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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 94 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements. The following discussion also includes ten 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 in MediaAlpha, (iii) Ark's adjusted loss and LAE ratio, (iv) Ark's adjusted insurance acquisition expense ratio, (v) Ark's adjusted other underwriting expense ratio, (vi) Ark's adjusted combined ratio (vii) Kudu's earnings before interest, taxes, depreciation and amortization ("EBITDA"), (viii) Kudu's adjusted EBITDA, (ix) total consolidated portfolio returns excluding MediaAlpha, and (x) total adjusted capital, that have been reconciled from their most comparable GAAP financial measures on page 69 . White Mountains believes these measures to be useful in evaluatingWhite Mountains's financial performance and condition.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
Overview-Year EndedDecember 31, 2022 versus Year EndedDecember 31, 2021 White Mountains ended 2022 with book value per share of$1,457 and adjusted book value per share of$1,495 . During 2022, book value per share increased 24% and adjusted book value per share increased 26%, including dividends. Comprehensive income (loss) attributable to common shareholders was$788 million in 2022 compared to$(273) million in 2021. Results in 2022 were driven primarily by the net gain from the NSM Transaction. OnAugust 1, 2022 ,White Mountains closed the NSM Transaction.White Mountains received$1.4 billion in net cash proceeds at closing and recognized a net gain of$876 million in the third quarter of 2022, which was comprised of$887 million of net gain from sale of discontinued operations and$3 million of comprehensive income related to the recognition of foreign currency translation gains (losses) from the sale, partially offset by$14 million of compensation and other costs related to the transaction recorded in Other Operations. Results in 2021 were driven primarily by$380 million of net realized and unrealized investment losses fromWhite Mountains's investment in MediaAlpha. During 2022,White Mountains repurchased and retired 461,256 of its common shares for$616 million at an average share price of$1,335.11 , or 92% ofWhite Mountains's book value per share and 89% ofWhite Mountains's adjusted book value per share atDecember 31, 2022 . As ofDecember 31, 2022 ,White Mountains's undeployed capital was approximately$0.9 billion . In the HG Global/BAM segment, gross written premiums and MSC collected totaled$147 million in 2022 compared to$118 million in 2021. Total pricing was 91 basis points in 2022 compared to 67 basis points in 2021. BAM insured municipal bonds with par value of$16.0 billion in 2022 compared to$17.5 billion in 2021. During 2022, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$43 million . During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$806 million . BAM's total claims paying resources were$1,423 million atDecember 31, 2022 compared to$1,192 million atDecember 31, 2021 . During 2022 and 2021, BAM completed reinsurance agreements with Fidus Re that increased BAM's claims paying resources by$150 million in each year. InDecember 2022 , BAM made a$36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InDecember 2021 , BAM made a$34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. InJune 2022 ,Standard & Poor's affirmed BAM's "AA/stable" rating. Ark's GAAP combined ratio was 82% in 2022 compared to 87% in 2021. Ark's adjusted combined ratio, which adds back amounts ceded to TPC Providers, was 81% in 2022 compared to 85% in 2021. The GAAP combined ratio in 2022 included six points of favorable prior year loss reserve development compared to three points in 2021. The GAAP combined ratio for 2022 included 13 points of catastrophe losses compared to 10 points in 2021. Catastrophe losses in 2022 included$45 million related to events in theUkraine and$44 million related to Hurricane Ian on a net basis after reinstatement premiums. Ark reported gross written premiums of$1,452 million , net written premiums of$1,195 million and net earned premiums of$1,043 million in 2022 compared to 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$95 million in 2022 compared to$53 million in 2021, which reflected$25 million of transaction expenses related to the Ark Transaction. InDecember 2022 , AM Best affirmed GAIL's 'A/stable' rating. In theJanuary 2023 renewal season, Ark wrote gross written premiums in excess of$575 million , with risk adjusted rate change of 15%. During the fourth quarter of 2022,White Mountains invested$205 million intoOutrigger Re Ltd. , a newly-formedBermuda special purpose insurer that will provide reinsurance protection on a portion of Ark'sBermuda global property catastrophe portfolio written in calendar year 2023. 39 -------------------------------------------------------------------------------- Kudu reported total revenues of$119 million , pre-tax income of$89 million and adjusted EBITDA of$42 million in 2022 compared to total revenues of$134 million , pre-tax income of$108 million and adjusted EBITDA of$33 million in 2021. Total revenues and pre-tax income in 2022 included$54 million of net investment income and$64 million of net realized and unrealized investment gains compared to$44 million and$90 million in 2021. Kudu deployed$101 million , including transaction costs, in five asset management firms in 2022. As ofDecember 31, 2022 , Kudu had deployed$713 million in 20 asset and wealth management firms globally, including two that have been exited. As ofDecember 31, 2022 , the asset and wealth management firms have combined assets under management of approximately$74 billion , spanning a range of asset classes.White Mountains's investment in MediaAlpha was$169 million as ofDecember 31, 2022 at the closing price of$9.95 per share, compared to$262 million as ofDecember 31, 2021 at the closing price of$15.44 per share. Based onWhite Mountains's ownership of 16.9 million shares of MediaAlpha as ofDecember 31, 2022 , each$1.00 per share increase or decrease in the stock price of MediaAlpha will result in an approximate$6.60 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's total consolidated portfolio return on invested assets was -1.6% in 2022. This return included$93 million of net unrealized investment losses fromWhite Mountains's investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by favorable other long-term investments results, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.White Mountains's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by favorable other long-term investment results. 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 in MediaAlpha. Excluding net realized and unrealized investment losses fromWhite Mountains's investment in MediaAlpha, 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 in MediaAlpha. 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. Substantially all ofWhite Mountains's capital base was 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 the MediaAlpha 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 . 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 loss 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 . 40 -------------------------------------------------------------------------------- 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$90 million of net realized and unrealized gains on Kudu's Participation Contracts in 2021 compared to$16 million of net 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 has been 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 investment in MediaAlpha was$262 million as ofDecember 31, 2021 at the closing price of$15.44 per share, compared to$802 million as ofDecember 31, 2020 at the closing price of$39.07 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's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by favorable other long-term investments results.White Mountains's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 4.6% in 2020. Excluding MediaAlpha, 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.
Adjusted Book Value Per Share
The following table presentsWhite Mountains's adjusted book value per share, a non-GAAP financial measure, as ofDecember 31, 2022 , 2021 and 2020 and reconciles this non-GAAP measure from book value per share, the most comparable GAAP measure. See "NON-GAAP FINANCIAL MEASURES" on page 69 .
2022 2021 2020
Book value per share numerators (in millions):
White Mountains's common shareholders' equity -
GAAP book value per share numerator $ 3,746.9 $ 3,548.1 $ 3,906.0
Time-value of money discount on expected future
payments
on the BAM Surplus Notes (1) (95.1) (125.9) (142.5)
HG Global's unearned premium reserve (1) 242.1 214.6 190.0
HG Global's net deferred acquisition costs (1) (69.0) (60.8) (52.4)
Adjusted book value per share numerator $ 3,824.9 $ 3,576.0 $ 3,901.1
Book value per share denominators (in thousands of
shares):
Common shares outstanding - GAAP book value per share
denominator 2,572.1 3,017.8 3,102.0
Unearned restricted common shares (14.1) (13.7) (14.8)
Adjusted book value per share denominator 2,558.0 3,004.1 3,087.2
GAAP book value per share $ 1,456.74 $ 1,175.73 $ 1,259.19
Adjusted book value per share $ 1,495.28 $ 1,190.39 $ 1,263.64
Year-to-date dividends paid per share $ 1.00 $
1.00
(1) Amounts reflects
96.9%.
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The following table presents goodwill and other intangible assets that are included inWhite Mountains's adjusted book value as ofDecember 31, 2022 , 2021 and 2020: December 31, Millions 2022 2021 2020Goodwill : Ark$ 116.8 $ 116.8 $ - Kudu 7.6 7.6 7.6 Other Operations 52.1 17.9 11.5 Total goodwill 176.5 142.3 19.1 Other intangible assets: Ark 175.7 175.7 - Kudu 1.0 1.3 1.6 Other Operations 39.1 21.2 24.9 Total other intangible assets 215.8
198.2 26.5
Total goodwill and other intangible assets (1) 392.3
340.5 45.6
Total goodwill and other intangible assets attributed to
non-controlling
interests (102.7)
(91.8) (3.0)
Total goodwill and other intangible assets included in White
Mountains's
common shareholders' equity$ 289.6
(1) See Note 4 - "
details 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 2022 2021 2020
Revenues:
Financial Guarantee revenues $ (46.4) $ 23.0 $ 68.5
P&C Insurance and Reinsurance revenues 1,009.5 668.5 -
Asset Management revenues 118.5 134.0 45.7
Other Operations revenues 76.3 (211.1) 781.4
Total revenues 1,157.9 614.4 895.6
Expenses:
Financial Guarantee expenses 88.6 65.4 63.8
P&C Insurance and Reinsurance expenses 914.4 615.6 -
Asset Management expenses 29.7 26.5 18.1
Other Operations expenses 274.6 180.5 153.3
Total expenses 1,307.3 888.0 235.2
Pre-tax income (loss)
Financial Guarantee pre-tax income (loss) (135.0) (42.4) 4.7
P&C Insurance and Reinsurance pre-tax income (loss) 95.1 52.9 -
Asset Management, pre-tax income (loss) 88.8
107.5 27.6
Other Operations pre-tax income (loss) (198.3) (391.6) 628.1 Total pre-tax income (loss) from continuing operations (149.4) (273.6) 660.4 Income tax (expense) benefit (41.4) (44.4) 14.8 Net income (loss) from continuing operations (190.8)
(318.0) 675.2
Net income (loss) from discontinued operations, net of tax
-
16.4
(22.6) (9.5)
Net gain (loss) from sale of discontinued operations, net
of tax -
886.8 - -
Net gain (loss) from sale of discontinued operations, net
of tax -
- 18.7 (2.3) Net income (loss) 712.4 (321.9) 663.4 Net (income) loss attributable to non-controlling interests 80.4
46.5 45.3
Net income (loss) attributable to
shareholders
792.8 (275.4) 708.7 Other comprehensive income (loss), net of tax (3.8) 1.7 1.4 Other comprehensive income (loss) from discontinued operations, net of tax - NSM Group (5.2) .2 5.9 Net gain (loss) from foreign currency translation from sale of discontinued operations, net of tax - NSM Group 2.9 - - Comprehensive income (loss) 786.7 (273.5) 716.0 Other comprehensive (income) loss attributable to non-controlling interests .9 .2 (.5) Comprehensive income (loss) attributable toWhite Mountains's common shareholders$ 787.6 $ (273.3) $ 715.5 43
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I. Summary of Operations By Segment
As ofDecember 31, 2022 ,White Mountains conducted its operations through three reportable segments: (1) HG Global/BAM, (2) Ark, and (3) Kudu, with our remaining operating businesses, holding companies and other assets included in Other Operations.White Mountains has made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company's subsidiaries and affiliates; (ii) the manner in which the Company's subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the chief operating decision makers and the Board of Directors. Significant intercompany transactions amongWhite Mountains's segments have been eliminated herein.White Mountains's segment information is presented in Note 16 - "Segment Information" on page F- 62 . As a result of the NSM Transaction, the results of operations for NSM, previously reported as a segment, have been classified as discontinued operations in the statements of operations and comprehensive income through the closing of the transaction. Prior period amounts have been reclassified to conform to the current period's presentation. See Note 21 - "Held for Sale and Discontinued Operations" 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 . A discussion ofWhite Mountains's consolidated investment operations is included after the discussion of operations by segment.
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, 2022 , 2021 and 2020: December 31, 2022 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 63.8 $ -$ 63.8 Assumed written premiums 55.9 1.3 (55.9) 1.3 Gross written premiums 55.9 65.1 (55.9) 65.1 Ceded written premiums - (55.9) 55.9 - Net written premiums$ 55.9 $ 9.2 $ -$ 65.1 Earned insurance and reinsurance premiums$ 27.5
Net investment income (loss)
10.3 11.2 - 21.5 Net investment income (loss) - BAM Surplus Notes 11.7 - (11.7) - Net realized and unrealized investment gains (losses) (52.5) (53.3) - (105.8) Other revenues .5 4.1 - 4.6 Total revenues (2.5) (32.2) (11.7) (46.4) Insurance and reinsurance acquisition expenses 9.3 1.9 - 11.2 Other underwriting expenses - - - - General and administrative expenses 2.8 66.3 - 69.1 Interest expense 8.3 - - 8.3 Interest expense - BAM Surplus Notes - 11.7 (11.7) - Total expenses 20.4 79.9 (11.7) 88.6 Pre-tax income (loss)$ (22.9) $ (112.1) $ -$ (135.0) Supplemental information: MSC collected (1) $ -$ 81.4 $ -$ 81.4
(1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
44
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December 31, 2021
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 51.0 $ - $ 51.0
Assumed written premiums 47.6 4.6 (47.6) 4.6
Gross written premiums 47.6 55.6 (47.6) 55.6
Ceded written premiums - (47.6) 47.6 -
Net written premiums $ 47.6 $ 8.0 $ - $ 55.6
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
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
45 -------------------------------------------------------------------------------- HG Global/BAM Results-Year EndedDecember 31, 2022 versus Year EndedDecember 31, 2021 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$147 million and$118 million in 2022 and 2021. BAM insured$16.0 billion of municipal bonds,$12.2 billion of which were in the primary market, in 2022 compared to$17.5 billion of municipal bonds,$15.6 billion of which were in the primary market, in 2021. During 2022, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$43 million . During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of$806 million . Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.0% in 2022 compared to 8.1% in 2021. Total pricing increased to 91 basis points in 2022 compared to 67 basis points in 2021. The increase in total pricing was driven primarily by increased secondary market activity and higher pricing in the primary market in 2022 compared to 2021. Pricing in the primary market increased to 69 basis points in 2022 compared to 57 basis points in 2021, driven primarily by an increase in transactions insured in specific credit sectors with higher pricing. Pricing in the secondary and assumed reinsurance markets, which is more transaction-specific than pricing in the primary market, increased to 163 basis points in 2022 compared to 155 basis points in 2021. Increased secondary market activity and higher pricing in the primary market, driven in part by the volatility in interest rates experienced in 2022, contributed to the increase in gross written premiums and MSC collected in 2022 compared to 2021. It is uncertain if these market factors will continue in the near term. 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, 2022 and 2021: Year Ended December 31, $ in Millions 2022 2021 Gross par value of primary market policies issued$ 12,169.7 $ 15,560.8 Gross par value of secondary market policies issued 3,824.2 1,118.9 Gross par value of assumed reinsurance 42.5 805.5 Total gross par value of market policies issued$ 16,036.4 $ 17,485.2 Gross written premiums$ 65.1 $ 55.6 MSC collected 81.4 62.2 Total gross written premiums and MSC collected$ 146.5 $ 117.8 Total pricing 91 bps 67 bps HG Global reported pre-tax income (loss) of$(23) million in 2022 compared to$21 million in 2021. The change in pre-tax income (loss) was driven primarily by higher net unrealized investment losses on the HG Global fixed income portfolio in 2022 compared to 2021 as interest rates increased. HG Global's results in 2022 and 2021 both included$12 million of interest income on the BAM Surplus Notes. 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$112 million in 2022 compared to$63 million in 2021. The increase in pre-tax loss was driven primarily by higher net unrealized investment losses on the BAM fixed income portfolio in 2022 compared to 2021 as interest rates increased. BAM's results included$12 million of interest expense on the BAM Surplus Notes and$66 million of general and administrative expenses in 2022 compared to$12 million of interest expense on the BAM Surplus Notes and$55 million of general and administrative expenses in 2021. The increase in general and administrative expenses was driven primarily by higher incentive compensation costs. 46 -------------------------------------------------------------------------------- InDecember 2022 , BAM made a$36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$25 million was a repayment of principal held in theSupplemental Trust ,$1 million was a payment of accrued interest held in theSupplemental Trust and$10 million was a payment of accrued interest held outside theSupplemental Trust . 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 . As ofDecember 31, 2022 ,White Mountains's debt service model indicated that the BAM Surplus Notes would be fully repaid approximately six years prior to final maturity, which is generally consistent with the results of the update of the debt service model as ofDecember 31, 2021 . HG Global/BAM Results-Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 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 decreased to 67 basis points in 2021 compared to 75 basis points in 2020. 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 Total pricing 67 bps 75 bps 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. 47 -------------------------------------------------------------------------------- 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. 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 . 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$1,423 million as ofDecember 31, 2022 compared to$1,192 million as ofDecember 31, 2021 and$987 million as ofDecember 31, 2020 . The increase in claims paying resources was driven primarily by the Fidus Re 2022 and 2021 Agreements 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 on a statutory basis as ofDecember 31, 2022 , 2021 and 2020: December 31, Millions December 31, 2022 December 31, 2021 2020 Policyholders' surplus $ 283.4 $ 298.1$ 324.7 Contingency reserve 118.2 101.8 86.4 Qualified statutory capital 401.6 399.9 411.1 Net unearned premiums 55.3 49.5 45.2
Present value of future installment
premiums and MSC 13.3 13.8 14.0
HG Re Collateral Trusts 553.1 478.9 417.0
Fidus Re collateral trust 400.0 250.0 100.0
Claims paying resources $ 1,423.3 $ 1,192.1 $ 987.3
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, 2022 and 2021: December 31, 2022 Eliminations and Millions HG Global BAM Segment Adjustment Total Segment Assets Fixed maturity investments$ 489.6 $ 420.3 $ -$ 909.9 Short-term investments 42.0 23.9 - 65.9 Total investments 531.6 444.2 - 975.8 Cash 13.2 5.0 - 18.2 BAM Surplus Notes 340.0 - (340.0) - Accrued interest receivable on BAM Surplus Notes 157.9 - (157.9) - Insurance premiums receivable 4.3 6.6 (4.3) 6.6 Deferred acquisition costs 71.2 36.0 (71.2) 36.0 Other assets 7.0 15.1 (.2) 21.9 Total assets$ 1,125.2 $ 506.9 $ (573.6)$ 1,058.5 Liabilities BAM Surplus Notes (1) $ -$ 340.0 $ (340.0) $ -
Accrued interest payable on
BAM Surplus Notes (2) - 157.9 (157.9) -
Preferred dividends payable
to
subsidiaries (3) 341.4 - - 341.4
Preferred dividends payable
to non-controlling interests 12.5 - - 12.5 Unearned insurance premiums 249.8 48.5 - 298.3 Debt 146.5 - - 146.5 Intercompany debt (4) 6.0 - - 6.0 Accrued incentive compensation 1.3 26.7 - 28.0 Other liabilities 3.7 88.5 (75.7) 16.5 Total liabilities 761.2 661.6 (573.6) 849.2 Equity
shareholders' equity (3) 364.6 - - 364.6 Non-controlling interests (.6) (154.7) - (155.3) Total equity 364.0 (154.7) - 209.3 Total liabilities and equity$ 1,125.2 $ 506.9 $
(573.6)
(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 Other Operations, and therefore are added back toWhite Mountains's common shareholders' equity within the HG Global/BAM segment. (4) HG Global's intercompany debt is eliminated inWhite Mountains's consolidated financial statements. 49 -------------------------------------------------------------------------------- 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 Other Operations, and therefore are added back toWhite Mountains's common shareholders' equity within the HG Global/BAM segment. 50 --------------------------------------------------------------------------------
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, specialty, marine & energy, casualty and accident & health. 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, 2022 and 2021: Year Ended December 31, Millions 2021 2020 Earned insurance and reinsurance premiums $ 1,043.4 $ 637.3 Net investment income 16.3 2.9 Net realized and unrealized investment gains (losses) (55.2) 16.5 Other revenues 5.0 11.8 Total revenues 1,009.5 668.5 Losses and LAE 536.4 314.8 Insurance and reinsurance acquisition expenses 239.4 178.0 General and administrative expenses - other underwriting 78.7 64.6 General and administrative expenses - all other 44.8 50.9 Interest expense 15.1 7.3 Total expenses 914.4 615.6 Pre-tax income (loss) $ 95.1 $ 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 open year of account is 43% 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. Ark Results-Year EndedDecember 31, 2022 versus Year EndedDecember 31, 2021 Ark reported gross written premiums of$1,452 million , net written premiums of$1,195 million and net earned premiums of$1,043 million in 2022 compared to gross written premiums of$1,059 million , net written premiums of$859 million and net earned premiums of$637 million in 2021. Premium growth at Ark has been supported by favorable market conditions across most classes with general inflationary concerns and market capacity constraints, along with the ongoing conflict inUkraine driving positive rate momentum. Ark reported pre-tax income of$95 million in 2022 compared to$53 million in 2021. Ark's pre-tax income for 2022 included$(55) million of net realized and unrealized investment losses, driven primarily by net unrealized losses on fixed income securities and the impact of foreign currency on its investment portfolio, compared to$17 million of net realized and unrealized investment gains in 2021. 51 -------------------------------------------------------------------------------- Ark's GAAP combined ratio was 82% in 2022 compared to 87% in 2021. The GAAP combined ratio for 2022 included 13 points of catastrophe losses, driven primarily by the events inUkraine and Hurricane Ian, compared to 10 points of catastrophe losses in 2021, driven primarily by Hurricane Ida, Winter Storm Uri and European floods. Catastrophe losses for 2022 included$45 million related to events in theUkraine and$44 million related to Hurricane Ian on a net basis after reinstatement premiums. The GAAP combined ratio for 2022 included five points of favorable prior year loss reserve development, driven primarily by the property and accident & health, specialty and marine & energy reserving lines of business, predominantly from business underwritten inLondon . This compared to three points of favorable prior year loss reserve development in 2021, driven primarily by the property and accident & health reserving line of business. Ark's adjusted combined ratio, which adds back amounts attributable to TPC Providers, was 81% in 2022 compared to 85% in 2021. The adjusted combined ratio for 2022 included 13 points of catastrophe losses compared to 10 points of catastrophe losses in 2021. The adjusted combined ratio for 2022 included seven points of favorable prior year loss reserve development compared to six points of favorable prior year loss reserve development in 2021. The underlying drivers of year-over-year changes were the same as those impacting the GAAP combined ratio. The following tables present 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, 2022 and 2021: Year Ended December 31, 2022 TPC Providers' Share $ in Millions GAAP (1) Adjusted Insurance premiums: Gross written premiums$ 1,452.0 $ -$ 1,452.0 Net written premiums$ 1,195.2 $ 2.5$ 1,197.7 Net earned premiums$ 1,043.4 $ 10.7$ 1,054.1 Insurance expenses: Loss and loss adjustment expenses$ 536.4 $ (5.7)$ 530.7 Insurance acquisition expenses 239.4 - 239.4 Other underwriting expenses 78.7 3.2 81.9 Total insurance expenses$ 854.5 $ (2.5)$ 852.0 Ratios: Loss and loss adjustment expense 51.4 % 50.3 % Insurance acquisition expense 22.9 % 22.7 % Other underwriting expense 7.5 % 7.8 % Combined Ratio 81.8 % 80.8 %
(1) See "NON-GAAP FINANCIAL MEASURES" on page 69 .
52 --------------------------------------------------------------------------------
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 69 .
Gross Written Premiums The following table presents Ark's gross written premiums by line of business for the years endedDecember 31, 2022 , 2021 and 2020, which includes the period prior toWhite Mountains's ownership of Ark.White Mountains believes this information is useful in understanding the underwriting growth in the business. Gross written premiums increased 37% to$1,452 million in 2022 compared to 2021, with risk adjusted rate change of 9%. In 2022 and 2021, in response to an improved underwriting environment, Ark substantially increased its gross written premiums, principally in the property, specialty and marine & energy lines of business. Year Ended December 31, Millions 2022 2021 2020 Property$ 605.0 $ 438.4 $ 235.7 Specialty 380.1 256.7 118.3 Marine & Energy 315.1 242.2 129.1 Casualty 85.4 54.4 24.4 Accident & Health 66.4 67.0 90.6 Total Gross Written Premium$ 1,452.0 $ 1,058.7 $ 598.1 53
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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, 2022 , Kudu has deployed a total of$713 million , including transaction costs, in 20 asset and wealth management firms globally, including two that have been exited. As ofDecember 31, 2022 , the asset and wealth management firms have combined assets under management of approximately$74 billion , spanning a range of asset classes, including real estate, wealth management, hedge funds, private equity and alternative credit strategies. Kudu's capital was deployed at an average gross cash yield at inception of 9.9%. As a result of the Kudu Transaction,White Mountains's basic ownership of Kudu decreased from 99.1% to 89.3%. See Note 2 - "Significant Transactions." The following table presents the components of GAAP net income, EBITDA and adjusted EBITDA included inWhite Mountains's Kudu segment for the years endedDecember 31, 2022 , 2021 and 2020: Year Ended December 31, Millions 2022 2021 2020 Net investment income$ 54.4 $ 43.9 $ 29.5 Net realized and unrealized investment gains (losses) 64.1 89.9 15.9 Other revenues - .2 .3 Total revenues 118.5 134.0 45.7 General and administrative expenses 14.4 14.5 11.8 Amortization of other intangible assets .3 .3 .3 Interest expense 15.0 11.7 6.0 Total expenses 29.7 26.5 18.1 GAAP pre-tax income (loss)$ 88.8 $ 107.5 $ 27.6 Income tax (expense) benefit (26.9) (29.5) (7.0) GAAP net income (loss) 61.9 78.0 20.6 Add back: Interest expense 15.0 11.7 6.0 Income tax expense (benefit) 26.9 29.5 7.0 General and administrative expenses - depreciation .1 - - Amortization of other intangible assets .3 .3 .3 EBITDA (1) 104.2 119.5 33.9
Exclude:
Net realized and unrealized investment (gains) losses (64.1) (89.9) (15.9) Non-cash equity-based compensation expense .2 1.2 .4 Transaction expenses 1.5 2.0 3.7 Adjusted EBITDA (1) $ 41.8 $ 32.8 $ 22.1
(1) See "NON-GAAP FINANCIAL MEASURES" on page 69 .
The following table presents the changes in Kudu's Participation Contracts:
December 31,
Millions 2022 2021
Beginning balance of Kudu's Participation Contracts $
669.5
Contributions to participation contracts 99.8 223.4 Proceeds from participation contracts sold (137.5) (44.4) Net realized and unrealized investment gains on participation contracts sold and pending sale (1) 53.2 29.5
Net unrealized investment gains (losses) on participation
contracts - all other (2)
10.9 60.4 Ending balance of Kudu's Participation Contracts $
695.9
(1) Includes realized and unrealized investment gains (losses) recognized from
participation contracts beginning in the quarter a contract is classified as
pending sale.
(2) Includes unrealized investment gains (losses) recognized from (i) ongoing
participation contracts and (ii) participation contracts prior to classification
as pending sale.
54
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Kudu Results - Year Ended December 31, 2022 versus Year Ended December 31, 2021
Kudu reported total revenues of $119 million , pre-tax income of $89 million and
adjusted EBITDA of $42 million for the year ended December 31, 2022 compared to
total revenues of $134 million , pre-tax income of $108 million and adjusted
EBITDA of $33 million for the year ended December 31, 2021 . Total revenues and
pre-tax income included $67 million of realized investment gains, partially
offset by $3 million of net unrealized investment losses, on Kudu's
Participation Contracts in 2022 compared to $22 million of realized investment
gains and $68 million of net unrealized investment gains on Kudu's Participation
Contracts in 2021. Realized investment gains on Kudu's Participation Contracts
were driven by two sales transactions in 2022 and one sales transaction in 2021.
The net unrealized investment losses on Kudu's Participation Contracts for the
year ended December 31, 2022 were driven primarily by declines in assets under
management at several managers with public equity exposure, an increase in
discount rates as a result of the rising interest rate environment and foreign
exchange losses, partially offset by an increase in the fair value of two
Participation Contracts with pending sales transactions. Total revenues, pre-tax
income, and adjusted EBITDA for the year ended 2022 also included $54 million of
net investment income compared to $44 million for the year ended 2021. The
increase in net investment income was driven primarily by amounts earned from
$310 million (including $2.9 million of transaction costs) in new deployments
that Kudu made during 2022 and 2021. The two sales transactions in 2022 will
negatively impact net investment income in the near-term until proceeds are
redeployed.
Kudu Results-Year Ended December 31, 2021 versus Year ended December 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 included $22 million of realized
investment gains and $68 million of net unrealized investment gains on Kudu's
Participation Contracts in 2021 compared to $16 million of net unrealized
investment gains on Kudu's Participation Contracts in 2020. Realized investment
gains on Kudu's Participation Contracts were driven by one sales transaction in
2021. The increase in net unrealized investment gains on Kudu's Participation
Contracts was driven primarily by asset growth and the performance of Kudu's
underlying asset management businesses. 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 during 2021 and 2020.
Other Operations
The following table presents
Operations for the years ended
Year Ended December 31,
Millions 2022 2021 2020
Net investment income $ 32.2 $ 18.2 $ 82.0
Net realized and unrealized investment gains (losses) (1.6) 50.7 (8.8)
Net realized and unrealized investment gains (losses) from
investment in MediaAlpha (93.0) (380.3) 686.0
Commission revenues 11.5 9.6 8.3
Other revenues 127.2 90.7 13.9
Total revenues 76.3 (211.1) 781.4
Cost of sales 98.6 69.3 11.3
General and administrative expenses 169.2 105.4 139.3
Amortization of other intangible assets 4.9 4.3 1.3
Interest expense 1.9 1.5 1.4
Total expenses 274.6 180.5 153.3
Pre-tax income (loss) $ (198.3) $ (391.6) $ 628.1
55
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Other Operations Results-Year Ended
White Mountains's Other Operations reported pre-tax loss of$198 million in 2022 compared to$392 million in 2021.White Mountains's Other Operations reported net realized and unrealized investment losses from its investment in MediaAlpha of$93 million in 2022 compared to$380 million in 2021.White Mountains's Other Operations reported net realized and unrealized investment gains (losses) of$(2) million in 2022 compared to$51 million in 2021.White Mountains's Other Operations reported net investment income of$32 million in 2022 compared to$18 million in 2021. See "Summary of Investment Results" on page 57 . The increase in net investment income in 2022 was driven primarily by the increase in the invested assets resulting from the NSM Transaction.White Mountains's Other Operations reported$127 million of other revenues in 2022 compared to$91 million in 2021.White Mountains's Other Operations reported$99 million of cost of sales in 2022 compared to$69 million in 2021. The increases in other revenues and cost of sales were driven primarily by a business acquired within Other Operations in 2021.White Mountains's Other Operations reported general and administrative expenses of$169 million in 2022 compared to$105 million in 2021. The increase in general and administrative expenses was driven primarily by higher incentive compensation costs and advisory fees, primarily in connection with the NSM Transaction Share repurchases In the year endedDecember 31, 2022 ,White Mountains repurchased and retired 461,256 of its common shares for$616 million at an average price of$1,335.11 . The majority of these shares were repurchased through a self-tender offer thatWhite Mountains completed onSeptember 26, 2022 , through which it repurchased 327,795 of its common shares at a purchase price of$1,400 per share for a total cost of approximately$461 million , including expenses. Other Operations Results-Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 White Mountains's Other Operations reported pre-tax income (loss) of$(392) million in 2021 compared to$628 million in 2020.White Mountains's Other Operations reported net realized and unrealized investment gains (losses) from its investment in MediaAlpha of$(380) million in 2021 compared to$686 million in 2020.White Mountains's Other Operations reported net realized and unrealized investment gains (losses) of$51 million in 2021 compared to$(9) million in 2020.White Mountains's Other Operations 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 at MediaAlpha. See "Summary of Investment Results" on page 57 .White Mountains's Other Operations reported$91 million of other revenues in 2021 compared to$14 million in 2020.White Mountains's Other Operations 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 a business acquired within Other Operations in 2021.White Mountains's Other Operations reported general and administrative expenses of$105 million in 2021 compared to$139 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 at an average share price of$1,091.29 . 56 --------------------------------------------------------------------------------
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 on a pre-tax basis, gross of management fees and trading expenses, and 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 in MediaAlpha was presented within other long-term investments. Following the MediaAlpha IPO,White Mountains presents its investment in MediaAlpha 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 investment returns forWhite Mountains's consolidated portfolio for the years endedDecember 31, 2022 , 2021 and 2020: Year Ended December 31, 2022 2021 2020 Fixed income investments (4.8) % (0.4) % 4.9 % Bloomberg BarclaysU.S. Intermediate Aggregate Index (9.5) % (1.3) % 5.6 % Common equity securities (1.0) % 11.0 % 3.6 % Investment in MediaAlpha (35.6) % (60.1) % 520.3 % Other long-term investments 10.5 % 20.7 % 2.5 % Total common equity securities, investment in MediaAlpha and other long-term investments 2.3 % (7.1) % 80.0 % Total common equity securities and other long-term investments 8.1 % 19.3 % 4.9 % S&P 500 Index (total return) (18.1) % 28.7 % 18.4 % Total consolidated portfolio (1.6) % (3.4) % 31.9 % Total consolidated portfolio - excluding MediaAlpha 0.3 % 6.4 % 4.6 % Investment Returns-Year EndedDecember 31, 2022 versus Year EndedDecember 31, 2021 White Mountains's total consolidated portfolio return on invested assets was -1.6% in 2022. This return included$93 million of net unrealized investment losses fromWhite Mountains's investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by favorable other long-term investments results, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.White Mountains's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by favorable other long-term investment results. Fixed Income ResultsWhite Mountains's fixed income portfolio, including short-term investments, was$2.8 billion and$2.4 billion as ofDecember 31, 2022 and 2021, which represented 55% and 56% of total invested assets. See Note 3 - "Investment Securities ". The increase was driven primarily by the receipt of cash proceeds from the NSM Transaction, partially offset by outflows relating toWhite Mountains's self-tender offer in the third quarter of 2022. The duration ofWhite Mountains's fixed income portfolio, including short-term investments, was 2.3 years and 2.6 years as ofDecember 31, 2022 and 2021.White Mountains's fixed income portfolio includes fixed maturity and short-term investments held on deposit or as collateral. See Note 3 - "Investment Securities ".White Mountains's fixed income portfolio returned -4.8% in 2022 compared to -0.4% in 2021, outperforming the Bloomberg BarclaysU.S. Intermediate Aggregate Index returns of -9.5% and -1.3% for the comparable periods. The results in both 2022 and 2021 were driven primarily by the short duration positioning ofWhite Mountains's fixed income portfolio as interest rates increased in each period. 57 --------------------------------------------------------------------------------Common Equity Securities , Investment in MediaAlpha and Other Long-Term Investments ResultsWhite Mountains's portfolio of common equity securities, its investment in MediaAlpha and other long-term investments was$2.3 billion and$1.9 billion as ofDecember 31, 2022 and 2021, which represented 45% and 44% of total invested assets. See Note 3 - "Investment Securities ". The increase was driven primarily by an increase inWhite Mountains's common equity exposure, as a portion of the cash proceeds from the NSM Transaction was invested in ETFs, additional investments in international listed common equity funds at Ark, and an increase in the fair value of Kudu's Participation Contracts, partially offset by a decline in the fair value ofWhite Mountains's investment in MediaAlpha.White Mountains's portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned 2.3% in 2022, which included$93 million of net unrealized investment losses from MediaAlpha.White Mountains's portfolio of common equity securities and other long-term investments returned 8.1% in 2022.White Mountains's portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned -7.1% in 2021, which included$380 million of net realized and unrealized investment losses from MediaAlpha.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 consists of passive ETFs that seek to provide investment results that generally correspond to the performance of the S&P 500 Index and international listed common equity funds.White Mountains's portfolio of common equity securities was$668 million and$251 million as ofDecember 31, 2022 and 2021.White Mountains's portfolio of common equity securities returned -1.0% in 2022 compared to 11.0% in 2021, outperforming and underperforming the S&P 500 Index returns of -18.1% and 28.7% for the comparable periods. The results for 2022 and 2021 were driven primarily by relative outperformance and underperformance inWhite Mountains's international listed common equity funds 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, private equity funds and hedge funds, a bank loan fund, Lloyd's trust deposits, ILS funds and private debt instruments.White Mountains's portfolio of other long-term investments was$1.5 billion and$1.4 billion as ofDecember 31, 2022 and 2021.White Mountains's other long-term investments portfolio returned 10.5% in 2022 compared to 20.7% in 2021. Investment returns for 2022 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu's Participation Contracts, net investment income and net realized and unrealized investment gains from private equity funds, and an increase in the fair value ofWhite Mountains's investment in PassportCard/DavidShield, partially offset by unrealized losses from foreign currency. Investment returns for 2021 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu's Participation Contracts, net investment income and net realized and unrealized investment gains from private equity funds, and an increase in the fair value ofWhite Mountains's investment in PassportCard/DavidShield. Investment Returns-Year EndedDecember 31, 2021 versus Year EndedDecember 31, 2020 White Mountains's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by favorable other long-term investments results.White Mountains's 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 in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 4.6% in 2020. Excluding MediaAlpha, 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. See Note 3 - "Investment Securities ". 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 and short-term investments held on deposit or as collateral. See Note 3 - "Investment Securities ".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. 58 --------------------------------------------------------------------------------Common Equity Securities , Investment in MediaAlpha and Other Long-Term Investments ResultsWhite Mountains's portfolio of common equity securities, its investment in MediaAlpha 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 increase was driven primarily by the inclusion of Ark's invested assets as a result of the Ark Transaction, an increase in the fair value of Kudu's Participation Contracts, 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 in MediaAlpha.White Mountains's portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned -7.1% in 2021, which included$380 million of net realized and unrealized investment losses from MediaAlpha.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 in MediaAlpha 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 MediaAlpha.White Mountains's portfolio of common equity securities and other long-term investments returned 4.9% in 2020. In 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 consisted of international listed common equity 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 international listed common equity funds 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 portfolio versus the S&P 500 Index prior to the liquidation of these positions. 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's portfolio of ETFs was fully liquidated in the fourth quarter of 2020.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'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 net investment income and net realized and unrealized investment gains from Kudu's Participation Contracts, net investment income and net realized and unrealized investment gains from private equity funds, and an increase in the fair value ofWhite Mountains's investment in PassportCard/DavidShield. Investment returns for 2020 were driven primarily by net investment income and net unrealized gains from Kudu's Participation Contracts, partially offset by a decrease in the fair value ofWhite Mountains's investment in PassportCard/DavidShield, and net unrealized investment losses from hedge funds and private debt instruments. 59 --------------------------------------------------------------------------------
Portfolio Composition
The following table presents the composition of
investment portfolio as of
December 31, 2022 December 31, 2021
$ in Millions Carrying Value % of Total Carrying Value % of Total
Fixed maturity investments $ 1,920.9 37.2 % $ 1,908.9 44.8 %
Short-term investments 924.1 17.9 465.9 10.9
Common equity securities 668.4 12.9 251.1 5.9
Investment in MediaAlpha 168.6 3.3 261.6 6.1
Other long-term investments 1,488.0 28.7 1,377.8 32.3
Total investments $ 5,170.0 100.0 % $ 4,265.3 100.0 %
The following table presents the breakdown of White Mountains's fixed maturity
investments as of December 31, 2022 by credit class, based upon issuer credit
ratings provided by Standard & Poor's , or if unrated by Standard & Poor's ,
long-term obligation ratings provided by Moody's:
December 31,
2022
$ in Millions Amortized Cost % of Total
Carrying Value % of Total
government-sponsored entities
(1) $ 481.8 23.2 % $ 438.0 22.8 % AAA/Aaa 179.0 8.6 171.0 8.9 AA/Aa 385.8 18.6 358.1 18.6 A/A 656.7 31.6 610.2 31.8 BBB/Baa 364.4 17.6 337.7 17.6 Other/not rated 8.3 0.4 5.9 0.3 Total fixed maturity investments$ 2,076.0 100.0 %$ 1,920.9 100.0 % (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, 2022 . 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, 2022 Cost or Amortized Carrying Millions Cost Value Due in one year or less $ 204.8$ 201.2 Due after one year through five years
914.0 853.2
Due after five years through ten years
374.4 337.4
Due after ten years 103.3 92.0
Mortgage and asset-backed securities and
collateralized loan
obligations
479.5 437.1
Total fixed maturity investments $
2,076.0
60 --------------------------------------------------------------------------------
The following table presents the composition of
long-term investments portfolio as of
December 31, 2022 December 31, 2021
Carrying Carrying
$ in Millions Value % of Total
Value % of Total
Kudu Participation Contracts$ 695.9 46.8 %$ 669.5 48.6 % PassportCard/DavidShield 135.0 9.1 120.0 8.7 Elementum Holdings L.P. 30.0 2.0 45.0 3.3 Other unconsolidated entities 37.2 2.5 34.4 2.5 Total unconsolidated entities 898.1
868.9
Private equity funds and hedge funds 197.8 13.3 153.8 11.2 Bank loan fund 174.8 11.8 163.0 11.8 Lloyd's trust deposits 137.4 9.2 113.8 8.3 ILS funds 49.3 3.3 51.9 3.8 Private debt instruments 9.6 0.6 14.1 1.0 Other 21.0 1.4 12.3 0.8
Total other long-term investments
Foreign Currency Exposure As ofDecember 31, 2022 ,White Mountains had foreign currency exposure on$202 million of net assets primarily related to Ark's non-U.S. business, 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 (liabilities) by segment as ofDecember 31, 2022 : Currency Total Fair % of Total $ in Millions Ark Kudu Other Operations Value Shareholders' Equity CAD$ 61.1 $ 74.8 $ -$ 135.9 3.5 % GBP 51.3 - - 51.3 1.3 AUD 7.6 36.8 - 44.41.1 EUR (43.0) - 12.4 (30.6) (.8) All other - - 1.4 1.4 - Total$ 77.0 $ 111.6 $ 13.8$ 202.4 5.1 % 61
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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, 2022 , the primary jurisdictions in which the Company's subsidiaries and branches were subject to tax areIreland ,Israel , Luxembourg, theUnited Kingdom andthe United States . TheOECD has proposed a global minimum tax of 15% of reported profits ("Pillar 2") that has been agreed upon by over 140 countries includingthe United States . OnDecember 15, 2022 ,European Union Member States voted to adopt the European Union Minimum Tax Directive (the "Directive") in conformity with Pillar 2. The Directive requiresEuropean Union Member States to enact conforming rules into domestic law byDecember 31, 2023 . The main rule of the Directive, the Income Inclusion Rule, will become effective on or afterDecember 31, 2023 with the backstop rule, the Undertaxed Profits Rule, becoming effective on or afterDecember 31, 2024 . Other countries, including theUnited Kingdom , have also stated their intention to enact Pillar 2 legislation in 2023. The timing and impact of these rules on the Company remain uncertain. OnAugust 16, 2022 , theU.S. enacted the Inflation Reduction Act (the "IRA").White Mountains has evaluated the tax provisions of the IRA, the most significant of which relate to the corporate alternative minimum tax and the tax on share repurchases, and does not expect the legislation to have a material impact on its results of operations.White Mountains reported income tax expense of$41 million in 2022 on pre-tax loss from continuing operations of$149 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 Other Operations and BAM), withholding taxes and state income taxes.White Mountains reported income tax expense of$44 million in 2021 on pre-tax loss from continuing operations of$274 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 Other Operations 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$15 million in 2020 on pre-tax income from continuing operations of$660 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,$40 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 Other Operations. IV. Discontinued Operations NSM OnAugust 1, 2022 ,White Mountains closed the NSM Transaction.White Mountains received$1.4 billion in net cash proceeds at closing and recognized a net gain of$876 million in the third quarter of 2022, which was comprised of$887 million of net gain from sale of discontinued operations and$3 million of comprehensive income related to the recognition of foreign currency translation gain (loss) from the sale, partially offset by$14 million of compensation and other costs related to the transaction recorded in Other Operations. See Note 2 - "Significant Transactions" on page F- 17 .White Mountains reported net income from discontinued operations, net of tax, forNSM Group of$16 million for the period fromJanuary 1, 2022 toAugust 1, 2022 .White Mountains reported net loss from discontinued operations, net of tax, forNSM Group of$23 million and$10 million for the years endedDecember 31, 2021 and 2020. The net loss from discontinued operations, net of tax, forNSM Group for the year endedDecember 31, 2021 included a loss of$29 million related to the sale of a subsidiary. See Note 21 - "Held for Sale and Discontinued Operations" on page F- 68 . 62 --------------------------------------------------------------------------------
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 in 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- 68 .
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 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 debt obligations, distributions 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 at both a holding company and insurance, reinsurance and other operating subsidiary level.
Dividend Capacity
Following is a description of the dividend capacity of
insurance and reinsurance and other operating subsidiaries:
HG Global/BAM As ofDecember 31, 2022 , 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. As ofDecember 31, 2022 , HG Global had accrued$354 million of dividends payable to holders of its preferred shares,$341 million of which is payable toWhite Mountains and eliminated in consolidation. 63 -------------------------------------------------------------------------------- OnApril 29, 2022 , HG Global received the proceeds of its new$150 million , 10-year term loan credit facility. In turn, onMay 2, 2022 , HG Global paid a$120 million cash dividend to shareholders, of which$116 million was paid toWhite Mountains . As ofDecember 31, 2022 , HG Global and its subsidiaries had$3 million of net unrestricted 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, 2022 , HG Re had$9 million of net unrestricted cash and investments and$112 million of accrued interest on the BAM Surplus Notes held outside the Collateral Trusts. As ofDecember 31, 2022 , HG Re had$731 million of statutory capital and surplus and$857 million of assets held in the Collateral Trusts. On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to HG Re's unearned premiums and unpaid loss and LAE reserves, 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, theSupplemental Trust balance exceeds the Supplemental Trust Target Balance, such excess may be distributed to HG Re.
The
distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities. As the BAM Surplus Notes are repaid over time, the BAM Surplus Notes will be replaced in theSupplemental Trust by cash and fixed income securities.The Supplemental Trust balance as ofDecember 31, 2022 and 2021 was$568 million and$602 million . As ofDecember 31, 2022 , the Collateral Trusts held assets of$857 million , which included$503 million of cash and investments,$340 million of BAM Surplus Notes and$14 million of interest receivable on the BAM Surplus Notes. 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 2023, the interest rate on the BAM Surplus Notes will be 7.7%. Beginning in 2025, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest 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 2022 , BAM made a$36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment,$25 million was a repayment of principal held in theSupplemental Trust ,$1 million was a payment of accrued interest 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 of up to 15% of its total statutory capital per the previous year's statutory financial statements, or (ii) make dividend payments of up to 25% of its total statutory capital and surplus per the previous year's statutory financial statements, without prior approval ofBermuda regulatory authorities. Accordingly, GAIL will have the ability to make capital distributions of up to$113 million during 2023, which is equal to 15% of itsDecember 31, 2022 statutory capital of$755 million , subject to meeting all appropriate liquidity and solvency requirements and the filing of itsDecember 31, 2022 statutory financial statements. During 2022, GAIL did not pay a dividend to its immediate parent. During 2022, Ark paid$21 million of dividends to shareholders,$15 million of which was paid toWhite Mountains . As ofDecember 31, 2022 , Ark and its intermediate holding companies had$11 million of net unrestricted cash, short-term investments and fixed maturity investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries.
Kudu
During 2022, Kudu distributed$110 million to unitholders,$100 million of which was paid toWhite Mountains . As ofDecember 31, 2022 , Kudu had$89 million of net unrestricted cash. Other Operations During 2022,White Mountains paid a$3 million common share dividend. As ofDecember 31, 2022 , the Company and its intermediate holding companies had$706 million of net unrestricted cash, short-term investments and fixed maturity investments,$169 million of MediaAlpha common stock,$334 million of common equity securities and$244 million of private equity and hedge funds, ILS funds and unconsolidated entities. 64 --------------------------------------------------------------------------------
Financing
The following table summarizesWhite Mountains's capital structure as ofDecember 31, 2022 and 2021: December 31, $ in Millions 2022 2021 HG Global Senior Notes (1)$ 146.5 $ - Ark 2007 Subordinated Notes (1) 30.0
30.0
Ark 2021 Subordinated Notes (1)(2) 153.7 155.9 Kudu Credit Facility (1)(2) 208.3 218.2 Other Operations debt (1)(2) 36.7 16.8 Total debt from continuing operations 575.2
420.9
Debt from discontinued operations (2) (3) -
272.1
Total debt 575.2
693.0
Non-controlling interests - excluding BAM 342.8
280.6
Total White Mountains's common shareholders' equity 3,746.9
3,548.1
Total capital 4,664.9
4,521.7
Time-value discount on expected future payments on the BAM
Surplus Notes (4)
(95.1)
(125.9)
HG Global's unearned premium reserve (4) 242.1
214.6
HG Global's net deferred acquisition costs (4) (69.0)
(60.8)
Total adjusted capital$ 4,742.9
Total debt to total adjusted capital 12.1
% 15.2 %
(1)See Note 7 - "Debt" for details of debt arrangements. (2) Net of unamortized issuance costs. (3) The NSM bank facility with Ares Capital Corporation and the other NSM debt was settled in conjunction with the closing of the NSM Transaction and was classified as held for sale as ofDecember 31, 2021 . (4) 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 and its subsidiaries' 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 its debt instruments.
65 --------------------------------------------------------------------------------
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) $ 334.0 $ 624.8 $ 207.4 $ 130.3 $ 1,296.5
Debt 5.4 12.6 30.7 542.2 590.9
Interest on debt 46.0 91.2 89.0 215.5 441.7
Long-term incentive compensation 38.7 70.0 - - 108.7
Contingent consideration (2) 45.3 1.6 - - 46.9
Operating leases (3) 8.7 12.7 4.4 3.9 29.7
Total contractual obligations and
commitments $ 478.1 $ 812.9
(1) Represents expected future cash outflows resulting from loss and LAE payments. The amounts presented are gross of reinsurance recoverables on unpaid losses of$505.0 as ofDecember 31, 2022 . (2) The contingent consideration liabilities are primarily related toWhite Mountains's acquisition of Ark. See Note 2 - "Significant Transactions" on page F- 17 . (3) Includes amounts related to BAM's operating leases of$2.2 ,$3.6 and$0.6 that are due in less than one year, two to three years, and four to 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, 2022 . There are no provisions withinWhite Mountains's operating lease 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$102 million as ofDecember 31, 2022 , do not have fixed funding dates and, are therefore, excluded from the table above.
Share Repurchase Programs
White Mountains's board of directors has authorized the Company to repurchase its common shares from time to time, subject to market conditions. The repurchase authorizations do not have a stated expiration date. As ofDecember 31, 2022 ,White Mountains may repurchase an additional 320,550 shares under these board authorizations. In addition, from time to timeWhite Mountains has also repurchased its common shares through tender offers that were separately approved by its board of directors. The following table presents common shares repurchased by the Company as well as the average price per share as a percent ofDecember 31, 2022 GAAP book value per share, adjusted book value per share and market value per share. Average Price Per Average Price Per Average Price Per Share as % of Share as % of Share as % of Average December 31, 2022 December 31, 2022 December 31, 2022 Shares Cost Price GAAP Book Adjusted Book Market Value Year Ended Repurchased (Millions) Per Share Value Per Share Value Per Share Per Share
December 31, 2022 461,256$ 615.8 $ 1,335.11 92% 89% 94% December 31, 2021 98,511$ 107.5 $ 1,091.29 75% 73% 77% . . December 31, 2020 99,087$ 85.1 $ 858.81 59% 57% 61% 66
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Cash Flows
Detailed information concerning
operations during 2022, 2021 and 2020 follows:
Cash flows from operations for the years ended 2022, 2021 and 2020
Net cash flows provided from (used for) operations was$326 million ,$(4) million and$(96) million for the years endedDecember 31, 2022 , 2021 and 2020. Cash provided from (used for) operations was higher in 2022 compared to 2021, driven primarily by the cash inflow from Ark's operations and the proceeds from Kudu's Participation Contracts sold. Cash used for operations was lower in 2021 compared to 2020, driven primarily by the cash inflow from Ark's operations, partially offset by the contributions to Kudu's Participation Contracts and Ark's transaction expenses.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, 2022 , the Company and its intermediate holding companies had$706 million of net unrestricted cash, short-term investments and fixed maturity investments,$169 million of MediaAlpha common stock,$334 million of common equity securities and$244 million of private equity funds and hedge funds, ILS funds and unconsolidated entities.
Cash flows from investing and financing activities for the year ended
31, 2022
Financing and Other Capital Activities During 2022, the Company declared and paid a$3 million cash dividend to its common shareholders. During 2022,White Mountains repurchased and retired 461,256 of its common shares for$616 million . The majority of these shares were repurchased through a self-tender offer thatWhite Mountains completed onSeptember 26, 2022 , through which it repurchased 327,795 of its common shares at a purchase price of$1,400 per share for a total cost of approximately$461 million , including expenses. Of the sharesWhite Mountains repurchased in 2022, 4,011 were to satisfy employee income tax withholding pursuant to employee benefit plans. During 2022, HG Global received net proceeds of$147 million from the issuance of the HG Global Senior Notes. During 2022, BAM received$81 million in MSC. During 2022, BAM repaid$25 million of principal and paid$11 million of accrued interest on the BAM Surplus Notes. During 2022, Kudu borrowed$35 million and repaid$45 million in term loans under the Kudu Credit Facility. Acquisitions and Dispositions OnMay 26, 2022 , Kudu raised$115 million of equity capital from the Kudu Transaction. Mass Mutual,White Mountains and Kudu management contributed$64 million ,$50 million and$1 million in the Kudu Transaction, respectively. OnAugust 1, 2022 ,White Mountains closed the previously announced NSM Transaction.White Mountains received$1.4 billion in net cash proceeds at closing. OnDecember 20, 2022 ,Outrigger Re Ltd. issued non-voting redeemable preference shares on behalf of four segregated accounts toWhite Mountains and other unrelated third party investors.White Mountains purchased 100% of the preference shares issued by its segregated account, WM Outrigger Re, for$205 million . 67 --------------------------------------------------------------------------------
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, 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 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 .
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, Kudu borrowed$32 million in term loans under theKudu Bank Facility. During 2020,White Mountains's Other Operations made no borrowings and repaid$2 million in term loans under its credit facilities. Acquisitions and Dispositions 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 at MediaAlpha, 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.
TRANSACTIONS WITH RELATED PERSONS
68 --------------------------------------------------------------------------------
NON-GAAP FINANCIAL MEASURES
This report includes ten 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$98 million ,$130 million and$147 million less than the nominal GAAP carrying values as ofDecember 31, 2022 , 2021 and 2020, respectively. The value of HG Global's unearned premium reserve, net of deferred acquisition costs, was$179 million ,$159 million and$142 million as ofDecember 31, 2022 , 2021 and 2020, 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 41 . Growth in adjusted book value per share excluding MediaAlpha The growth in adjusted book value per share excluding net realized and unrealized investment losses fromWhite Mountains's investment in MediaAlpha on page 41 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 in MediaAlpha's share price. A reconciliation from GAAP to the reported percentages is as follows: Year Ended December 31, 2021 Growth in GAAP book value per share (6.5)%
Adjustments to book value per share (see reconciliation on page
41 ) 0.8%
Remove net realized and unrealized investment losses from
White Mountains's investment in MediaAlpha 10.0%
Growth in adjusted book value per share excluding net realized and
unrealized investment losses fromWhite Mountains's investment in MediaAlpha 4.3% Ark's adjusted loss and loss adjustment expense ratio, adjusted insurance acquisition expense ratio, adjusted other underwriting expense ratio and adjusted combined ratio 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 . 69 -------------------------------------------------------------------------------- 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 net 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
54 .
Total consolidated portfolio return excluding MediaAlpha Total consolidated portfolio return excluding MediaAlpha is a non-GAAP financial measure that removes the net investment income and net realized and unrealized investment gains (losses) fromWhite Mountains's investment in MediaAlpha.White Mountains believes this measure to be useful to management and investors by showing the underlying performance ofWhite Mountains's investment portfolio without regard to MediaAlpha. The following table presents return reconciliations from GAAP to the reported percentages: For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 Returns - Returns - Excluding Excluding GAAP Returns Remove MediaAlpha MediaAlpha GAAP Returns Remove MediaAlpha MediaAlpha Total consolidated portfolio return (1.6) % 1.9 % 0.3 % (3.4) % 9.8 % 6.4 % Total 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 65 . 70 --------------------------------------------------------------------------------
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.
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 all ofWhite Mountains's investment portfolio and derivative 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, 2022 , approximately 72% 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 in MediaAlpha 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 international listed common equity funds, whichWhite Mountains values using the fund manager's published net asset value ("NAV") to account for the difference in market close times. 71 -------------------------------------------------------------------------------- In circumstances where quoted market prices are unavailable or are not considered reasonable,White Mountains estimates the fair value using industry standard pricing methodologies and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, credit ratings, prepayment speeds, reference data including research publications and other relevant inputs. Given that many fixed maturity investments do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable fixed maturity investments vary by asset type and take into account market convention.White Mountains's process to assess the reasonableness of the market prices obtained from the outside pricing sources covers substantially all of its fixed maturity investments and includes, but is not limited to, the evaluation of pricing methodologies and a review of the pricing services' quality control 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. 72 -------------------------------------------------------------------------------- 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, 2022 ,$912 million ofWhite Mountains's other long-term investments, which consisted primarily of unconsolidated entities including Kudu's Participation Contracts and PassportCard/DavidShield, were classified as Level 3 investments in the GAAP fair value hierarchy. 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 32 .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 other long-term investments classified as Level 3 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, 2022 ,White Mountains's most significant other long-term investments that are valued using Level 3 measurements include Kudu's Participation Contracts and PassportCard/DavidShield. 73 -------------------------------------------------------------------------------- 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, 2022 , the combined fair value of Kudu's Participation Contracts was$696 million . On a quarterly basis,White Mountains values each of Kudu's Participation Contracts, typically using discounted cash flow models. As ofDecember 31, 2022 , two of Kudu's Participation Contracts with a total fair value of$189 million were valued using a probability weighted expected return method, which takes into account factors such as a discounted cash flow analysis, the expected value to be received in a pending sales transaction and the likelihood that a sales transaction will take place. The discounted cash flow valuation 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, 2022 ,White Mountains concluded that pre-tax discount rates in the range of 18% to 25%, and terminal cash flow exit multiples in the range of 7 to 16 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, 2022 , resulting from changes in key inputs to the discounted cash flow analysis, including the discount rates and terminal cash flow exit multiples: Millions Discount Rate(1) Terminal Exit Multiple -2% -1% 18% - 25% +1% +2% +2$ 788 $ 756 $ 725 $ 698 $ 672 +1$ 771 $ 740 $ 711 $ 684 $ 660 7x to 16x$ 753 $ 724 $ 696 $ 671 $ 647 -1$ 736 $ 708 $ 681 $ 657 $ 635 -2$ 718 $ 691 $ 666 $ 646 $ 625
(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. 74 --------------------------------------------------------------------------------White Mountains concluded that an after-tax discount rate of 24% and a terminal revenue growth rate of 4% was appropriate for the valuation of its investment in PassportCard/DavidShield as ofDecember 31, 2022 . Utilizing these assumptions,White Mountains determined that the fair value of its investment in PassportCard/DavidShield was$135 million as ofDecember 31, 2022 . Premiums and commission revenues from international private medical insurance placed by DavidShield grew in 2021 and have remained strong through 2022. In 2022, PassportCard's written premiums exceeded pre-pandemic premium levels. With a discounted cash flow analysis, small changes to inputs in a valuation model may result in significant changes to fair value. The following table presents the estimated effect on the fair value ofWhite Mountains's investment in PassportCard/DavidShield as ofDecember 31, 2022 , resulting from changes in key inputs to the discounted cash flow analysis, including the discount rate and terminal revenue growth rate: Millions Discount Rate Terminal Revenue Growth Rate 22% 23% 24% 25% 26% 4.5%$ 158 $ 147 $ 136 $ 127 $ 118 4.0%$ 156 $ 145 $ 135 $ 126 $ 117 3.5%$ 155 $ 143 $ 133 $ 125 $ 116 Other Long-term Investments - NAV As ofDecember 31, 2022 ,$562 million ofWhite Mountains's other long-term investments, which consisted of a private equity funds and hedge funds, a bank loan 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 using NAV as a practical expedient are not classified within the fair value hierarchy.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 interim unaudited and annual audited 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 private equity funds and hedge funds typically consist of publicly-traded and 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 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 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- 19 for tables that summarize the changes inWhite Mountains's fair value measurements by level as ofDecember 31, 2022 and 2021 and, for investments held at the end of the period, the total net unrealized gains (losses) attributable to Level 3 investments for the years endedDecember 31, 2022 , 2021 and 2020. 75 --------------------------------------------------------------------------------
2. Surplus Note Valuation
BAM Surplus Notes As ofDecember 31, 2022 ,White Mountains owned$340 million of BAM Surplus Notes and has accrued$158 million in interest due thereon. InDecember 2022 , BAM made a$36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. 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. 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 and 88.4% of the common 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 27 . Periodically,White Mountains's management reviews the recoverability of amounts recorded from the BAM Surplus Notes. As ofDecember 31, 2022 ,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, 2022 ,White Mountains debt service model indicated that the BAM Surplus Notes would be fully repaid approximately six years prior to final maturity, which is generally consistent with the results of the update of the debt service model as ofDecember 31, 2021 . The debt service model assumes both par insured and total pricing gradually increase from 2023 to 2026, 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. Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest 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. 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 Reserves General 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- 32 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 bases its level of reliance on a particular method based on the facts and circumstances at the time the reserve estimates are made. 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. 76 -------------------------------------------------------------------------------- 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, inflation, climate change, 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, specialty, marine & energy, 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 open year of account is 42.8% 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 outstanding loss and LAE reserves reinsured into the next year of account may change, perhaps significantly. For example, during 2022, an RITC was executed such that the outstanding loss and LAE reserves for claims arising out of the 2019 year of account, for which the TPC Providers' participation in the total net results of the Syndicates was 58.3%, were reinsured into the 2020 year of account, for which the TPC Providers' participation in the total net results of the Syndicates is 42.8%. 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, 2022 : December 31, 2022 Millions Case IBNR Total Property and Accident & Health$ 141.9 $ 116.3 $ 258.2 Specialty 40.4 163.9 204.3 Marine & Energy 69.4 127.0 196.4 Casualty - Active 16.7 54.8 71.5 Casualty - Runoff 33.6 27.2 60.8 Other .1 .2 .3 Total loss and LAE reserves, net of reinsurance recoverables (1)$ 302.1
(1) The loss and LAE reserves, net of reinsurance, are net of amounts
attributable to TPC Providers of
77
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For loss and LAE reserves as of December 31, 2022 , Ark considers that the impact
of the various reserving factors, as described in Note 5 - "Losses and Loss
Adjustment Expense Reserves" on page F- 32 , 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 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., 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- 32 for prior year loss and LAE development discussions for the year endedDecember 31, 2022 . 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, 2022 . See Note 5 - "Losses and Loss Adjustment Expense Reserves" on page F- 32 for a description of Ark's loss and LAE reserves and actuarial methods. December 31, 2022 Millions Low Recorded High Total loss and LAE reserves, net of reinsurance$675.7 $791.5 $851.6
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 standard 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.
On an annual basis, Ark uses an independent external actuary to provide
actuarial opinions on the reasonableness of loss and LAE reserves for its
operating subsidiaries. Ark uses the independent actuarial review solely to
corroborate Ark's recorded loss and LAE reserves. The result of the independent
actuarial review indicated that Ark's net recorded loss and LAE reserves 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.
78
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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 2022, 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 5% of the
recorded casualty loss and LAE reserves of $132 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 2022 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 of December
31, 2022 , Ark has recorded $131 million of loss and LAE reserves, net of
reinsurance recoverables on unpaid losses, for major loss events, of which $67
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: In January 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, specialty,
marine & energy and casualty lines from Bermuda . 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 and 2022. 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 2022, GAIL reported gross written premiums of $619 million .
A 10% error in Ark's initial loss ratio estimates could result in approximately
$62 million of adverse variance in loss and LAE reserves.
79
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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 ended December 31, 2022 :
Year Ended
Millions December 31, 2022
Gross beginning balance $ 894.7
Less: beginning reinsurance recoverable on unpaid losses (1) (428.9)
Net loss and LAE reserves 465.8
Losses and LAE incurred relating to:
Current year losses gross of amounts attributable to TPC
Providers
607.1 Less: Current year losses attributable to TPC Providers (19.0) Net current year losses 588.1
Prior year losses gross of amounts attributable to TPC
Providers
(77.6) Less: Prior year losses attributable to TPC Providers 25.9 Net prior year losses (51.7) Net incurred losses and LAE 536.4
Loss and LAE paid relating to:
Current year losses gross of amounts attributable to TPC
Providers
(100.0) Less: Current year losses attributable to TPC Providers 1.1 Net current year losses (98.9) Prior year losses gross of amounts attributable to TPC Providers (220.2) Less: Prior year losses attributable to TPC Providers 61.6 Net prior year losses (158.6) Net paid losses and LAE (257.5) Change in TPC Providers' participation (2) 57.5 Foreign currency translation and other adjustments to loss and LAE reserves (10.7) Net ending balance 791.5 Plus: ending reinsurance recoverable on unpaid losses (3) 505.0 Gross ending balance $ 1,296.5
(1) The beginning reinsurance recoverable on unpaid losses includes amounts
attributable to TPC Providers of
(2) Amount represents the impact to net loss and LAE reserves due to a change in
the TPC Providers' participation related to the annual RITC process.
(3) The ending reinsurance recoverable on unpaid losses includes amounts
attributable to TPC Providers of
During the year endedDecember 31, 2022 , Ark experienced$52 million of net favorable prior year loss reserve development. Ark's net favorable prior year loss reserve development was driven primarily by the property and accident & health ($21 million ), marine & energy ($19 million ) and specialty ($13 million ) reserving lines of business. The favorable prior year loss reserve development in the property and accident & health, marine & energy and specialty reserving lines of business was driven primarily by positive claims experience within the 2021 accident year. 80
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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, 2022
Property and Accident & Health $ 258.2
Specialty 204.3
Marine & Energy 196.4
Casualty - Active 71.5
Casualty - Runoff 60.8
Other .3
Unpaid loss and LAE reserves, net of reinsurance recoverables on
unpaid losses
791.5
Plus: Reinsurance recoverables on unpaid losses (1)
Property and Accident & Health
224.6 Specialty 97.2 Marine & Energy 79.8 Casualty - Active 49.9 Casualty - Runoff 53.5 Total Reinsurance recoverables on unpaid losses (1) 505.0 Total unpaid loss and LAE reserves
$ 1,296.5
(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, specialty, marine & energy, 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 and in combination with the changing participation provided by TPC Providers, 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 a retrospective basis by accident year. That is, for the RITC executed in the current year that changes Ark's participation for claims relating to prior accident years, the prior year columns are adjusted to include the impact of the RITC. 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: 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 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, 2022 , and (3) the cumulative number of reported claims as ofDecember 31, 2022 . 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, 2022 which is then included in the reconciliation to the consolidated balance sheet presented above. The total unpaid loss and LAE reserves as ofDecember 31, 2022 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 2013. 81 -------------------------------------------------------------------------------- The bottom section of the table is supplementary information about the average historical claims duration as ofDecember 31, 2022 . 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, 2022 for that accident year. The resulting ratios are weighted together using cumulative incurred loss and LAE as ofDecember 31, 2022 . Property and Accident & Health $ in Millions Incurred Loss and LAE, Net of Reinsurance For the Years Ended December 31, As of December 31, 2022 Total IBNR plus expected development on Cumulative number of Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims reported claims 2013$ 67.8 $ 60.4 $ 60.3 $ 60.1 $ 59.6 $ 59.5 $ 59.4 $ 59.3 $ 59.3 $ 59.3 $ .1 2,530 2014 32.2 29.1 29.0 28.3 28.1 28.2 28.2 28.2 28.2 .1 2,919 2015 18.8 17.9 16.9 15.9 15.7 15.7 15.5 15.4 .1 2,826 2016 21.9 17.2 17.9 18.1 18.1 18.3 18.2 .1 3,419 2017 24.6 31.4 38.9 37.9 36.5 36.0 5.7 4,599 2018 38.1 44.5 46.4 44.1 44.2 1.3 4,254 2019 31.6 28.9 24.7 21.5 .7 3,999 2020 65.2 63.3 62.9 7.3 4,551 2021 163.0 146.8 10.6 3,318 2022 234.5 90.1 2,899 Total$ 667.0 Property and Accident & Health Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013$ 15.4 $ 39.1 $ 58.1 $ 59.1 $ 59.1 $ 59.4 $ 59.3 $ 59.3 $ 59.2 $ 59.2 2014 13.6 24.9 27.1 27.5 27.6 27.8 27.9 27.8 27.9 2015 6.9 12.2 13.4 14.6 14.6 14.8 15.0 15.0 2016 8.5 13.1 16.4 16.8 16.9 17.2 17.8 2017 16.8 25.8 31.6 32.8 29.6 27.3 2018 15.6 32.2 40.1 40.0 40.8 2019 6.8 16.7 18.3 18.5 2020 11.2 34.1 47.0 2021 30.8 86.7 2022 70.0 Total 410.2 All outstanding
liabilities before 2013, net of reinsurance 1.4
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
31.4% 34.2% 19.3% 5.5% 1.2% 0.8% 0.8% 0.3% -% -%
82
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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, 2022 Total IBNR plus expected development on
Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013$ 72.1 $ 64.7 $ 64.6 $ 63.9 $ 62.4 $ 62.0 $ 61.6 $ 61.6 $ 61.6 $ 61.5 $ .1 2,530 2014 54.4 52.5 52.2 49.8 49.4 49.6 49.6 49.6 49.7 .2 2,919 2015 53.8 51.0 47.8 45.3 44.8 44.9 44.4 44.2 .2 2,826 2016 59.5 47.5 49.3 49.7 49.6 50.1 50.0 .2 3,419 2017 56.5 73.5 92.3 89.9 86.5 85.6 10.0 4,599 2018 88.5 103.7 108.1 102.7 102.9 2.4 4,254 2019 71.4 64.8 54.8 49.3 1.3 3,999 2020 122.8 119.4 118.6 12.7 4,551 2021 191.9 170.9 12.4 3,318 2022 242.8 97.7 2,899 Total$ 975.5 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 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 15.4 $ 39.1 $ 58.1 $ 61.2 $ 61.1 $ 61.7 $ 61.6 $ 61.6 $ 61.4 $ 61.4
2014 18.7 40.5 47.0 48.2 48.4 48.9 49.1 49.0 49.1
2015 18.6 35.7 39.7 42.6 42.5 43.1 43.5 43.5
2016 24.3 38.1 46.3 47.2 47.4 48.1 49.2
2017 42.5 65.0 79.3 82.2 74.5 70.4
2018 37.5 77.2 95.6 95.5 96.9
2019 16.1 39.8 43.7 43.9
2020 24.1 68.2 90.9
2021 38.9 103.2
2022 70.4
Total 678.9
All outstanding liabilities before 2013, gross of
amounts attributable to TPC Providers 2.0
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
32.2% 34.7% 17.9% 4.7% 0.6% 0.9% 1.9% 0.5% (0.1)% 0.1%
83
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Specialty
$ in Millions
Incurred Loss and LAE, Net of Reinsurance
For the Years Ended December 31 , As of December 31, 2022
Total IBNR plus
expected
development on Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013 $ 47.0 $ 28.5 $ 17.6 $ 16.2 $ 15.9 $ 15.8 $ 15.5 $ 15.7 $ 15.7 $ 15.8 $ .1 1,042
2014 45.5 43.8 40.8 40.4 40.8 43.3 43.4 43.3 43.1 - 1,357
2015 16.2 13.6 11.2 9.6 9.9 10.1 10.1 7.8 .1 1,840
2016 18.1 14.1 10.8 11.1 11.7 11.6 8.8 .2 1,927
2017 17.3 12.2 11.3 10.8 11.0 10.0 - 2,187
2018 13.2 14.9 15.4 14.7 13.5 .7 2,110
2019 18.5 16.3 15.4 22.4 1.1 2,347
2020 21.4 20.5 16.3 2.5 1,985
2021 67.6 59.4 33.9 1,644
2022 172.8 125.3 985
Total $ 369.9
Specialty
Millions
Cumulative Paid Loss and LAE, Net of Reinsurance
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018
2019 2020 2021 2022
2013$ 17.0 $ 13.2 $ 14.9 $ 15.4 $ 15.5 $ 15.7
$ 15.7 $ 15.7 $ 15.6 $ 15.6 2014 26.3 38.9 39.7 40.1 40.7 42.0 42.8 42.7 43.0 2015 4.0 7.0 7.6 8.0 8.1 8.1 8.1 6.4 2016 3.2 7.9 9.1 9.9 10.3 10.3 8.5 2017 3.1 6.6 8.4 8.5 8.5 9.2 2018 2.7 8.2 10.0 10.4 11.8 2019 4.8 6.9 7.4 18.2 2020 5.2 10.6 13.0 2021 5.1 24.1 2022 16.0 Total 165.8 All outstanding liabilities
before 2013, net of reinsurance .2
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
25.8% 33.4% 7.8% 4.8% 5.9% 5.9% 1.4% 1.9% (3.2)% (0.8)%
84
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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, 2022 Total IBNR plus expected development on
Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013$ 52.0 $ 33.5 $ 22.6 $ 18.6 $ 17.6 $ 17.5 $ 16.6 $ 17.1 $ 17.2 $ 17.4 $ .1 1,042 2014 65.2 63.2 54.4 53.1 54.1 60.4 60.5 60.2 59.9 - 1,357 2015 46.5 38.9 31.1 27.1 27.9 28.4 28.3 24.3 .3 1,840 2016 51.3 38.7 30.5 31.3 32.7 32.6 27.5 .3 1,927 2017 41.6 29.0 26.8 25.6 26.0 24.3 .1 2,187 2018 29.0 33.3 34.4 32.6 30.6 1.2 2,110 2019 38.9 33.7 31.7 43.9 1.9 2,347 2020 42.7 41.6 34.2 4.4 1,985 2021 80.4 66.1 36.6 1,644 2022 180.6 132.7 985 Total$ 508.8 Specialty Millions Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 17.0 $ 13.2 $ 14.9 $ 16.5 $ 16.7 $ 17.1 $ 17.1 $ 17.1 $ 17.0 $ 17.0
2014 30.6 49.3 51.6 52.8 54.4 57.6 59.4 59.3 59.8
2015 12.1 21.6 23.6 24.5 24.7 24.8 24.9 21.9
2016 9.9 24.4 27.2 29.2 30.2 30.3 27.2
2017 8.3 16.8 21.3 21.7 21.7 22.9
2018 6.7 20.0 24.1 25.1 27.6
2019 11.5 16.5 17.7 36.6
2020 11.8 24.3 28.5
2021 6.0 27.9
2022 16.1
Total 285.5
All outstanding liabilities before 2013, gross
of amounts attributable to TPC Providers .6
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
26.9% 34.4% 8.4% 6.8% 5.6% 6.0% 1.3% 1.0% (4.2)% (1.9)%
85
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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, 2022
Total IBNR plus
expected
development on Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims reported claims
2013 $ 55.4 $ 41.7 $ 32.3 $ 31.0 $ 30.8 $ 29.6 $ 29.5 $ 29.3 $ 29.4 $ 29.3 $ (.2) 2,638
2014 34.1 19.9 17.0 16.1 14.0 13.6 13.9 13.6 13.7 (.2) 2,572
2015 21.0 16.7 15.4 12.6 12.0 12.1 12.0 12.2 - 3,238
2016 23.1 19.2 15.4 14.3 14.0 14.5 13.8 - 3,764
2017 25.3 18.6 16.8 16.2 15.9 15.0 .2 4,117
2018 24.6 19.1 16.6 17.0 16.6 .2 3,205
2019 20.7 18.6 18.6 18.3 .6 2,331
2020 24.4 21.7 23.2 1.8 1,529
2021 83.0 66.1 24.8 1,356
2022 148.2 99.5 1,188
Total $ 356.4
Marine & Energy
Millions
Cumulative Paid Loss and LAE, Net of Reinsurance
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 7.8 $ 22.2 $ 27.6 $ 28.6 $ 29.1 $ 29.3 $ 29.3 $ 29.1 $ 29.3 $ 29.3
2014 5.8 12.1 13.2 14.0 14.1 13.4 13.6 13.5 13.7
2015 4.0 7.8 9.6 10.9 10.3 10.4 10.8 11.4
2016 5.5 10.0 12.6 13.0 13.1 13.7 13.4
2017 5.1 11.1 12.8 14.0 14.1 14.1
2018 2.7 12.5 14.0 14.7 15.4
2019 3.3 10.6 12.6 14.3
2020 3.1 12.7 16.0
2021 6.3 24.2
2022 12.2
Total 164.0
All outstanding liabilities before
2013, net of reinsurance 4.0
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
17.4% 35.8% 19.9% 5.9% 4.3% 6.9% 0.3% 0.3% (0.3)% 0.1%
86
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Marine & Energy
$ in Millions
Incurred Loss and LAE, Gross of Amounts
Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2022 Total IBNR plus expected development on
Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013 $ 64.0 $ 50.3 $ 40.9 $ 36.9 $ 36.2 $ 33.2 $ 33.1 $ 32.5 $ 32.8 $ 32.7 $ (.3) 2,638
2014 59.5 40.0 31.3 28.3 23.1 22.1 22.8 22.2 22.4 (.3) 2,572
2015 59.7 46.1 41.9 34.9 33.3 33.7 33.4 33.8 .1 3,238
2016 62.2 50.9 41.3 38.6 37.9 39.2 37.9 .1 3,764
2017 61.6 45.0 40.6 39.1 38.4 36.9 .4 4,117
2018 57.9 44.9 39.0 39.9 39.1 .4 3,205
2019 45.5 40.5 40.6 40.1 1.0 2,331
2020 46.5 41.8 44.3 3.1 1,529
2021 93.5 73.1 26.8 1,356
2022 149.8 100.8 1,188
Total $ 510.1
Marine & Energy
Millions
Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 7.8 $ 22.2 $ 27.6 $ 30.5 $ 32.1 $ 32.6 $ 32.7 $ 32.2 $ 32.6 $ 32.6
2014 7.8 17.4 20.7 23.4 23.6 21.8 22.3 21.9 22.4
2015 10.1 22.4 28.3 31.7 30.2 30.3 31.3 32.4
2016 16.5 28.7 35.0 36.1 36.4 37.8 37.2
2017 13.1 27.9 32.1 35.1 35.2 35.2
2018 6.5 30.5 34.3 36.0 37.1
2019 8.0 25.4 30.1 33.0
2020 6.7 26.0 31.9
2021 7.5 28.2
2022 12.4
Total 302.4
All outstanding liabilities before 2013, gross
of amounts attributable to TPC Providers 7.0
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
19.0% 36.9% 17.9% 6.4% 3.7% 6.0% 0.8% 0.6% (0.1)% 0.4%
87
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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, 2022
Total IBNR plus
expected
development on Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018
2019 2020 2021 2022 reported claims reported claims
2013$ 18.2 $ 13.0 $ 8.5 $ 8.0 $ 8.0 $ 8.1
$ 7.7 $ 7.8 $ 7.8 $ 7.8 $ .1 1,144 2014 12.6 8.7 7.7 7.5 7.4 7.0 7.1 6.9 7.1 .2 1,385 2015 8.8 9.0 7.4 7.3 6.6 6.4 6.3 6.5 .2 1,280 2016 7.6 7.1 7.8 7.8 7.9 8.0 8.1 .3 1,528 2017 9.5 9.6 8.7 7.3 7.0 8.4 .9 1,580 2018 11.0 11.5 9.2 9.0 6.8 1.1 1,036 2019 11.6 10.4 9.1 7.3 2.4 834 2020 9.7 8.3 7.1 4.2 524 2021 17.4 18.4 16.3 674 2022 32.0 28.8 832 Total$ 109.5 Casualty - Active Millions Cumulative Paid Loss and LAE, Net of Reinsurance For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019
2020 2021 2022
2013 $ 1.5 $ 3.6 $ 5.3 $ 5.8 $ 6.3 $ 6.7 $ 7.0 $ 7.0 $ 7.3 $ 7.5
2014 1.3 3.5 4.2 4.7 5.2 5.5 5.9 6.0 6.2
2015 1.8 2.4 3.2 4.4 4.7 4.9 5.1 5.5
2016 .2 1.0 2.3 4.0 4.6 5.3 6.5
2017 .8 1.7 2.8 3.4 4.2 5.7
2018 .3 1.4 3.5 4.3 4.3
2019 .3 1.4 2.3 3.0
2020 .5 1.0 2.0
2021 .5 .9
2022 .4
Total 42.0
All outstanding liabilities before 2013,
net of reinsurance 4.0
Loss and LAE reserves,
net of reinsurance
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
6.8% 11.7% 16.7% 12.7% 8.0% 10.8% 4.9% 3.1% 1.2% 2.9%
88
--------------------------------------------------------------------------------
Casualty - Active
$ in Millions
Incurred Loss and LAE, Gross of Amounts
Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2022 Total IBNR plus expected development on
Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013 $ 23.6 $ 18.3 $ 13.9 $ 12.5 $ 12.2 $ 12.6 $ 11.6 $ 11.8 $ 11.8 $ 11.8 $ .3 1,144
2014 20.9 17.3 14.6 13.7 13.5 12.4 12.7 12.2 12.7 .3 1,385
2015 20.3 21.1 16.0 15.6 13.8 13.3 13.0 13.5 .3 1,280
2016 17.7 16.2 17.8 18.0 18.2 18.4 18.5 .6 1,528
2017 21.8 22.2 19.9 16.5 15.8 18.3 1.5 1,580
2018 23.5 24.4 19.2 18.5 14.6 1.9 1,036
2019 23.3 20.6 17.4 14.3 4.1 834
2020 18.4 15.1 13.0 7.4 524
2021 22.7 23.1 19.8 674
2022 32.9 29.1 832
Total $ 172.7
Casualty - Active
Millions
Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31,
Accident
Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 1.5 $ 3.6 $ 5.3 $ 6.7 $ 8.5 $ 9.5 $ 10.2 $ 10.3 $ 10.8 $ 11.3
2014 1.3 3.7 5.9 7.6 8.7 9.5 10.5 10.7 11.0
2015 2.0 3.6 6.3 9.2 10.0 10.5 11.1 11.6
2016 0.7 3.2 6.4 10.6 11.9 13.7 15.8
2017 2.6 4.8 7.5 9.1 10.9 13.5
2018 0.8 3.5 8.5 10.3 10.3
2019 .8 3.3 5.6 6.8
2020 1.1 2.4 4.1
2021 1.0 1.6
2022 .5
Total 86.5
All outstanding liabilities before 2013, gross of
amounts attributable to TPC Providers 6.8
Loss and LAE reserves, gross of
amounts attributable to TPC Providers
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
6.4% 11.2% 16.3% 12.8% 8.7% 12.2% 6.4% 4.0% 1.9% 4.7%
89
--------------------------------------------------------------------------------
Casualty - Runoff
$ in Millions
Incurred Loss and LAE, Net of Reinsurance
For the Years Ended December 31 , As of December 31, 2022
Total IBNR plus
expected
development on Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013 $ 47.7 $ 51.4 $ 47.7 $ 49.0 $ 47.6 $ 47.3 $ 47.7 $ 47.5 $ 47.5 $ 47.5 $ 1.4 1,798
2014 45.8 45.3 47.8 50.9 54.5 56.0 56.0 55.8 55.6 1.3 1,941
2015 33.8 29.4 30.6 34.0 33.8 34.8 34.1 36.6 1.6 1,995
2016 28.6 28.3 36.5 34.7 34.9 34.6 33.8 1.7 2,150
2017 27.4 30.8 28.2 28.9 28.4 26.7 2.2 1,599
2018 29.4 23.9 23.0 22.3 21.9 3.3 1,267
2019 21.1 17.8 18.0 19.4 5.0 961
2020 11.3 7.6 9.3 3.9 558
2021 8.2 4.8 2.7 277
2022 .6 .1 76
Total $ 256.2
Casualty - Runoff
Millions
Cumulative Paid Loss and LAE, Net of Reinsurance
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 7.1 $ 19.4 $ 35.7 $ 40.6 $ 42.4 $ 43.3 $ 43.9 $ 44.6 $ 44.9 $ 45.2
2014 6.4 23.1 29.5 36.4 43.1 46.9 48.5 49.3 51.8
2015 4.3 8.2 14.5 21.4 24.7 27.3 28.9 33.1
2016 3.9 10.2 17.7 22.7 25.4 27.8 28.7
2017 3.2 9.4 14.6 18.5 21.4 22.5
2018 3.4 7.4 12.6 14.9 16.3
2019 3.3 5.8 7.8 12.1
2020 .8 1.3 3.1
2021 .5 1.7
2022 .3
Total 214.8
All outstanding liabilities before
2013, net of reinsurance 19.4
Loss and LAE
reserves, net of reinsurance
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% 15.4% 17.2% 15.7% 9.0% 7.4% 6.3% 4.3% 2.8% 1.4%
90
--------------------------------------------------------------------------------
Casualty - Runoff
$ in Millions
Incurred Loss and LAE, Gross of Amounts
Attributable to TPC Providers
For the Years EndedDecember 31 , As ofDecember 31, 2022 Total IBNR plus expected development on
Cumulative number of
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 reported claims
reported claims
2013 $ 67.7 $ 71.4 $ 67.7 $ 71.5 $ 66.8 $ 66.2 $ 67.3 $ 66.7 $ 66.8 $ 66.7 $ 2.4 1,798
2014 79.6 82.3 89.9 100.2 109.0 112.8 112.7 112.4 112.0 2.2 1,941
2015 85.0 72.3 76.3 84.9 84.2 86.6 85.1 89.3 2.8 1,995
2016 74.3 71.1 91.4 86.8 87.4 86.7 85.2 3.0 2,150
2017 63.7 72.1 65.7 67.3 66.0 63.1 3.9 1,599
2018 66.6 52.8 50.7 49.0 48.3 5.7 1,267
2019 43.9 36.2 36.5 39.1 8.8 961
2020 22.3 14.1 16.9 6.8 558
2021 14.7 8.6 4.8 277
2022 1.0 .2 76
Total $ 530.2
Casualty - Runoff
Millions
Cumulative Paid Loss and LAE, Gross of
Amounts Attributable to TPC Providers
For the Years Ended December 31,
Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 7.1 $ 19.4 $ 35.7 $ 50.1 $ 56.1 $ 58.4 $ 60.0 $ 61.4 $ 62.2 $ 62.8
2014 7.3 27.3 46.2 69.3 85.8 95.4 99.2 100.9 105.4
2015 7.5 19.6 40.7 57.7 65.9 72.1 76.0 83.2
2016 11.9 31.4 50.0 62.6 68.8 74.7 76.3
2017 9.4 24.8 37.8 46.8 53.8 55.8
2018 8.4 18.3 30.5 36.1 38.4
2019 8.1 14.0 18.8 26.4
2020 1.8 3.0 6.1
2021 1.3 3.4
2022 .6
Total 458.4
All outstanding liabilities before 2013, gross
of amounts attributable to TPC Providers 34.4
Loss and LAE reserves, gross
of amounts attributable to TPC Providers
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
9.2% 14.5% 17.2% 16.2% 9.1% 7.2% 5.5% 5.5% 4.6% 2.6%
91
--------------------------------------------------------------------------------
The following tables provide 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:
Cumulative Incurred Loss and LAE
Gross of Amounts
Net of Amounts Attributable Attributable to TPC
Millions Reinsurance to TPC Providers Providers
Property and Accident & Health $ 667.0 $ 308.5 $ 975.5
Specialty 369.9 138.9 508.8
Marine & Energy 356.4 153.7 510.1
Casualty - Active 109.5 63.2 172.7
Casualty - Runoff 256.2 274.0 530.2
Total $ 1,759.0 $ 938.3 $ 2,697.3
December 31, 2022
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 $ 410.2 $ 268.7 $ 678.9
Specialty 165.8 119.7 285.5
Marine & Energy 164.0 138.4 302.4
Casualty - Active 42.0 44.5 86.5
Casualty - Runoff 214.8 243.6 458.4
Total $ 996.8 $ 814.9 $ 1,811.7
December 31, 2022
Loss and LAE Reserves
Gross of Amounts
Net of Amounts Attributable Attributable to TPC
Millions Reinsurance to TPC Providers Providers
Property and Accident & Health $ 258.2 $ 40.4 $ 298.6
Specialty 204.3 19.6 223.9
Marine & Energy 196.4 18.3 214.7
Casualty - Active 71.5 21.5 93.0
Casualty - Runoff 60.8 45.4 106.2
Total $ 791.2 $ 145.2 $ 936.4
92
--------------------------------------------------------------------------------
4.
As of December 31, 2022, goodwill and other intangible assets recognized in connection with business and asset acquisitions totaled $392 million, of which $290 million was attributable to White Mountains's common shareholders. See Note 4 - "Goodwill and Other Intangible Assets."Goodwill represents the excess of the amount paid to acquire subsidiaries over the fair value of identifiable net assets at the date of acquisition. Other intangible assets are recorded at their acquisition date fair values, which 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. As of December 31, 2022, White Mountains had total goodwill and other intangible assets of $392 million, of which $293 million related to the acquisition of Ark. During 2022 and 2021, White Mountains performed its periodic reviews for potential impairment and did not recognize any impairments of goodwill and other intangible assets. 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 . 93 --------------------------------------------------------------------------------
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 per share, adjusted book value per share or return on
equity;
•business strategy;
•financial and operating targets or plans;
•incurred loss and LAE and the adequacy of its loss and LAE 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, windstorms,
earthquakes, floods, wildfires, tornadoes, tsunamis, severe winter weather,
public health crises, terrorist attacks, war and war-like actions, explosions,
infrastructure failures or cyber attacks;
•recorded loss reserves subsequently proving to have been inadequate;
•the market value of White Mountains's investment in MediaAlpha;
•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.
94
--------------------------------------------------------------------------------
HHS, 2 Collaborators Issue Report Entitled 'Problems Paying Medical Bills – United States, 2021' (Part 2 of 2)
KKR & CO. INC. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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