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WHITE MOUNTAINS INSURANCE GROUP LTD – 10-Q – 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 91 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements. The following discussion also includes twelve non-GAAP financial measures: (i) adjusted book value per share, (ii) BAM's gross written premiums and member surplus contributions ("MSC") from new business, (iii) Ark's adjusted loss and loss adjustment expense ratio, (iv) Ark's adjusted insurance acquisition expense ratio, (v) Ark's adjusted other underwriting expense ratio, (vi) Ark's adjusted combined ratio (vii) NSM's earnings before interest, taxes, depreciation and amortization ("EBITDA"), (viii) NSM's adjusted EBITDA, (ix) Kudu's EBITDA, (x) Kudu's adjusted EBITDA, (xi) total consolidated portfolio returns excludingMediaAlpha and (xii) adjusted capital, that have been reconciled from their most comparable GAAP financial measures on page 85.White Mountains believes these measures to be useful in evaluatingWhite Mountains's financial performance and condition.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
2020
Overview
White Mountains reported book value per share of$1,162 and adjusted book value per share of$1,176 as ofSeptember 30, 2021 . Book value per share and adjusted book value per share both decreased 9% in the third quarter of 2021. Book value per share decreased 8% and adjusted book value per share decreased 7% in the first nine months of 2021, including dividends. Book value per share and adjusted book value per share both increased 8% in the third quarter of 2020. Book value per share increased 7% and adjusted book value per share increased 8% in the first nine months of 2020, including dividends. Results in the third quarter and first nine months of 2021 were driven primarily by$397 million and$326 million of net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha , resulting from decreases in theMediaAlpha share price (from$39.07 as ofDecember 31, 2020 and from$42.10 as ofJune 30, 2021 ) to$18.68 as ofSeptember 30, 2021 . Results in the first nine months of 2021 also included realized investment gains on shares sold in a secondary offering completed byMediaAlpha . 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 . As ofSeptember 30, 2021 ,White Mountains owned 16.9 million shares ofMediaAlpha , representing a 28% basic ownership interest (26% on a fully-diluted/fully-converted basis). At theSeptember 30, 2021 closing price of$18.68 per share, the value ofWhite Mountains's investment inMediaAlpha was$316 million . At this level of ownership, each$1.00 per share increase or decrease in the share price ofMediaAlpha will result in an approximate$5.60 per share increase or decrease inWhite Mountains's book value per share and adjusted book value per share. Excluding net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha , book value and adjusted book value both increased in the third quarter and first nine months of 2021, reflecting solid performance withinWhite Mountains's operating businesses. Gross written premiums and MSC collected in the HG Global/BAM segment totaled$28 million and$84 million in the third quarter and first nine months of 2021 compared to$30 million and$93 million in the third quarter and first nine months of 2020. BAM insured municipal bonds with par value of$4.0 billion and$12.6 billion in the third quarter and first nine months of 2021 compared to$4.7 billion and$11.8 billion in the third quarter and first nine months of 2020. Total pricing was 69 and 66 basis points in the third quarter and first nine months of 2021 compared to 63 and 79 basis points in the third quarter and first nine months of 2020. BAM's total claims paying resources were$1,181 million as ofSeptember 30, 2021 compared to$987 million as ofDecember 31, 2020 and$968 million as ofSeptember 30, 2020 . In the first quarter of 2021, BAM completed a reinsurance agreement with Fidus Re that increased BAM's claims paying resources by$150 million . InJuly 2021 ,S&P Global Ratings completed its annual review and affirmed BAM's "AA/stable" rating. 54 -------------------------------------------------------------------------------- Ark's GAAP combined ratio was 92% and 95% in the third quarter and first nine months of 2021. Ark's adjusted combined ratio, which adds back amounts ceded to third-party capital providers, was 89% and 93% in the third quarter and first nine months of 2021. The adjusted combined ratio in the third quarter and first nine months of 2021 included 21 points and 16 points of catastrophe losses and six points and five points of net favorable prior year reserve development. In the third quarter of 2021 Ark reported gross written premiums of$162 million , net written premiums of$121 million and net earned premiums of$213 million . Ark's gross written premiums in the third quarter of 2021 were up 79% from the third quarter of 2020 (prior toWhite Mountains's ownership of Ark), with risk-adjusted rate change approximately up 7%. In the first nine months of 2021, Ark reported gross written premiums of$895 million , net written premiums of$726 million and net earned premiums of$436 million . Ark's gross written premiums in the first nine months of 2021 were up 90% from the first nine months of 2020 (prior toWhite Mountains's ownership of Ark), with risk-adjusted rate change up approximately 9%. Ark reported pre-tax income (loss) of$11 million and$(4) million in the third quarter and first nine months of 2021. Ark's pre-tax loss for the first nine months of 2021 included$25 million of transaction expenses related toWhite Mountains's transaction with Ark. NSM reported pre-tax loss of$2 million , adjusted EBITDA of$19 million , and commission and other revenues of$82 million in the third quarter of 2021 compared to pre-tax loss of$1 million , adjusted EBITDA of$15 million , and commission and other revenues of$71 million in the third quarter of 2020. NSM reported pre-tax loss of$34 million , adjusted EBITDA of$53 million , and commission and other revenues of$241 million in the first nine months of 2021 compared to pre-tax loss of$6 million , adjusted EBITDA of$44 million , and commission and other revenues of$212 million in the first nine months of 2020. OnApril 12, 2021 , NSM sold itsFresh Insurance motor business, which resulted in a loss of$29 million recorded in the first quarter of 2021. Results in the third quarter and first nine months of 2021 include the results ofJ.C. Taylor , an MGA offering classic and antique collector car insurance, fromAugust 6, 2021 , the date of its acquisition. Results in the third quarter and first nine months of 2021 and 2020 include the results ofKingsbridge Group Limited , a leading provider of commercial lines insurance and consulting services to the contingent workforce in theUnited Kingdom , fromApril 7, 2020 , the date of its acquisition. Kudu reported pre-tax income of$23 million , adjusted EBITDA of$7 million and total revenues of$29 million in the third quarter of 2021 compared to pre-tax income of$13 million , adjusted EBITDA of$5 million and total revenues of$16 million in the third quarter of 2020. Pre-tax income and total revenues in the third quarter of 2021 included$19 million of net unrealized investment gains on Kudu's participation contracts compared to$10 million of net unrealized investment gains on Kudu's participation contracts in the third quarter of 2020. Kudu reported pre-tax income of$70 million , adjusted EBITDA of$19 million and total revenues of$89 million in the first nine months of 2021 compared to pre-tax loss of$9 million , adjusted EBITDA of$14 million and total revenues of$21 million in the first nine months of 2020. Pre-tax income and total revenues in the first nine months of 2021 included$63 million of net unrealized investment gains on Kudu's participation contracts compared to$2 million of net unrealized investment gains on Kudu's participation contracts in the first nine months of 2020. In the third quarter of 2021, Kudu deployed$131 million , including transaction costs, in two investment management firms.White Mountains's pre-tax total consolidated portfolio return on invested assets was -8.0% in the third quarter of 2021. This return included$397 million of net unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 1.4% in the third quarter of 2021. ExcludingMediaAlpha , investment returns in the third quarter were driven primarily by favorable other long-term investments results.White Mountains's pre-tax total consolidated portfolio return on invested assets was 13.5% in the third quarter of 2020. This return included$305 million of net investment income and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 2.8% in the third quarter of 2020. ExcludingMediaAlpha , investment returns in the third quarter of 2020 were driven primarily by a rebound in equity markets following the decline experienced in the first quarter of 2020 in reaction to the COVID-19 pandemic.White Mountains's pre-tax total consolidated portfolio return on invested assets was -3.7% in the first nine months of 2021. This return included$325 million of net realized and unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 4.6% in first nine months of 2021. ExcludingMediaAlpha , investment returns in the third quarter were driven primarily by favorable other long-term investment results.White Mountains's pre-tax total consolidated portfolio return on invested assets was 15.4% in the first nine months of 2020. This return included$355 million of net investment income and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 2.8% in the first nine months of 2020. ExcludingMediaAlpha , returns in the first nine months of 2020 were driven primarily by the impact of the decline in interest rates on fixed income markets. 55 -------------------------------------------------------------------------------- Adjusted Book Value Per Share The following table presentsWhite Mountains's book value per share and reconciles it to adjusted book value per share, a non-GAAP measure. See NON-GAAP FINANCIAL MEASURES on page 85. September 30, June 30, December 31, September 30, 2021 2021 2020 2020 Book value per share numerators (in millions):White Mountains's common shareholders' equity - GAAP book value per share numerator$ 3,521.7 $
3,978.2
Time value of money discount on expected future payments on the BAM Surplus Notes (1) (128.0) (132.8) (142.5) (144.3) HG Global's unearned premium reserve (1) 206.8 201.5 190.0 181.0 HG Global's net deferred acquisition costs (1) (58.1) (56.3) (52.4) (49.5) Adjusted book value per share numerator$ 3,542.4 $ 3,990.6 $ 3,901.1 $ 3,394.9 Book value per share denominators (in thousands of shares): Common shares outstanding - GAAP book value per share denominator 3,029.6 3,109.2 3,102.0 3,102.0 Unearned restricted common shares (17.0) (20.6) (14.8) (19.3) Adjusted book value per share denominator 3,012.6 3,088.6 3,087.2 3,082.7 GAAP book value per share$ 1,162.44 $
1,279.49
Adjusted book value per share
$ 1,175.86 $
1,292.03
Year-to-date dividends paid per share
$ 1.00 $
1.00
(1) Amount reflects
96.9%.
Goodwill and Other Intangible Assets The following table presents a summary of goodwill and other intangible assets that are included inWhite Mountains's book value as ofSeptember 30, 2021 ,December 31, 2020 , andSeptember 30, 2020 : September 30, June 30, December 31, September 30, Millions 2021 2021 2020 2020Goodwill : Ark$ 116.8 $ 116.8 $ - $ - NSM 529.6 (2) 477.9 506.4 511.8 (4) Kudu 7.6 7.6 7.6 7.6 Other Operations 17.4 27.1 (3) 11.5 20.7 (5) Total goodwill 671.4 629.4 525.5 540.1
Other intangible assets:
Ark 175.7 175.7 - - NSM 205.2 213.7 230.4 218.5 Kudu 1.4 1.5 1.6 1.7 Other Operations 31.3 23.9 24.9 16.0
Total other intangible
assets 413.6 414.8 256.9 236.2
Total goodwill and other
intangible assets (1) 1,085 1,044.2 782.4 776.3Goodwill and other intangible assets attributed to non-controlling interests (118.0) (115.9) (28.1) (27.1)Goodwill and other
intangible assets included
in
shareholders' equity$ 967.0 $ 928.3
(1) See Note 4 - "Goodwill and Other Intangible Assets" for details of goodwill and other intangible assets. (2) The relative fair values of goodwill and other intangible assets recognized in connection with the acquisition ofJ.C. Taylor had not yet been finalized atSeptember 30, 2021 . (3) The relative fair values of goodwill and other intangible assets recognized in connection with an acquisition within Other Operations had not yet been finalized atJune 30, 2021 . (4) The relative fair values of goodwill and other intangible assets recognized in connection with the acquisition of Kingsbridge had not yet been finalized atSeptember 30, 2020 . (5) The relative fair values of goodwill and other intangible assets recognized in connection with an acquisition within Other Operations had not yet been finalized atSeptember 30, 2020 . 56 --------------------------------------------------------------------------------
Summary of Consolidated Results
The following table presents
for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
Millions 2021 2020 2021 2020
Revenues
Financial Guarantee revenues $ 7.4 $ 14.5 $ 18.1 $ 58.1
P&C Insurance and Reinsurance revenues 217.7 - 457.3 -
Specialty Insurance Distribution revenues 82.3 70.7 241.4 211.8
Asset Management revenues 28.5 16.3
88.8 21.0
Other Operations revenues (346.0) 358.0 (210.8) 369.0 Total revenues (10.1) 459.5 594.8 659.9 Expenses Financial Guarantee expenses 15.4 15.6 49.2 46.8 P&C Insurance and Reinsurance expenses 206.8 - 461.1 - Specialty Insurance Distribution expenses 83.9 71.9 275.2 218.1 Asset Management expenses 5.2 3.7 18.4 12.1 Other Operations expenses 40.9 47.1 129.6 95.0 Total expenses 352.2 138.3 933.5 372.0 Pre-tax income (loss) Financial Guarantee pre-tax income (loss) (8.0) (1.1) (31.1) 11.3P&C Insurance and Reinsurance pre-tax income (loss) 10.9 - (3.8) - Specialty Insurance Distribution pre-tax income (loss) (1.6) (1.2) (33.8) (6.3) Asset Management pre-tax income (loss) 23.3 12.6
70.4 8.9
Other Operations pre-tax income (loss) (386.9) 310.9 (340.4) 274.0 Total pre-tax income (loss) (362.3) 321.2 (338.7) 287.9 Income tax (expense) benefit (21.6) (98.5) (41.9) (97.1) Net income (loss) from continuing operations (383.9) 222.7 (380.6) 190.8 Net (loss) gain from sale of discontinued operations, net of tax - (.7) 18.7 (.8) Net income (loss) (383.9) 222.0 (361.9) 190.0 Net loss attributable to non-controlling interests 12.5 10.9 53.7 29.5 Net income (loss) attributable toWhite Mountains's common shareholders (371.4) 232.9 (308.2) 219.5 Other comprehensive income (loss), net of tax (2.2) 3.9 .6 1.0 Comprehensive income (loss) (373.6) 236.8 (307.6) 220.5 Comprehensive income attributable to non-controlling interests .2 (.1) - (.3) Comprehensive income (loss) attributable to White Mountains's common shareholders$ (373.4) $ 236.7 $ (307.6) $ 220.2 57
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I. Summary of Operations By Segment
As ofSeptember 30, 2021 ,White Mountains conducted its operations through five segments: (1) HG Global/BAM, (2) Ark, (3) NSM, (4) Kudu and (5) Other Operations. A discussion ofWhite Mountains's consolidated investment operations is included after the discussion of operations by segment.White Mountains's segment information is presented in Note 15 - "Segment Information" to the Consolidated Financial Statements. 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".
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 three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 12.8 $ -$ 12.8 Assumed written premiums 10.9 - (10.9) - Gross written premiums 10.9 12.8 (10.9) 12.8 Ceded written premiums - (10.9) 10.9 - Net written premiums$ 10.9 $ 1.9
$ -
Earned insurance premiums$ 5.5 $ 1.2 $ -$ 6.7 Net investment income 1.9 2.5 - 4.4 Net investment income - BAM Surplus Notes 3.1 - (3.1) - Net realized and unrealized investment gains (2.0) (2.0) - (4.0) Other revenue .1 .2 - .3 Total revenues 8.6 1.9 (3.1) 7.4 Insurance acquisition expenses 1.5 1.5 - 3.0 General and administrative expenses .2 12.2 - 12.4 Interest expense - BAM Surplus Notes - 3.1 (3.1) - Total expenses 1.7 16.8 (3.1) 15.4 Pre-tax income (loss)$ 6.9 $ (14.9) $ -$ (8.0) Supplemental information: MSC collected (1) $ -$ 14.7
$ -
(1) MSC are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
58 --------------------------------------------------------------------------------
Three Months Ended September 30, 2020
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 14.5 $ - $ 14.5
Assumed (ceded) written premiums 12.5 - (12.5) -
Gross written premiums 12.5 14.5 (12.5) 14.5
Ceded written premiums - (12.5) 12.5 -
Net written premiums $ 12.5 $ 2.0 $ - $ 14.5
Earned insurance premiums $ 5.1 $ 1.1 $ - $ 6.2
Net investment income 1.8 2.9 - 4.7
Net investment income - BAM Surplus
Notes 4.6 - (4.6) -
Net realized and unrealized
investment gains - 3.2 - 3.2
Other revenue .2 .2 - .4
Total revenues 11.7 7.4 (4.6) 14.5
Insurance acquisition expenses 1.1 .5 - 1.6
General and administrative expenses .6 13.4 - 14.0
Interest expense - BAM Surplus Notes - 4.6 (4.6) -
Total expenses 1.7 18.5 (4.6) 15.6
Pre-tax income (loss) $ 10.0 $ (11.1) $ - $ (1.1)
Supplemental information:
MSC collected (1) $ - $ 15.4
$ -
(1) MSC are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
Nine Months Ended September 30, 2021
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 34.5 $ - $ 34.5
Assumed written premiums 33.4 4.5 (33.4) 4.5
Gross written premiums 33.4 39.0 (33.4) 39.0
Ceded written premiums - (33.4) 33.4 -
Net written premiums $ 33.4 $ 5.6 $ - $ 39.0
Earned insurance premiums $ 16.1 $ 3.5 $ - $ 19.6
Net investment income 5.4 7.8 - 13.2
Net investment income - BAM Surplus
Notes 9.1 - (9.1) -
Net realized and unrealized investment
losses (9.5) (6.1) - (15.6)
Other revenue .3 .6 - .9
Total revenues 21.4 5.8 (9.1) 18.1
Insurance acquisition expenses 4.3 2.2 - 6.5
General and administrative expenses 1.3 41.4 - 42.7
Interest expense - BAM Surplus Notes - 9.1 (9.1) -
Total expenses 5.6 52.7 (9.1) 49.2
Pre-tax income (loss) $ 15.8 $ (46.9) $ - $ (31.1)
Supplemental information:
MSC collected (1) $ - 44.8
$ -
(1) MSC are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
59 --------------------------------------------------------------------------------
Nine Months Ended September 30, 2020
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 45.5 $ - $ 45.5
Assumed (ceded) written premiums 39.1 .1 (39.1) .1
Gross written premiums 39.1 45.6 (39.1) 45.6
Ceded written premiums - (39.1) 39.1 -
Net written premiums $ 39.1 $ 6.5 $ - $ 45.6
Earned insurance premiums $ 14.1 $ 3.1 $ - $ 17.2
Net investment income 6.1 9.0 - 15.1
Net investment income - BAM Surplus
Notes 14.1 - (14.1) -
Net realized and unrealized investment
gains 12.1 11.6 - 23.7
Other revenue .3 1.8 - 2.1
Total revenues 46.7 25.5 (14.1) 58.1
Insurance acquisition expenses 3.3 2.1 - 5.4
General and administrative expenses 1.6 39.8 - 41.4
Interest expense - BAM Surplus Notes - 14.1 (14.1) -
Total expenses 4.9 56.0 (14.1) 46.8
Pre-tax income (loss) $ 41.8 $ (30.5) $ - $ 11.3
Supplemental information:
MSC collected (1) $ - $ 46.9 $ - $ 46.9
(1) MSC are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
HG Global/BAM Results-Three Months EndedSeptember 30, 2021 versus Three Months EndedSeptember 30, 2020 BAM is required to prepare its financial statements on a statutory accounting basis for the NYDFS and does not report stand-alone GAAP financial results. BAM is owned by its members, the municipalities that purchase BAM's insurance for their debt issuances. BAM charges an insurance premium on each municipal bond insurance policy it writes. A portion of the premium is MSC and the remainder is a risk premium. In the event of a municipal bond refunding, a portion of the MSC from original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond. Issuers of debt insured by BAM are members of BAM so long as any of their BAM-insured debt is outstanding, and as members they have certain interests in BAM, including the right to vote for BAM's directors and to receive dividends in the future, if declared. Gross written premiums and MSC collected in the HG Global/BAM segment totaled$28 million in the third quarter of 2021 compared to$30 million in the third quarter of 2020. BAM insured$4.0 billion of municipal bonds,$3.8 billion of which were in the primary market, in the third quarter of 2021 compared to$4.7 billion of municipal bonds,$4.4 billion of which were in the primary market, in the third quarter of 2020. Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.6% in the third quarter of 2021 compared to 8.0% in the third quarter of 2020. Total pricing, which reflects both gross written premiums and MSC from new business, increased to 69 basis points in the third quarter of 2021 compared to 63 basis points in the third quarter of 2020. See "NON-GAAP FINANCIAL MEASURES" on page 85. The increase in total pricing was driven primarily by an increase in pricing in the primary and secondary markets in the third quarter of 2021. Pricing in the primary market increased to 59 basis points in the third quarter of 2021 compared to 57 basis points in the third quarter of 2020. Pricing in the secondary and assumed reinsurance markets, which is more transaction specific than pricing in the primary market, increased to 309 basis points in the third quarter of 2021 compared to 154 basis points in the third quarter of 2020. Demand remained strong for insured bonds of issuers rated double-A minus or higher. 60 -------------------------------------------------------------------------------- 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 three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, $ in Millions 2021 2020 Gross par value of primary market policies issued$ 3,813.7 $ 4,420.8 Gross par value of secondary market policies issued 157.4 318.7 Gross par value of assumed reinsurance - - Total gross par value of market policies issued$ 3,971.1 $ 4,739.5 Gross written premiums$ 12.8 $ 14.4 MSC collected 14.7 15.4 Total gross written premiums and MSC collected$ 27.5 $ 29.8 Present value of future installment MSC collections - -
Gross written premium adjustments on existing installment
policies
.1 .1 Gross written premiums and MSC from new business$ 27.6 $ 29.9 Total pricing 69 bps 63 bps HG Global reported pre-tax income of$7 million in the third quarter of 2021 compared to pre-tax income of$10 million in the third quarter of 2020. The change in pre-tax income was driven primarily by lower investment returns on the HG Global investment portfolio, as interest rates increased in the third quarter of 2021 resulting in net unrealized losses, and a decrease in interest income on the BAM Surplus Notes. Results in the third quarter of 2021 included$3 million of interest income on the BAM Surplus Notes compared to$5 million in the third quarter of 2020. Interest income on the BAM Surplus Notes decreased due to both a decrease in the balance of the BAM Surplus Notes and a decrease in the interest rate earned on the BAM Surplus Notes in the third quarter of 2021 compared to the third quarter of 2020. BAM is a mutual insurance company that is owned by its members. BAM's results are consolidated intoWhite Mountains's GAAP financial statements and attributed to non-controlling interests.White Mountains reported$15 million of GAAP pre-tax loss from BAM in the third quarter of 2021 compared to$11 million third quarter of 2020. The change in pre-tax loss was driven primarily by lower investment returns on the BAM investment portfolio, as interest rates increased in the third quarter of 2021 resulting in net unrealized losses, partially offset by a decrease in interest expense on the BAM Surplus Notes. Results in the third quarter of 2021 included$3 million of interest expense on the BAM Surplus Notes compared to$5 million in the third quarter of 2020. Interest expense on the BAM Surplus Notes decreased due to both a decrease in the balance of the BAM Surplus Notes and a decrease in the interest rate earned on the BAM Surplus Notes in the third quarter of 2021 compared to the third quarter of 2020. Results in the third quarter of 2021 also included$12 million of general and administrative expenses compared to$13 million in the third quarter of 2020.
COVID-19
BAM expects that investor concerns about the impact of the COVID-19 pandemic should continue to result in both increased insured penetration in the primary market and opportunities in the secondary market. The COVID-19 pandemic is negatively impacting the finances of municipalities to varying degrees, and, over time, financial stress could emerge. BAM's existing credit portfolio is of high quality and structured to be resilient during economic slowdowns. BAM views consumption-based tax-backed credits (sales, hotel, excise), transportation-related credits (airports, mass transportation, ports and toll roads) and higher education-related credits as those most likely to be affected by pandemic-related impacts on the economy. Combined, these sectors total approximately 17% of BAM's outstanding insured par. All BAM-insured bond payments due throughNovember 1, 2021 have been made by insureds. BAM currently has no insured bonds on its insured credit watchlist. 61 -------------------------------------------------------------------------------- HG Global/BAM Results-Nine Months EndedSeptember 30, 2021 versus Nine Months EndedSeptember 30, 2020 Gross written premiums and MSC collected in the HG Global/BAM segment totaled$84 million in the first nine months of 2021 compared to$93 million in the first nine months of 2020. BAM insured$12.6 billion of municipal bonds,$11.2 billion of which were in the primary market, in the first nine months of 2021 compared to$11.8 billion of municipal bonds,$10.1 billion of which were in the primary market, in the first nine months of 2020. In the first quarter of 2021, BAM completed an assumed reinsurance transaction to reinsure municipal bonds with a par value of$805 million . Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.1% in the first nine months of 2021 compared to 7.1% in the first nine months of 2020. Total pricing, which reflects both gross written premiums and MSC from new business, decreased to 66 basis points in the first nine months of 2021 compared to 79 basis points in the first nine months of 2020. See "NON-GAAP FINANCIAL MEASURES" on page 85. The decrease in total pricing was driven primarily by a decrease in pricing and the amount of par insured in the secondary market in the first nine months of 2021, partially offset by the assumed reinsurance transaction in the first quarter of 2021. Pricing in the primary market was 56 basis points in both the first nine months of 2021 and 2020. Pricing in the secondary and assumed reinsurance markets, which is more transaction specific than pricing in the primary market, decreased to 150 basis points in the first nine months of 2021 compared to 210 basis points in the first nine months of 2020. Demand remained strong for insured bonds of issuers rated double-A minus or higher. 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 nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, $ in Millions 2021 2020 Gross par value of primary market policies issued$ 11,171.2 $ 10,125.0 Gross par value of secondary market policies issued 646.6 1,665.7 Gross par value of assumed reinsurance 805.5 36.9 Total gross par value of market policies issued$ 12,623.3 $ 11,827.6 Gross written premiums 39.0$ 45.6 MSC collected 44.8 46.9 Total gross written premiums and MSC collected $ 83.8$ 92.5 Present value of future installment MSC collections - .3
Gross written premium adjustments on existing installment
policies
.1 .1 Gross written premiums and MSC from new business $ 83.9$ 92.9 Total pricing 66 bps 79 bps 62
-------------------------------------------------------------------------------- HG Global reported pre-tax income of$16 million in the first nine months of 2021 compared to pre-tax income of$42 million in the first nine months of 2020. The change in pre-tax income was driven primarily by lower investment returns on the HG Global investment portfolio, as interest rates rose in the first nine months of 2021 resulting in unrealized losses and declined in the first nine months of 2020 resulting in unrealized gains, and a decrease in interest income on the BAM Surplus Notes. Results in the first nine months of 2021 included$9 million of interest income on the BAM Surplus Notes compared to$14 million in the first nine months of 2020. Interest income on the BAM Surplus Notes decreased due to both a decrease in the balance of the BAM Surplus Notes and a decrease in the interest rate earned on the BAM Surplus Notes in the first nine months of 2021 compared to the first nine months of 2020.White Mountains reported$47 million of GAAP pre-tax loss from BAM in the first nine months of 2021 compared to$31 million in the first nine months of 2020. The change in pre-tax loss was driven primarily by lower investment returns on BAM's investment portfolio, as interest rates rose in the first nine months of 2021 resulting in unrealized losses and declined in the first nine months of 2020 resulting in unrealized gains, partially offset by a decrease in interest expense on the BAM Surplus Notes. Results in the first nine months of 2021 included$9 million of interest expense on the BAM Surplus Notes compared to$14 million in the first nine months of 2020. Interest expense on the BAM Surplus Notes decreased due to both a decrease in the balance of the BAM Surplus Notes and a decrease in the interest rate earned on the BAM Surplus Notes in the first nine months of 2021 compared to the first nine months of 2020. Results in the first nine months of 2021 also included$41 million of general and administrative expenses compared to$40 million in the first nine months of 2020. Claims Paying Resources BAM's "claims paying resources" represents 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$1,181 million as ofSeptember 30, 2021 compared to$987 million as ofDecember 31, 2020 and$968 million as ofSeptember 30, 2020 . In the first quarter of 2021, BAM completed a reinsurance agreement with Fidus Re that increased BAM's claims paying resources by$150 million . The reinsurance agreement with Fidus Re is accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses as the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance. The following table presents BAM's total claims paying resources as ofSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 : September 30, December 31, Millions 2021 2020 September 30, 2020 Policyholders' surplus $ 322.8$ 324.7 $ 347.2 Contingency reserve 102.7 86.4 81.6
Qualified statutory capital 425.5 411.1 428.8 Net unearned premiums 48.3 45.2 43.6
Present value of future installment
premiums and MSC 13.9 14.0 14.4
statutory value 442.8 417.0 381.0
statutory value 250.0 100.0 100.0
Claims paying resources $ 1,180.5 $ 987.3 $ 967.8
63
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IGI’s Financial Strength Ratings Affirmed by AM Best Global
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