mountains will adjust the reported NAV to more appropriately represent the fair value of its investment. Sensitivity Analysis on Other Long-term Investments - NAV The underlying investments ofWhite Mountains's bank loan fund consist primarily ofU.S. dollar-denominated, non-investment grade, floating-rate senior secured loans and may consist of other financial instruments, such as secured and unsecured corporate debt, credit default swaps, reverse repurchase agreements, and synthetic indices. These investments are subject to credit spread risk and interest rate risk, and may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and various other market factors. The underlying investments ofWhite Mountains's private equity funds typically consist of private securities whose exit strategies often depend on equity market conditions. These investments are based on quoted market prices or management's estimates of fair value, which could cause the amount realized upon sale to differ from current reported fair values. The fluctuations in fair value may result from a variety of risks, such as changes in the economic characteristics, the relative price of alternative investments, supply and demand, and other equity market factors. The underlying investments ofWhite Mountains's multi-investor ILS funds consist primarily of catastrophe bonds, collateralized reinsurance investments and industry loss warranties. In addition to catastrophe event risk, the underlying investments are also subject to a variety of other risks including modeling, liquidity, market, collateral credit quality, counterparty financial strength, interest rate and currency risks. See Note 3 - "Investment Securities " on page F-21 for tables that summarize the changes inWhite Mountains's fair value measurements by level for the years endedDecember 31, 2021 and 2020 and for amount of total gains (losses) included in earnings attributable to net unrealized investment gains (losses) for Level 3 investments for years endedDecember 31, 2021 , 2020 and 2019. 78 --------------------------------------------------------------------------------
2. Surplus Note Valuation
BAM Surplus Notes
As ofDecember 31, 2021 ,White Mountains owned$365 million of BAM Surplus Notes and has accrued$158 million in interest due thereon. InDecember 2021 , BAM made a$34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InDecember 2020 , BAM made a$30 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InJanuary 2020 , BAM made a one-time$65 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. During 2019, BAM made a$32 million cash payment (which included a one-time$10 million cash payment) of principal and interest on the BAM Surplus Notes. Because BAM is consolidated inWhite Mountains's financial statements, the BAM Surplus Notes and accrued interest are classified as intercompany notes, carried at face value and eliminated in consolidation. However, the BAM Surplus Notes and accrued interest are carried as assets at HG Global, of whichWhite Mountains owns 96.9% of the preferred equity, while the BAM Surplus Notes are carried as liabilities at BAM, whichWhite Mountains has no ownership interest in and is completely attributed to non-controlling interests. Any write-down of the carried amount of the BAM Surplus Notes and/or the accrued interest thereon could adversely impactWhite Mountains's results of operations and financial condition. See Item 1A., Risk Factors, "If BAM does not pay some or all of the principal and interest due on the BAM Surplus Notes, it could materially adversely affect our results of operations and financial condition." on page 28. Periodically,White Mountains's management reviews the recoverability of amounts recorded from the BAM Surplus Notes. As ofDecember 31, 2021 ,White Mountains believes such notes and interest thereon to be fully recoverable.White Mountains's review is based on a debt service model that forecasts operating results for BAM, and related payments on the BAM Surplus Notes, through maturity of the BAM Surplus Notes in 2042. The model depends on assumptions regarding future trends for the issuance of municipal bonds, interest rates, credit spreads, insured market penetration, competitive activity in the market for municipal bond insurance and other factors affecting the demand for and price of BAM's municipal bond insurance. As ofDecember 31, 2021 ,White Mountains debt service model indicated that the BAM Surplus Notes would be fully repaid between six and seven years prior to final maturity, which is generally consistent with the results of the update of the debt service model as ofDecember 31, 2020 . The debt service model assumes both par insured and total pricing gradually increase from 2022 to 2025, and flatten thereafter. Assumptions regarding future trends for these factors are a matter of significant judgment, and whether actual results will follow the model is subject to a number of risks and uncertainties. InJanuary 2020 ,White Mountains updated its debt service model to reflect (i) the cash payments of principal and interest on the BAM Surplus Notes made inDecember 2019 andJanuary 2020 , (ii) the amendments made to the terms of the BAM Surplus Notes inJanuary 2020 , including an extension of the variable interest rate period, and (iii) in light of the current interest rate environment, a more conservative forecast of future operating results for BAM. The changes to the debt service model resulted in a$20 million increase to the time value of money discount on the BAM Surplus Notes as reflected in adjusted book value per share as ofDecember 31, 2019 . BAM is required to seek regulatory approval to pay interest and principal on the BAM Surplus Notes to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its "AA/stable" rating fromStandard & Poor's . No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS. Interest payments on the BAM Surplus Notes are due quarterly but are subject to deferral, without penalty or default and without compounding, for payment in the future. Payments made to the BAM Surplus Notes are applied pro rata between outstanding principal and interest. Deferred interest is due on the stated maturity date in 2042. 3. Loss and LAE ReservesGeneral Ark establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. The process of estimating loss and LAE reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. See Note 5 - "Losses and Loss Adjustment Expense Reserves" on page F-35 for a description of Ark's loss and LAE reserves and actuarial methods. Ark performs an actuarial review of its recorded loss and LAE reserves each quarter, using several generally accepted actuarial methods to evaluate its loss reserves, each of which has its own strengths and weaknesses. Management places more or less reliance on a particular method based on the facts and circumstances at the time the reserve estimates are made. 79 -------------------------------------------------------------------------------- As part of Ark's quarterly actuarial review, Ark compares the previous quarter's projections of incurred, paid and case reserve activity, including amounts incurred but not reported, to actual amounts experienced in the quarter. Differences between previous estimates and actual experience are evaluated to determine whether a given actuarial method for estimating loss and LAE reserves 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 estimating loss and LAE reserves, persistent or large variances would indicate that prior assumptions and/or reliance on certain actuarial methods may need to be revised going forward. Upon completion of each quarterly review, Ark selects indicated loss and LAE reserve levels based on the results of the relevant actuarial methods, which are the primary consideration in determining management's best estimate of required loss and LAE reserves. However, in making its best estimate, management also considers other qualitative factors that may lead to a difference between held reserves and actuarially indicated reserve levels. Typically, these qualitative factors are considered when management and Ark's actuaries conclude that there is insufficient historical incurred and paid loss information or that there is particular uncertainty about whether trends included in the historical incurred and paid loss information are likely to repeat in the future. Such qualitative 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, legal and regulatory developments, or other uncertainties that may arise. The process of establishing loss and LAE reserves, including amounts incurred but not reported, is complex and imprecise as it must consider many variables that are subject to the outcome of future events. As a result, informed subjective estimates and judgments as to Ark's ultimate exposure to losses are an integral component of the loss and LAE reserving process. Ark categorizes and tracks insurance and reinsurance reserves by "reserving class of business" for each underwriting office,London andBermuda , and then aggregates the reserving classes by line of business, which are summarized herein as property and accident & health, marine & energy, specialty, casualty - active and casualty - runoff. Ark regularly reviews the appropriateness of its loss and LAE reserves at the reserving class of business level, considering a variety of trends that impact the ultimate settlement of claims for the subsets of claims in each particular reserving class. Losses and LAE are categorized by the year in which the policy is underwritten (the year of account, or underwriting year) for purposes of Ark's claims management and estimation of the ultimate loss and LAE reserves. For purposes of Ark's reporting under GAAP, losses and LAE are categorized by the accident year. Impact ofThird-Party Capital For the years of account prior to the Ark Transaction, a significant proportion of the Syndicates' underwriting capital was provided by TPC Providers using whole account reinsurance contracts with Ark's corporate member. The TPC Providers' participation in the Syndicates for the 2020 and 2019 open years of account is 42.8% and 58.3% of the total net result of the Syndicates. For the years of account subsequent to the Ark Transaction, Ark is no longer using TPC Providers to provide underwriting capital for the Syndicates. A Reinsurance to Close ("RITC") agreement is generally put in place after the third year of operations for a year of account such that the outstanding loss and LAE reserves, including future development thereon, are reinsured into the next year of account. As a result, and in combination with the changing participation provided by TPC Providers, Ark's participation on the outstanding loss and LAE reserves reinsured into the next year of account may change, perhaps significantly. For example, during 2021, an RITC was executed such that the outstanding loss and LAE reserves for claims arising out of the 2018 year of account, for which the TPC Providers' participation in the total net results of the Syndicates was 57.6%, were reinsured into the 2019 year of account, for which the TPC Providers' participation in the total net results of the Syndicates is 58.3%. Loss and LAE Reserves by Line of Business The following table summarizes Ark's loss and LAE reserves, net of reinsurance recoverables on unpaid losses, as ofDecember 31, 2021 : December 31, 2021 Millions Case IBNR Total Property and Accident & Health$ 81.1 $ 93.9 $ 175.0 Marine & Energy 23.4 75.9 99.3 Specialty 13.4 71.8 85.2 Casualty - Active 11.9 25.5 37.4 Casualty - Runoff 42.4 26.0 68.4 Other .2 . .3 .5 Total loss and LAE reserves, net of reinsurance recoverables (1)$ 172.4
(1) The loss and LAE reserves, net of reinsurance, are net of amounts
attributable to TPC Providers of
80 -------------------------------------------------------------------------------- For loss and LAE reserves as ofDecember 31, 2021 , Ark considers that the impact of the various reserving factors, as described in Note 5 - "Losses and Loss Adjustment Expense Reserves" on page F-35, on future paid losses would be similar to the impact of those factors on historical paid losses. The major causes of material uncertainty (i.e., reserving factors) generally will vary for each line of business, as well as for each separately analyzed reserving class of business within the line of business. Also, reserving factors can have offsetting or compounding effects on estimated loss and LAE reserves. In most cases, it is not possible 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. Additional causes of material uncertainty exist in most product lines and may impact the types of claims that could occur within a particular line of business or reserving class of business. Examples where reserving factors, within a line of business or reserving class of business, are subject to change include changing types of insured (e.g., type of insured vehicle, size of account, industry insured, jurisdiction), changing underwriting standards, or changing policy provisions (e.g., deductibles, policy limits, endorsements).
Ark Loss and
See Note 5 - "Losses and Loss Adjustment Expense Reserves" on page F-35 for
prior year loss and LAE development discussions for the year ended
2021
Range of Reserves The following table shows the recorded loss and LAE reserves and the high and low ends of Ark's range of reasonable loss and LAE reserve estimates, net of reinsurance recoverables on unpaid losses, as ofDecember 31, 2021 . See Note 5 - "Losses and Loss Adjustment Expense Reserves" on page F-35 for a description of Ark's loss and LAE reserves and actuarial methods. December 31, 2021 Millions Low Recorded High Total loss and LAE reserves, net of reinsurance$388.8 $465.8 $505.6
recoverables (1)
(1) The recorded loss and LAE reserves and the high and low ends of the range of
loss and LAE reserve estimates, net of reinsurance recoverables on unpaid
losses, are net of amounts attributable to TPC Providers of
The recorded reserves represent management's best estimate of unpaid loss and LAE reserves. Management's best estimate of reserves is in the upper portion of the actuarial range of estimates in response to potential volatility in the actuarial indications and estimates for large claims. Ark uses the results of several different generally accepted actuarial methods to develop its best estimate of ultimate loss and LAE reserves. While it has not determined the statistical probability of actual ultimate paid losses falling within the range, Ark believes that it is reasonably likely that actual ultimate paid losses will fall within the ranges noted above. Although Ark believes its loss and LAE reserves are reasonably stated, ultimate losses may deviate, perhaps materially, from the recorded reserve amounts and could be above the high end of 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 -------------------------------------------------------------------------------- Sensitivity Analysis Below is a discussion of possible variations from current estimates of loss and LAE reserves due to changes in certain key assumptions. Each of the impacts described below is estimated individually, without consideration for any correlation among key assumptions. Further, there is uncertainty around other assumptions not explicitly quantified in the discussion below. Therefore, it would be inappropriate to take each of the amounts described below and add them together in an attempt to estimate volatility for Ark's reserves in total. It is important to note that the volatilities and variations discussed below are not meant to be worst-case scenarios or an all-inclusive list, and therefore it is possible that future volatilities and variations may be more than amounts discussed below. •Sustained elevated levels of inflation: Elevated levels of inflation have been observed during 2021, and recent economic forecasts suggest this trend will continue at least in the short term. This has been particularly observed in the casualty lines of business with key social inflation drivers being court awards, changes in technology, and the legal environment. For example, a hypothetical increase in inflation rates by 4% per annum would increase the recorded loss and LAE reserves, net of reinsurance recoverables on unpaid losses, for the casualty lines of business by approximately$7 million , or approximately 7% of the recorded casualty loss and LAE reserves of$106 million . The property line of business has also been impacted by elevated levels of inflation in relation to many elements of construction costs. While the impact on construction costs could be viewed as a short-term measure, there is uncertainty over how long it will take for the current elevated level of costs to reduce back to historic norms given COVID-19 disruption and worldwide supply chain issues. •Catastrophe losses: The years 2017 through 2021 have been active for major loss events, including natural catastrophes. As time has passed, the emerging claims information for major loss events has been better than expected. As ofDecember 31, 2021 , Ark has recorded$64 million of loss and LAE reserves, net of reinsurance recoverables on unpaid losses, for major loss events, of which$26 million is held as IBNR reserves. Some, but perhaps not all, of the IBNR reserves may be needed to handle adverse reporting from clients. •Ark new business: InJanuary 2021 , in response to an improved underwriting environment, Ark converted GAIL into a Class 4 Bermuda-based insurance and reinsurance company and began to underwrite third-party business. GAIL now underwrites a range of third-party business including property, marine & energy, specialty and casualty lines fromBermuda . GAIL's initial expected loss ratios selected for reserving purposes were based on market benchmarks, supplemented based on discussions with underwriters, policy details, views at time of pricing the risk and emerging experience during 2021. As actual losses develop, Ark will revise its initial expectations with its actual experience. However, it could be a few years before Ark has sufficient internal data to rely on and possibly longer for the longer-tailed lines of business, such as casualty. In 2021, GAIL reported gross written premiums of$363 million . A 10% error in Ark's initial loss ratio estimates could result in approximately$36 million of adverse variance in loss and LAE reserves. 82 -------------------------------------------------------------------------------- Loss and LAE Reserve Summary The following table summarizes the loss and LAE reserve activity of Ark's insurance and reinsurance subsidiaries for the year endedDecember 31, 2021 : Year Ended Millions December 31, 2021 Gross beginning balance $ 696.0 Less: beginning reinsurance recoverable on unpaid losses (1) (433.4) Net loss and LAE reserves 262.6 Losses and LAE incurred relating to: Current year losses gross of amounts attributable to TPC Providers 397.5 Less: Current year losses attributable to TPC Providers (61.2) Net current year losses 336.3 Prior year losses gross of amounts attributable to TPC Providers (42.9) Less: Prior year losses attributable to TPC Providers 21.4 Net prior year losses (21.5) Net incurred losses and LAE 314.8 Loss and LAE paid relating to: Current year losses gross of amounts attributable to TPC Providers (56.2) Less: Current year losses attributable to TPC Providers 12.3 Net current year losses (43.9) Prior year losses gross of amounts attributable to TPC Providers (132.0) Less: Prior year losses attributable to TPC Providers 70.4 Net prior year losses (61.6) Net paid losses and LAE (105.5) Change in TPC Providers' participation (2) (2.2) Foreign currency translation and other adjustments to loss and LAE reserves (3.9) Net ending balance 465.8 Plus: ending reinsurance recoverable on unpaid losses (1) 428.9 Gross ending balance $ 894.7 (1) The beginning reinsurance recoverable on unpaid losses and ending reinsurance recoverable on unpaid losses includes amounts attributable to TPC Providers of$319.2 and$276.8 . (2) Amount represents a decrease in net loss and LAE reserves due to a change in the TPC Providers' participation during 2021, related to the RITC for the 2018 year of account. During the year endedDecember 31, 2021 , Ark experienced$22 million of net favorable loss reserve development. Ark's net favorable loss reserve development was driven primarily by the property and accident & health ($9 million ), casualty - ongoing ($4 million ), specialty ($3 million ) and casualty - runoff ($3 million ) reserving lines of business. The favorable loss reserve development in the property and accident & health reserving line of business was driven primarily by positive claims experience within the 2018 and 2019 accident years. 83 --------------------------------------------------------------------------------
The following table summarizes the unpaid loss and LAE reserves, net of
reinsurance recoverables on unpaid losses, for each of Ark's major reserving
lines of business as of
As of Millions December 31, 2021 Property and Accident & Health $ 175.0 Marine & Energy 99.3 Specialty 85.2 Casualty - Active 37.4 Casualty - Runoff 68.4 Other 0.5
Unpaid loss and LAE reserves, net of reinsurance recoverables on unpaid
losses
465.8
Plus: Reinsurance recoverables on unpaid losses (1)
Property and Accident & Health
145.2 Marine & Energy 70.2 Specialty 68.9 Casualty - Active 41.4 Casualty - Runoff 103.2 Total Reinsurance recoverables on unpaid losses (1) 428.9 Total unpaid loss and LAE reserves $ 894.7
(1) The reinsurance recoverables on unpaid losses include amounts attributable
to TPC Providers of
The following ten tables include two tables each for the property and accident & health, marine & energy, specialty, casualty-active and casualty-runoff reserving lines of business. The first table for each reserving line of business is presented net of reinsurance, which includes the impact of whole-account quota-share reinsurance arrangements related to TPC Providers. Through the annual RITC process, Ark's participation on outstanding loss and LAE reserves on prior years of account can fluctuate. Depending on the change in the TPC Providers' participation from one year of account to the next, the impact could be significant and is reflected in the tables on an accident year basis. The second table for each reserving line of business excludes the impact of amounts attributable to TPC Providers.White Mountains believes this information is useful to management and investors in evaluating Ark's loss and LAE reserves on a fully aligned basis (i.e., 100% of the Syndicates' results), by excluding the impact of changing levels of TPC Providers' participation from one year of account to the next. The following table summarizes the participation of Ark's TPC Providers by year of account: 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TPC Providers' Participation - % - % 66.2 % 70.0 % 59.6 % 60.0 % 57.6 % 58.3 % 42.8 % - % Each of the ten tables includes three sections. The top section of the table presents, for each of the previous 10 accident years (1) cumulative total undiscounted incurred loss and LAE as of each of the previous 10 year-end evaluations, (2) total IBNR plus expected development on reported claims as ofDecember 31, 2021 , and (3) the cumulative number of reported claims as ofDecember 31, 2021 . The middle section of the table presents cumulative paid loss and LAE for each of the previous 10 accident years as of each of the previous 10 year-end evaluations. Also included in this section is a calculation of the loss and LAE reserves as ofDecember 31, 2021 which is then included in the reconciliation to the consolidated balance sheet presented above. The total unpaid loss and LAE reserves as ofDecember 31, 2021 is calculated as the cumulative incurred loss and LAE from the top section less the cumulative paid loss and LAE from the middle section, plus any outstanding liabilities from accident years prior to 2012. The bottom section of the table is supplementary information about the average historical claims duration as ofDecember 31, 2021 . It shows the weighted average annual percentage payout of incurred loss and LAE by accident year as of each age. For example, the first column is calculated as the incremental paid loss and LAE in the first calendar year for each given accident year (e.g. calendar year 2020 for accident year 2020, calendar year 2021 for accident year 2021) divided by the cumulative incurred loss and LAE as ofDecember 31, 2021 for that accident year. The resulting ratios are weighted together using cumulative incurred loss and LAE as ofDecember 31, 2021 . 84 -------------------------------------------------------------------------------- Property and Accident & Health $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected Accident development on Cumulative number of Year 2012 2013 2014 2015 2016 2017
2018 2019 2020 2021 reported claims
reported claims
2012$ 84.1 $ 68.4 $ 65.1 $ 65.7 $ 60.2 $ 60.0 $ 60.4 $ 60.2 $ 60.2 $ 60.0 $ - 2,710 2013 74.6 66.9 66.6 62.1 61.6 61.7 61.6 61.6 61.6 .4 2,586 2014 34.8 31.3 29.4 28.6 28.6 28.5 28.5 28.5 - 2,963 2015 19.8 17.4 16.2 16.0 15.9 15.9 15.9 .4 2,884 2016 21.7 16.9 17.9 18.0 17.9 18.0 (.3) 3,478 2017 22.6 29.9 37.4 36.7 36.0 3.6 4,610 2018 37.5 44.2 46.3 44.5 1.5 4,270 2019 30.4 27.8 23.4 2.1 4,073 2020 62.9 61.5 15.2 4,532 2021 162.1 70.8 2,860 Total$ 511.5 Property and Accident & Health Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012$ 14.2 $ 45.0 $ 53.6 $ 57.3 $ 58.2 $ 58.6 $ 58.7 $ 59.3 $ 59.4 $ 59.5 2013 15.8 40.3 60.0 61.1 61.1 61.3 61.3 61.3 61.2 2014 13.9 25.4 27.6 28.0 28.1 28.2 28.4 28.3 2015 7.0 12.4 13.7 14.9 14.8 15.1 15.3 2016 8.6 13.4 16.8 17.1 17.2 17.5 2017 17.0 26.3 32.1 33.3 30.2 2018 15.8 32.8 40.7 40.7 2019 6.9 17.1 19.1 2020 11.4 34.5 2021 30.8 Total 337.1 All outstanding liabilities before 2012, net of reinsurance .6 Loss
and LAE reserves, net of reinsurance
Property and Accident & Health
Average Annual Percentage
Payout of Incurred Losses and LAE by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10 31.5% 33.4% 19.2% 5.7% 1.2% 1.4% 0.8% 0.3% -% 0.1% 85
-------------------------------------------------------------------------------- Property and Accident & Health $ in Millions Incurred Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported
claims reported claims
2012$ 84.1 $ 68.4 $ 65.1 $ 65.7 $ 65.9 $ 66.0 $ 65.7 $ 65.5 $ 65.2 $ 64.8 $ - 2,710 2013 74.6 66.9 66.6 66.3 65.0 64.8 64.5 64.5 64.5 .9 2,586 2014 55.6 53.4 53.3 51.2 50.8 50.6 50.6 50.6 .1 2,963 2015 54.7 51.8 48.7 46.2 46.0 45.8 45.8 .9 2,884 2016 60.6 48.5 50.0 50.3 50.0 50.1 (.7) 3,478 2017 57.6 75.1 93.8 91.4 89.8 8.6 4,610 2018 89.8 105.7 110.4 106.4 3.5 4,270 2019 72.5 66.2 55.8 5.5 4,073 2020 125.1 122.1 29.1 4,532 2021 191.2 83.1 2,860 Total$ 841.1 Property and Accident & Health Millions Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012$ 14.2 $ 45.0 $ 53.6 $ 57.3 $ 60.1 $ 61.4 $ 61.7 $ 63.2 $ 63.3 $ 63.5 2013 15.8 40.3 60.0 63.3 63.2 63.9 63.7 63.7 63.6 2014 19.1 41.3 48.0 49.2 49.4 49.9 50.2 50.1 2015 19.0 36.3 40.4 43.3 43.2 43.8 44.3 2016 24.7 38.9 47.3 48.2 48.4 49.1 2017 43.1 66.2 80.6 83.5 75.9 2018 38.0 78.5 97.1 97.1 2019 16.5 40.7 45.3 2020 24.5 69.2 2021 39.0 Total 597.1 All outstanding liabilities before 2012, gross of amounts attributable to TPC Providers 1.5 Loss and LAE reserves, gross of
amounts attributable to TPC Providers
Property and Accident & Health
Average Annual Percentage Payout of Incurred Losses and LAE by Age, Gross of Amounts Attributable to TPC Providers Years 1 2 3 4 5 6 7 8 9 10 32.0% 33.6% 17.5% 5.0% 0.5% 1.8% 1.9% 0.5% (0.1)% 0.1% 86
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Marine & Energy $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on Cumulative number of Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 reported claims reported claims 2012$ 64.7 $ 55.1 $ 46.0 $ 42.8 $ 33.6 $ 32.8 $ 32.6 $ 32.0 $ 32.0 $ 32.1 $ .1 2,428 2013 64.9 50.8 41.9 31.6 31.0 29.9 29.7 29.6 29.9 (.2) 2,641 2014 41.3 27.2 17.4 16.2 14.7 14.3 14.4 14.4 .5 2,581 2015 25.3 15.4 13.6 12.7 12.0 12.0 12.2 .2 3,390 2016 22.3 18.1 16.0 15.1 14.9 15.1 .7 4,117 2017 23.9 18.6 16.9 16.4 16.5 1.1 4,470 2018 24.5 18.9 16.7 17.0 .5 3,487 2019 19.3 17.3 17.2 .6 2,562 2020 24.4 21.7 2.9 1,668 2021 83.7 69.9 1,091 Total$ 259.8 Marine & Energy Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012$ 8.1 $ 24.0 $ 27.4 $ 30.2 $ 30.6 $ 31.3 $ 31.7 $ 31.4 $ 31.3 $ 31.0 2013 7.9 22.6 28.1 29.1 29.7 29.9 29.9 29.7 29.9 2014 6.0 12.4 13.5 14.4 14.5 13.7 14.0 13.8 2015 4.0 8.0 9.8 11.3 10.7 10.8 11.2 2016 5.6 10.1 12.8 13.3 13.4 14.0 2017 5.2 11.3 13.1 14.4 14.4 2018 2.7 12.9 14.5 15.2 2019 3.4 10.9 12.9 2020 3.2 12.9 2021 6.4 Total 161.7 All outstanding liabilities before 2012, net of reinsurance 1.2 Loss and LAE
reserves, net of reinsurance
Marine & Energy
Average Annual
Percentage Payout of Incurred Losses and LAE by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10 19.8% 37.7% 20.2% 5.7% 4.3% 7.2% 0.4% 0.1% (0.4)% 0.2% 87
-------------------------------------------------------------------------------- Marine & Energy $ in Millions Incurred Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported
claims reported claims
2012$ 64.7 $ 55.1 $ 46.0 $ 42.8 $ 40.4 $ 38.8 $ 37.0 $ 35.6 $ 35.4 $ 35.6 $ .3 2,428 2013 64.9 50.8 41.9 38.4 37.2 33.5 33.0 32.8 33.4 (.5) 2,641 2014 59.8 40.3 32.5 30.0 24.8 23.9 23.8 24.1 1.3 2,581 2015 60.4 46.1 41.8 36.2 34.4 34.4 34.9 .5 3,390 2016 63.1 52.0 43.5 41.3 40.7 41.2 1.6 4,117 2017 62.6 46.5 42.4 40.8 41.0 2.5 4,470 2018 59.3 46.0 40.6 41.3 1.1 3,487 2019 46.4 41.2 41.0 1.4 2,562 2020 47.4 42.6 5.6 1,668 2021 95.0 77.5 1,091 Total$ 430.1 Marine & Energy Millions Cumulative Paid Loss and LAE, Gross
of Amounts Attributable to TPC Providers
For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012$ 8.1 $ 24.0 $ 27.4 $ 30.2 $ 31.4 $ 33.7 $ 34.8 $ 34.0 $ 33.6 $ 33.1 2013 7.9 22.6 28.1 31.1 32.8 33.3 33.5 32.9 33.3 2014 8.0 17.9 21.2 24.0 24.2 22.3 22.9 22.5 2015 10.2 23.1 29.2 32.9 31.3 31.4 32.4 2016 16.7 29.1 35.7 36.8 37.2 38.6 2017 13.3 28.5 32.9 36.0 36.0 2018 6.7 31.5 35.5 37.2 2019 8.1 25.9 30.7 2020 6.9 26.5 2021 7.8 Total 298.1 All outstanding liabilities before 2012, gross of amounts attributable to TPC Providers 3.2 Loss and LAE reserves, gross
of amounts attributable to TPC Providers
Marine & Energy
Average Annual Percentage Payout of Incurred Losses and LAE by Age, Gross of Amounts Attributable to TPC Providers Years 1 2 3 4 5 6 7 8 9 10 20.7% 37.9% 18.0% 6.3% 3.7% 6.5% 1.1% 0.3% (0.2)% 0.4% 88
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Specialty $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on Cumulative number of Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 reported
claims reported claims
2012$ 43.1 $ 36.1 $ 31.8 $ 30.8 $ 26.7 $ 25.8 $ 26.3 $ 26.6 $ 26.8 $ 26.8 $ 2.1 887 2013 48.6 34.9 25.6 17.5 16.9 17.1 16.9 17.3 17.3 1.3 1,122 2014 51.1 51.1 41.9 41.3 41.5 42.9 43.5 43.5 (.3) 1,409 2015 21.3 13.0 10.4 10.1 10.6 10.7 10.8 1.7 1,876 2016 15.9 11.7 8.7 9.2 9.0 9.3 (1.3) 1,941 2017 16.0 11.9 10.9 10.5 10.6 1.5 2,179 2018 12.1 13.9 14.8 13.7 2.4 2,090 2019 16.6 14.6 13.5 2.8 2,315 2020 20.7 19.7 6.2 1,925 2021 67.3 57.4 1,341 Total$ 232.5 Specialty Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31,
Accident Year 2012 2013 2014 2015 2016 2017
2018 2019 2020 2021
2012$ 16.3 $ 25.2 $ 22.2 $ 22.6 $ 23.2 $ 23.3
$ 24.2 $ 24.4 $ 24.4 $ 24.5 2013 17.1 13.6 15.2 15.8 15.8 16.0 16.0 16.0 16.0 2014 26.8 39.7 40.4 40.8 41.5 42.8 43.6 43.5 2015 4.1 7.2 7.8 8.2 8.2 8.3 8.3 2016 3.2 8.0 9.2 10.0 10.4 10.5 2017 3.3 6.8 8.4 8.5 8.5 2018 2.9 8.1 9.8 10.3 2019 4.9 7.1 7.6 2020 5.4 10.9 2021 5.2 Total 145.3 All outstanding liabilities
before 2012, net of reinsurance (2.0)
Loss and LAE
reserves, net of reinsurance
Specialty
Average Annual Percentage Payout of Incurred
Losses and LAE by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10 34.0% 33.8% 7.3% 0.5% 4.6% 4.4% 4.6% 3.1% (3.5)% (1.0)% 89
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Specialty
$ in Millions
Incurred Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported
claims reported claims
2012$ 43.1 $ 36.1 $ 31.8 $ 30.8 $ 34.6 $ 33.2 $ 32.3 $ 33.1 $ 33.2 $ 33.2 $ 5.1 887 2013 48.6 34.9 25.6 21.8 20.7 20.2 19.7 20.6 20.5 3.1 1,122 2014 66.1 65.8 56.7 55.4 55.4 59.0 60.3 60.2 (.7) 1,409 2015 47.3 40.4 32.8 29.8 31.1 31.1 31.5 4.0 1,876 2016 46.4 34.1 26.3 27.5 27.3 27.9 (3.1) 1,941 2017 42.5 30.1 27.6 26.4 26.6 3.7 2,179 2018 29.5 33.7 35.3 33.1 5.6 2,090 2019 39.7 34.8 32.3 6.7 2,315 2020 43.5 42.2 11.9 1,925 2021 81.7 69.3 1,341 Total$ 389.2 Specialty Millions Cumulative Paid Loss and LAE, Gross
of Amounts Attributable to TPC Providers
For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012$ 16.3 $ 25.2 $ 22.2 $ 22.6 $ 24.4 $ 24.8 $ 27.0 $ 27.5 $ 27.6 $ 27.8 2013 17.1 13.6 15.2 16.8 17.0 17.5 17.5 17.5 17.4 2014 31.2 50.1 52.4 53.7 55.3 58.6 60.4 60.4 2015 12.3 22.1 24.2 25.1 25.3 25.4 25.4 2016 10.1 24.7 27.6 29.5 30.6 30.7 2017 8.7 17.3 21.3 21.7 21.7 2018 7.0 19.8 23.8 24.8 2019 11.8 16.9 18.0 2020 12.4 25.0 2021 6.1 Total 257.3 All outstanding liabilities before 2012, gross
of amounts attributable to TPC Providers (4.7)
Loss and LAE reserves, gross
of amounts attributable to TPC Providers
Specialty
Average Annual Percentage Payout of Incurred Losses and
LAE by Age, Gross of Amounts Attributable to TPC Providers
Years 1 2 3 4 5 6 7 8 9 10 32.5% 33.7% 7.8% 1.7% 4.5% 4.9% 4.5% 3.2% (4.4)% (2.4)% 90
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Casualty - Active $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported claims
reported claims
2012 $ 22.6 $ 21.1 $ 17.7 $ 16.2 $ 10.1 $ 9.9 $ 11.0 $ 11.0 $ 11.3 $ 11.1 $ .8 1,016 2013 23.2 18.8 15.0 8.3 8.1 8.9 8.8 9.0 8.9 1.3 1,134 2014 17.1 13.8 7.5 7.0 8.0 7.8 7.8 7.7 1.2 1,359 2015 12.3 7.7 6.0 7.0 6.5 6.4 6.2 .6 1,247 2016 5.7 5.0 6.3 6.6 7.0 6.9 .1 1,483 2017 7.4 7.8 7.2 6.2 5.9 .7 1,489 2018 8.7 9.0 7.3 7.1 .9 961 2019 8.0 7.4 6.3 1.7 742 2020 7.6 6.2 3.9 420 2021 15.9 14.2 452 Total $ 82.2 Casualty - Active Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 1.3 $ 3.3 $ 4.8 $ 6.4 $ 7.4 $ 8.0 $ 8.5 $ 9.1 $ 8.9 $ 9.1 2013 1.5 3.6 5.3 5.7 6.3 6.7 7.0 7.0 7.2 2014 1.3 3.5 4.2 4.7 5.2 5.5 5.9 6.0 2015 1.8 2.4 3.2 4.4 4.7 4.9 5.1 2016 .2 1.0 2.3 4.0 4.6 5.3 2017 .8 1.7 2.8 3.4 4.2 2018 .3 1.4 3.5 4.3 2019 .3 1.4 2.3 2020 .5 1.0 2021 .5 Total 45.0 All outstanding liabilities before 2012,
net of reinsurance .2
Loss and LAE reserves,
net of reinsurance $ 37.4
Casualty - Active
Average Annual Percentage Payout of
Incurred Losses and LAE by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10 9.1% 14.7% 18.5% 14.2% 9.6% 10.7% 3.9% 3.1% 1.0% 3.1% 91
-------------------------------------------------------------------------------- Casualty - Active $ in Millions Incurred Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported
claims reported claims
2012 $ 22.6 $ 21.1 $ 17.7 $ 16.2 $ 17.3 $ 17.6 $ 18.6 $ 18.7 $ 19.2 $ 19.0 $ 1.9 1,016 2013 23.2 18.8 15.0 14.2 14.5 15.0 14.7 14.9 14.7 3.2 1,134 2014 20.6 17.6 15.6 15.1 15.8 15.3 15.0 14.7 2.9 1,359 2015 19.7 20.2 15.8 15.7 14.5 14.0 13.7 1.4 1,247 2016 16.3 15.0 16.3 17.0 17.5 17.5 .2 1,483 2017 20.4 20.1 18.5 15.6 15.1 1.6 1,489 2018 21.2 22.0 17.3 17.0 2.1 961 2019 19.5 17.5 15.1 4.2 742 2020 16.6 13.5 8.3 420 2021 22.1 19.0 452 Total $ 162.4 Casualty - Active Millions Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 1.3 $ 3.3 $ 4.8 $ 6.4 $ 9.3 $ 11.4 $ 12.7 $ 14.1 $ 13.6 $ 14.2 2013 1.5 3.6 5.3 6.6 8.5 9.5 10.2 10.3 10.8 2014 1.3 3.6 5.9 7.6 8.7 9.5 10.5 10.7 2015 2.0 3.6 6.3 9.2 10.0 10.5 11.1 2016 .7 3.2 6.4 10.6 11.9 13.7 2017 2.6 4.8 7.5 9.1 10.9 2018 .8 3.5 8.5 10.3 2019 .8 3.3 5.5 2020 1.1 2.4 2021 1.0 Total 90.6 All outstanding liabilities before 2012, gross of amounts attributable to TPC Providers .8 Loss and LAE reserves, gross of
amounts attributable to TPC Providers $ 72.6
Casualty - Active
Average Annual Percentage Payout of Incurred Losses
and LAE by Age, Gross of Amounts Attributable to TPC Providers
Years 1 2 3 4 5 6 7 8 9 10 7.4% 12.5% 16.9% 13.5% 10.2% 12.1% 5.6% 4.1% 1.9% 5.4% 92
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Casualty - Runoff $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported claims
reported claims
2012 $ 44.3 $ 44.6 $ 37.8 $ 34.4 $ 22.3 $ 21.7 $ 22.3 $ 22.8 $ 22.7 $ 23.1 $ (.2) 1,430 2013 65.7 75.8 70.1 49.2 47.0 49.8 49.8 49.8 49.9 3.1 1,810 2014 46.9 67.5 46.8 46.0 55.9 55.6 56.0 55.0 1.9 1,932 2015 26.9 23.9 26.4 35.7 33.0 33.2 32.0 1.4 2,009 2016 19.1 25.3 38.8 35.4 35.3 34.1 3.8 2,141 2017 17.4 27.2 26.7 28.0 26.7 2.5 1,597 2018 13.5 18.2 20.2 20.0 2.9 1,265 2019 10.8 14.3 15.4 3.7 961 2020 4.2 6.0 3.6 552 2021 1.7 .4 260 Total 263.9 Casualty - Runoff $ in millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 3.5 $ 10.4 $ 13.6 $ 16.5 $ 17.8 $ 19.3 $ 20.5 $ 20.8 $ 21.2 $ 21.8 2013 7.2 19.5 35.9 41.0 42.7 44.3 45.0 45.6 46.0 2014 6.5 23.2 29.1 36.5 43.1 47.0 48.7 49.5 2015 4.3 7.9 14.0 20.3 23.9 26.5 28.2 2016 3.8 9.7 16.8 21.8 24.5 26.8 2017 3.1 9.1 14.2 18.3 21.1 2018 3.3 7.2 12.2 14.3 2019 3.2 5.6 7.4 2020 .8 1.3 2021 .5 Total 216.9 All outstanding liabilities before 2012, net of reinsurance 21.4 Loss and LAE reserves, net of reinsurance $ 68.4 Casualty - Runoff Average Annual Percentage Payout of
Incurred Losses and LAE by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10 9.4% 15.3% 17.0% 15.9% 9.7% 8.1% 7.0% 3.6% 2.5% 1.7% 93
-------------------------------------------------------------------------------- Casualty - Runoff $ in Millions Incurred Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31, As of December 31, 2021 Total IBNR plus expected development on
Cumulative number of
Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021 reported claims
reported claims
2012 $ 44.3 $ 44.6 $ 37.8 $ 34.4 $ 33.8 $
33.2 $ 32.7 $ 34.0 $ 33.6 $ 34.4 $ (.4)
1,430 2013 65.7 75.8 70.1 75.3 70.9 74.3 74.4 73.8 74.0 7.5 1,810 2014 63.5 94.4 97.1 101.0 117.4 117.0 116.7 114.4 4.5 1,932 2015 59.2 68.7 80.3 92.7 86.4 85.5 82.9 3.4 2,009 2016 56.4 75.6 101.9 94.0 91.9 89.4 9.2 2,141 2017 45.6 68.9 68.0 69.3 66.4 6.0 1,597 2018 33.1 44.6 48.3 48.1 7.0 1,265 2019 26.0 34.1 37.0 8.8 961 2020 8.8 12.4 7.1 552 2021 3.6 .5 260 Total 562.6 Casualty - Runoff Millions Cumulative Paid Loss and LAE, Gross
of Amounts Attributable to TPC Providers
For the Years Ended December 31, Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 3.5 $ 10.4 $ 13.6 $ 16.5 $ 20.3 $ 25.3 $ 28.4 $ 29.0 $ 30.0 $ 31.4 2013 7.2 19.5 35.9 50.8 56.7 60.6 62.3 63.9 64.7 2014 7.4 27.4 44.8 69.3 85.8 95.4 99.4 101.3 2015 7.5 18.7 38.9 54.6 63.5 69.7 73.7 2016 11.6 30.1 47.5 60.1 66.5 71.9 2017 9.2 24.0 36.7 46.4 53.1 2018 8.3 17.8 29.5 34.6 2019 7.9 13.5 17.8 2020 1.8 3.0 2021 1.2 Total 452.7 All outstanding liabilities before 2012, gross
of amounts attributable to TPC Providers 51.7
Loss and LAE reserves, gross
of amounts attributable to TPC Providers $ 161.6
Casualty - Runoff
Average Annual Percentage Payout of Incurred Losses and
LAE by Age, Gross of Amounts Attributable to TPC Providers
Years 1 2 3 4 5 6 7 8 9 10 8.7% 13.5% 15.9% 15.7% 9.6% 7.7% 6.2% 5.1% 4.8% 3.0% 94
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The following table provides a reconciliation from the first table grouping
above presented net of reinsurance and the second table grouping above presented
gross of amounts attributable to TPC Providers:
December 31, 2021
Cumulative Incurred Loss and LAE
Amounts Gross of Amounts Attributable to TPC Attributable to TPC Millions Net of Reinsurance Providers Providers Property and Accident & Health $ 511.5 $ 329.6 $ 841.1 Marine & Energy 259.8 170.3 430.1 Specialty 232.5 156.7 389.2 Casualty - Active 82.2 80.2 162.4 Casualty - Runoff 263.9 298.7 562.6 Total $ 1,349.9 $ 1,035.5 $ 2,385.4 December 31, 2021 Cumulative Paid Loss and LAE Gross of Amounts Amounts Attributable Attributable to TPC Millions Net of Reinsurance to TPC Providers Providers Property and Accident & Health $ 337.1 $ 260.0 $ 597.1 Marine & Energy 161.7 136.4 298.1 Specialty 145.3 112.0 257.3 Casualty - Active 45.0 45.6 90.6 Casualty - Runoff 216.9 235.8 452.7 Total $ 906.0 $ 789.8 $ 1,695.8 December 31, 2021 Loss and LAE Reserves Gross of Amounts Net of Amounts Attributable Attributable to TPC Millions Reinsurance to TPC Providers Providers Property and Accident & Health $ 175.0 $ 70.5 $ 245.5 Marine & Energy 99.3 35.9 135.2 Specialty 85.2 42.0 127.2 Casualty - Active 37.4 35.2 72.6 Casualty - Runoff 68.4 93.2 161.6 Total $ 465.3 $ 276.8 $ 742.1 95
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4.
As of December 31, 2021, goodwill and other intangible assets recognized in connection with business and asset acquisitions totaled $1,066 million, of which $948 million was attributable to White Mountains's common shareholders.Goodwill and other intangible assets are recorded at their acquisition date fair values. The determination of the acquisition date fair values of goodwill and other intangible assets involves significant management judgment, the use of valuation models and assumptions that are inherently subjective.Goodwill and indefinite-lived intangible assets are not amortized but rather reviewed for potential impairment on an annual basis, or whenever indications of potential impairment exist. In the absence of any indications of potential impairment, the evaluation of goodwill and indefinite-lived intangible assets is performed no later than the interim period in which the anniversary of the acquisition date falls. Finite-lived intangible assets, which are amortized over their estimated economic lives, are reviewed for impairment only when events occur or there are changes in circumstances indicating that their carrying value may exceed fair value. Impairment exists when the carrying value of goodwill or other intangible assets exceeds fair value. White Mountains's annual review first assesses whether qualitative factors indicate that the carrying value of goodwill or other intangible assets may be impaired. If White Mountains determines based on this qualitative review that it is more likely than not that an impairment may exist, then White Mountains performs a quantitative analysis to compare the fair value of a reporting unit with its carrying value. If the carrying value exceeds the estimated fair value, then an impairment charge is recognized through current period pre-tax income (loss). Both the annual qualitative assessment of potential impairment as well as the quantitative comparison of carrying value to estimated fair value involve management judgment, the use of discounted cash flow models, market comparisons and other valuation techniques and assumptions, including customer retention rates and revenue growth rates, that are inherently subjective. Most of White Mountains's total goodwill and other intangible assets of $1,066 million relates to the acquisition of Ark and NSM and NSM's subsequent acquisitions of KBK, Embrace, the Renewal Rights from AIG, Kingsbridge andJ.C. Taylor . As of December 31, 2021, goodwill and other intangible assets related to Ark and NSM were $293 million and $725 million. During 2021, White Mountains performed its periodic reviews for potential impairment, including a quantitative review of the goodwill associated with NSM. During 2021, White Mountains did not recognize any impairments of goodwill and other intangible assets. During 2021, White Mountains recognized a loss on assets held for sale of $29 million that was primarily related to the goodwill associated with the Fresh Insurance motor business. During 2020, White Mountains recognized impairments of other intangible assets of $6 million related to Fresh Insurance. The impairments related to lower premium volumes, including due to the impact of the COVID-19 pandemic, and certain reorganization initiatives at Fresh Insurance. During 2020, White Mountains did not recognize any goodwill impairments. See Item 1A. Risk Factors, "If we are required to write down goodwill and other intangible assets, it could materially adversely affect our results of operations and financial condition." on page 26. 96 --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
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 "could", "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's: •change in book value or adjusted book value per share or return on equity; •business strategy; •financial and operating targets or plans; •incurred loss and loss adjustment expenses and the adequacy of its loss and loss adjustment expense reserves and related reinsurance; •projections of revenues, income (or loss), earnings (or loss) per share, EBITDA, adjusted EBITDA, dividends, market share or other financial forecasts of White Mountains or its businesses; •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 to its expectations and predictions is subject to 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, fires, terrorist attacks or severe winter weather; •recorded loss reserves subsequently proving to have been inadequate; •the market value of White Mountains's investment inMediaAlpha ; •the trends and uncertainties from the COVID-19 pandemic, including judicial interpretations on the extent of insurance coverage provided by insurers for COVID-19 pandemic related claims; •business opportunities (or lack thereof) that may be presented to it and pursued; •actions taken by rating agencies, such as financial strength or credit ratings downgrades or placing ratings on negative watch; •the continued availability of capital and financing; •deterioration of general economic, market or business conditions, including due to outbreaks of contagious disease (including the COVID-19 pandemic) and corresponding mitigation efforts; •competitive forces, including the conduct of other insurers; •changes in domestic or foreign laws or regulations, or their interpretation, applicable to White Mountains, its competitors or its customers; and •other factors, most of which are beyond White Mountains's control. 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 publicly update any such forward-looking statements, whether as a result of new information, future events or otherwise. 97
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EVEREST RE GROUP LTD – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operation
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