Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
    
FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

November 5, 2018

Date of Report (Date of earliest event reported)

WHITE MOUNTAINS INSURANCE GROUP, LTD.

(Exact name of registrant as specified in its charter)

Bermuda 
(State or other jurisdiction of
 incorporation or organization)
1-8993 
(Commission file number)
94-2708455 
(I.R.S. Employer Identification No.)

80 South Main Street, Hanover, New Hampshire 03755
(Address of principal executive offices)

(603) 640-2200

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On November 5, 2018, White Mountains Insurance Group, Ltd. issued a press release announcing its results for the three and nine months ended September 30, 2018. The press release furnished herewith is attached as Exhibit 99.1 to this Form 8-K. Certain information included in the press release constitutes non-GAAP financial measures (as defined in Regulation G of the Securities and Exchange Commission). Specifically, the three non-GAAP financial measures disclosed in the press release include (i) adjusted book value per share (ii) gross written premiums and member surplus contributions (“MSC”) from new business and (iii) adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). These non-GAAP financial measures have been reconciled to their most comparable GAAP financial measures.

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 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. 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 surplus notes, the present value of the BAM surplus notes, including accrued interest, was estimated to be $151 million, $155 million, $162 million and $167 million less than the nominal GAAP carrying values as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, respectively. The value of HG Global’s unearned premium reserve, net of deferred acquisition costs, was $94 million, $93 million, $82 million and $71 million as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, 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 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. The reconciliation of GAAP book value per share to adjusted book value per share is included on page 6 of Exhibit 99.1 to this Form 8-K.

Gross written premiums and MSC from new business is a non-GAAP financial measure, which is derived by adjusting gross written premiums (i) to add MSC, (ii) to include the present value of future installment MSC not yet collected and (iii) to exclude the impact of gross written premium adjustments related to policies closed in prior periods. White Mountains believes these adjustments are useful to investors in evaluating the volume and pricing of new business closed during the period. The reconciliation of GAAP gross written premiums to gross written premiums and MSC from new business is included on page 11 of Exhibit 99.1 to this Form 8-K.

Adjusted EBITDA is a non-GAAP financial measure, which is defined as net income (loss) excluding interest expense on debt, income tax benefit (expense), depreciation and amortization, and certain adjustments at NSM and MediaAlpha. In the case of NSM, adjusted EBITDA also excludes the change in the fair value of NSM’s contingent earnout liability related to prior transactions. In the case of MediaAlpha, adjusted EBITDA also excludes non-cash equity-based compensation expense. White Mountains believes that adjusted EBITDA is useful to management and investors in analyzing NSM’s and MediaAlpha's fundamental economic performance. White Mountains believes that investors commonly use adjusted EBITDA as a supplemental measurement to evaluate the overall operating performance of companies within the same industry. A schedule is included on page 12 of Exhibit 99.1 to this Form 8-K that reconciles MediaAlpha’s GAAP net loss to adjusted EBITDA.


2


ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits

99.1 Press Release of White Mountains Insurance Group, Ltd. dated November 5, 2018, furnished herewith.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
WHITE MOUNTAINS INSURANCE GROUP, LTD.
 
November 5, 2018
 
By:
/s/   J. BRIAN PALMER    
       J. Brian Palmer
      Managing Director and
       Chief Accounting Officer
 

3
Exhibit
Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12529630&doc=3
 
CONTACT: Todd Pozefsky
(203) 458-5807

WHITE MOUNTAINS REPORTS THIRD QUARTER RESULTS

HAMILTON, Bermuda (November 5, 2018) - White Mountains Insurance Group, Ltd. (NYSE: WTM) reported book value per share of $938 and adjusted book value per share of $926 as of September 30, 2018. Book value per share and adjusted book value per share both increased 2% in the third quarter of 2018 and 1% in the first nine months of 2018, including dividends. Comprehensive income (loss) attributable to common shareholders was $40 million and $(5) million in the third quarter and first nine months of 2018, compared to comprehensive income attributable to common shareholders of $565 million and $608 million in the third quarter and first nine months of 2017, which included the gain from the sale of OneBeacon.

Manning Rountree, CEO, commented, “Overall results in the quarter were solid, with ABVPS up 2%. The components were mixed. Our investment portfolio was up 3.1%, a strong result driven by equities. BAM had a slow quarter, with premiums and MSC from new business dipping to $16 million, reflecting lower pricing levels. NSM had solid results, with modest growth in premiums. MediaAlpha posted record results, yet again. Kudu announced their first transaction in the quarter and two more in October, deploying $63 million of capital in total.  More broadly, we continue to pursue capital deployment opportunities with energy, rigor and discipline.”

HG Global/BAM

BAM’s gross written premiums and member surplus contributions (MSC) from new business totaled $16 million and $56 million in the third quarter and first nine months of 2018, compared to $19 million and $68 million in the third quarter and first nine months of 2017. BAM insured municipal bonds with par value of $2.2 billion and $6.6 billion in the third quarter and first nine months of 2018, compared to $2.0 billion and $7.1 billion in the third quarter and first nine months of 2017. Total pricing was 75 and 91 basis points in the third quarter and first nine months of 2018, compared to 103 and 99 basis points in the third quarter and first nine months of 2017. BAM’s total claims paying resources were $835 million at September 30, 2018, compared to $708 million at December 31, 2017 and $687 million at September 30, 2017. The increase in claims paying resources was primarily driven by the $100 million reinsurance agreement with Fidus Re completed in the second quarter of 2018.

Seán McCarthy, CEO of BAM, said, “BAM’s total par insured was up 6% compared with the same period in 2017, with a higher average transaction size and more active institutional buying. While pricing was lower in the quarter, risk adjusted pricing remained at healthy levels. BAM posted another quarter of organic growth in claims-paying resources.”





HG Global reported pre-tax income of $8 million and $21 million in the third quarter and first nine months of 2018, compared to pre-tax income of $7 million and $20 million in the third quarter and first nine months of 2017. White Mountains reported pre-tax loss related to BAM of $17 million and $53 million in the third quarter and first nine months of 2018, compared to pre-tax loss of $12 million and $36 million in the third quarter and first nine months of 2017. The changes at BAM were driven primarily by lower investment returns in 2018, primarily from unrealized losses on fixed income investments, as interest rates rose during the quarter.

BAM is a mutual insurance company that is owned by its members.  BAM’s results are consolidated into White Mountains’s GAAP financial statements and attributed to non-controlling interests.

NSM

NSM reported a pre-tax loss of $5 million and $2 million for the third quarter of 2018 and the period from May 11, 2018 (the closing date of White Mountains’s acquisition of NSM) through September 30, 2018. NSM’s adjusted EBITDA was $6 million and $11 million in the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM reported revenues of $40 million and $63 million in the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM’s pre-tax loss in the third quarter of 2018 included $5 million of amortization of other intangible assets, $2 million of which related to the period from May 11, 2018 to June 30, 2018, as well as $3 million of general and administrative expenses related to the change in the fair value of NSM’s contingent consideration earnout liabilities related to prior acquisitions.

Geof McKernan, CEO of NSM, said, “We continue to grow our business organically across our specialty divisions while also investing in technology and people. We remain acquisitive, with a strong appetite for profitable specialty insurance businesses in the United States and United Kingdom.”

MediaAlpha

MediaAlpha reported pre-tax income of $5 million and $9 million in the third quarter and first nine months of 2018, compared to pre-tax loss of $1 million and $3 million in the third quarter and first nine months of 2017. MediaAlpha’s adjusted EBITDA was $8 million and $25 million in the third quarter and first nine months of 2018, compared to $2 million and $5 million in the third quarter and first nine months of 2017. MediaAlpha reported revenues of $75 million and $218 million in the third quarter and first nine months of 2018, compared to $38 million and $101 million in the third quarter and first nine months of 2017. The increases in pre-tax income, adjusted EBITDA and revenues for both periods were primarily driven by growth in the P&C vertical and the Health, Medicare and Life vertical, which includes the impact of the acquisition of assets from Healthplans.com in the fourth quarter of 2017.

Cost of sales was $62 million and $179 million in the third quarter and first nine months of 2018, compared to $32 million and $86 million in the third quarter and first nine months of 2017. The increase in cost of sales was primarily driven by transaction volume growth. General and administrative expenses were $5 million and $21 million in the third quarter and first nine months of 2018, compared to $4 million and $11 million in the third quarter and first nine months of 2017. The increase for the first nine months of 2018 compared to the first nine months of 2017 was primarily driven by the recognition of non-cash equity-based compensation expense of $7 million in the first nine months of 2018.


2


Other Operations

White Mountains’s Other Operations segment reported pre-tax income (loss) of $53 million and $(9) million in the third quarter and first nine months of 2018, compared to pre-tax income of $14 million and $21 million in the third quarter and first nine months of 2017. The changes were driven primarily by (i) higher investment returns in the third quarter of 2018 and lower investment returns in the first nine months of 2018 compared to the same periods of 2017 and (ii) a reduction in general and administrative expenses. Net realized and unrealized gains were $70 million and $37 million in the third quarter and first nine months of 2018, compared to net realized and unrealized gains of $32 million and $99 million in the third quarter and first nine months of 2017. Net investment income was $9 million and $32 million in the third quarter and first nine months of 2018, compared to $9 million and $31 million in the third quarter and first nine months of 2017.

General and administrative expenses were $26 million and $79 million in the third quarter and first nine months of 2018, compared to $27 million and $114 million in the third quarter and first nine months of 2017. The decrease for the first nine months of 2018 compared to the first nine months of 2017 was primarily driven by lower incentive compensation costs.

In late October, the Swedish Administrative Court ruled against Sirius Group on its appeal of the Swedish Tax Agency’s denial of certain interest deductions relating to periods prior to the sale of Sirius Group to CMI in 2016. In connection with the sale, White Mountains indemnified Sirius Group against the loss of these interest deductions. As a result, in the third quarter, White Mountains recorded a loss of $17 million within discontinued operations, reflecting the value of these interest deductions. Sirius Group intends to appeal the decision to the Swedish Administrative Court of Appeal.

Share Repurchases

White Mountains did not repurchase any common shares in the third quarter of 2018. For the first nine months of 2018, White Mountains repurchased and retired 585,033 of its common shares for $513 million at an average share price of $877, or approximately 95% of White Mountains’s September 30, 2018 adjusted book value per share. As of September 30, 2018, White Mountains had approximately $1.4 billion of undeployed capital.

Investments

The total return on invested assets was 3.1% in the third quarter of 2018 and 2.8% in the first nine months of 2018.  This compares to a return of 1.4% in the third quarter of 2017 and 4.3% in the first nine months of 2017. 

Mark Plourde, Managing Director of White Mountains Advisors, said, “The total portfolio was up 3.1% for the quarter, driven by strong absolute returns in our equity portfolio. The fixed income portfolio returned 0.4%, outperforming the BBIA Index return of 0.1%.  Common stocks and ETFs returned 6.1%, underperforming the S&P 500 return of 7.7%. The relative underperformance was attributable to our international stock positions.  Other long-term investments returned 6.5%, primarily driven by strong returns in our private equity portfolio.”

Additional Information
    
White Mountains is a Bermuda-domiciled financial services holding company traded on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol WTM. Additional financial information and other items of interest are available at the company’s website located at www.whitemountains.com. White Mountains expects to file its Form 10-Q today with the Securities and Exchange Commission and urges shareholders to refer to that document for more complete information concerning its financial results.



3


WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
 
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Assets
 
 
 
 
 
 

   Financial Guarantee (HG Global/BAM)
 
 
 
 
 
 
     Fixed maturity investments
 
$
677.7

 
$
623.6

 
$
631.4

     Short-term investments
 
35.9

 
69.8

 
75.8

Total investments
 
713.6

 
693.4

 
707.2

     Cash
 
17.9

 
25.6

 
19.2

     Insurance premiums receivable
 
6.3

 
4.5

 
4.5

     Deferred acquisition costs
 
17.6

 
14.8

 
14.1

     Accrued investment income
 
4.8

 
3.4

 
3.3

     Accounts receivable on unsettled investment sales
 
.2

 
.1

 
12.5

     Other assets
 
5.1

 
5.6

 
5.0

Total Financial Guarantee assets
 
765.5

 
747.4

 
765.8

 
 
 
 
 
 
 
Specialty Insurance Distribution (NSM)
 
 
 
 
 
 
     Short-term investments
 
.9

 

 

     Cash
 
60.6

 

 

Premium and commission receivable
 
29.1

 

 

     Goodwill and other intangible assets
 
431.0

 

 

     Other assets
 
18.8

 

 

Total Specialty Insurance Distribution assets
 
540.4

 

 

 
 
 
 
 
 
 
   Marketing Technology (MediaAlpha)
 
 
 
 
 
 
     Cash
 
13.0

 
9.1

 
5.3

     Goodwill and other intangible assets
 
45.9

 
53.7

 
29.3

     Accounts receivable from publishers and advertisers
 
35.9

 
32.4

 
21.6

     Other assets
 
2.2

 
1.3

 
.9

Total Marketing Technology assets
 
97.0

 
96.5

 
57.1

 
 
 
 
 
 
 
   Other
 
 
 
 
 
 
     Fixed maturity investments
 
354.2

 
1,506.1

 
858.6

     Short-term investments
 
276.9

 
106.3

 
710.7

     Common equity securities
 
1,043.5

 
866.1

 
774.4

     Other long-term investments
 
289.7

 
208.8

 
229.6

Total investments
 
1,964.3

 
2,687.3

 
2,573.3

     Cash
 
20.7

 
62.4

 
24.1

     Accrued investment income
 
5.7

 
13.9

 
12.1

     Accounts receivable on unsettled investment sales
 
3.3

 
20.9

 
177.6

     Goodwill and other intangible assets
 
8.3

 
8.4

 
8.5

     Other assets
 
14.3

 
19.1

 
11.7

     Assets held for sale - Other
 
3.3

 
3.3

 
6.9

Total Other assets
 
2,019.9

 
2,815.3

 
2,814.2

Total assets
 
$
3,422.8

 
$
3,659.2

 
$
3,637.1







4


WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(millions)
(Unaudited)
 
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Liabilities
 
 
 
 

 
 
   Financial Guarantee (HG Global/BAM)
 
 
 
 
 
 
     Unearned insurance premiums
 
$
156.2

 
$
136.8

 
$
118.5

     Accounts payable on unsettled investment purchases
 
6.5

 
.6

 
44.1

     Other liabilities
 
30.0

 
29.6

 
24.8

Total Financial Guarantee liabilities
 
192.7

 
167.0

 
187.4

 
 
 
 
 
 
 
Specialty Insurance Distribution (NSM)
 
 
 
 
 
 
Debt
 
149.3

 

 

Premiums payable
 
56.6

 

 

Contingent consideration earnout liabilities
 
20.1

 

 

     Other liabilities
 
27.7

 

 

Total Specialty Insurance Distribution liabilities
 
253.7

 

 

 
 
 
 
 
 
 
   Marketing Technology (MediaAlpha)
 
 
 
 
 
 
     Debt
 
15.0

 
23.8

 
9.4

     Amounts due to publishers and advertisers
 
37.7

 
31.6

 
21.4

     Other liabilities
 
3.9

 
4.4

 
2.5

Total Marketing Technology liabilities
 
56.6

 
59.8

 
33.3

 
 
 
 
 
 
 
   Other
 
 
 
 
 
 
     Accrued incentive compensation
 
40.3

 
60.6

 
61.9

     Accounts payable on unsettled investment purchases
 
14.2

 

 
5.6

     Other liabilities
 
25.7

 
11.0

 
11.7

Total Other liabilities
 
80.2

 
71.6

 
79.2

Total liabilities
 
583.2

 
298.4

 
299.9

 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
White Mountains's common shareholder's equity
 
 
 
 
 
 
     White Mountains’s common shares and paid-in surplus
 
579.5

 
670.6

 
669.3

     Retained earnings
 
2,407.3

 
2,823.2

 
2,800.8

Accumulated other comprehensive loss, after tax:
 
 
 
 
 
 
  Net unrealized foreign currency translation losses and interest rate swap
 
(2.8
)
 
(1.3
)
 
(1.3
)
Total White Mountains’s common shareholders’ equity
 
2,984.0

 
3,492.5

 
3,468.8

Non-controlling interests
 
(144.4
)
 
(131.7
)
 
(131.6
)
Total equity
 
2,839.6

 
3,360.8

 
3,337.2

Total liabilities and equity
 
$
3,422.8

 
$
3,659.2

 
$
3,637.1



5


WHITE MOUNTAINS INSURANCE GROUP, LTD.
BOOK VALUE AND ADJUSTED BOOK VALUE PER SHARE
(Unaudited)
 
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
Book value per share numerators (in millions):
 
 
 
 
 
 
 
 
White Mountains’s common shareholders’ equity - GAAP book value per
   share numerator
 
$
2,984.0

 
$
2,940.1

 
$
3,492.5

 
$
3,468.8

Time value of money discount on expected future payments on the
   BAM Surplus Notes (1)
 
(146.3
)
 
(150.1
)
 
(157.0
)
 
(161.8
)
HG Global’s unearned premium reserve (1)
 
120.2

 
119.5

 
103.9

 
88.4

HG Global’s net deferred acquisition costs (1)
 
(29.4
)
 
(29.1
)
 
(24.3
)
 
(19.6
)
Adjusted book value per share numerator
 
$
2,928.5

 
$
2,880.4

 
$
3,415.1

 
$
3,375.8

Book value per share denominators (in thousands of shares):
 
 
 
 
 
 
 
 
Common shares outstanding - GAAP book value per share denominator
 
3,180.5

 
3,180.4

 
3,750.2

 
3,750.0

Unearned restricted common shares
 
(18.5
)
 
(22.4
)
 
(16.8
)
 
(22.7
)
Adjusted book value per share denominator
 
3,162.0

 
3,158.0

 
3,733.4

 
3,727.3

GAAP book value per share
 
$
938.19

 
$
924.46

 
$
931.30

 
$
925.04

Adjusted book value per share
 
$
926.14

 
$
912.08

 
$
914.75

 
$
905.72

 
 
 
 
 
 
 
 
 
(1) Amount reflects White Mountains's preferred share ownership in HG Global of 96.9%.
 
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
 
 
 
 
 
 
 
 
 
Quarter-to-date change in GAAP book value per share,
   including dividends:
 
1.5
%
 
0.9
 %
 
0.7
%
 
16.9
%
Quarter-to-date change in adjusted book value per share,
   including dividends:
 
1.5
%
 
1.0
 %
 
1.0
%
 
17.1
%
Year-to-date change in GAAP book value per share,
   including dividends:
 
0.8
%
 
(0.6
)%
 
18.8
%
 
18.0
%
Year-to-date change in adjusted book value per share,
   including dividends:
 
1.4
%
 
(0.2
)%
 
16.1
%
 
14.9
%
Year-to-date dividends per share
 
$
1.00

 
$
1.00

 
$
1.00

 
$
1.00

 
 
 
 
 
 
 
 
 
 
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017
 
September 30,
2017
Summary of goodwill and other intangible assets (in millions):
 
 
 
 
 
 
 
 
Goodwill:
 
 
 
 
 
 
 
 
NSM
 
$
295.5

 
$
436.2

 
$

 
$

MediaAlpha
 
18.3

 
18.3

 
18.3

 
18.3

Other
 
7.6

 
7.6

 
7.6

 
7.6

Total goodwill
 
321.4

 
462.1

 
25.9

 
25.9

 
 
 
 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
 
 
 
NSM
 
135.5

 

 

 

MediaAlpha
 
27.6

 
30.0

 
35.4

 
11.0

Other
 
.7

 
.7

 
.8

 
.9

Total other intangible assets
 
163.8

 
30.7

 
36.2

 
11.9

 
 
 
 
 
 
 
 
 
Total goodwill and other intangible assets
 
485.2

 
492.8

 
62.1

 
37.8

 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets attributed to
   non-controlling interests
 
(40.6
)
 
(41.7
)
 
(21.1
)
 
(13.7
)
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets included in White Mountains's
common shareholders' equity
 
$
444.6

 
$
451.1

 
$
41.0

 
$
24.1


6




WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
   Financial Guarantee (HG Global/BAM)
 
 
 
 
 
 
 
 
     Earned insurance premiums
 
$
3.3

 
$
2.4

 
$
9.7

 
$
6.6

     Net investment income
 
4.8

 
3.3

 
12.5

 
8.9

     Net realized and unrealized investment (losses) gains
 
(4.1
)
 
.8

 
(14.4
)
 
3.2

     Other revenues
 
.2

 
.2

 
.8

 
.8

Total Financial Guarantee revenues
 
4.2

 
6.7

 
8.6

 
19.5

Specialty Insurance Distribution (NSM)
 
 
 
 
 
 
 
 
Commission revenues
 
36.6

 

 
59.2

 

Other revenues
 
3.1

 

 
4.0

 

Total Specialty Insurance Distribution revenues
 
39.7

 

 
63.2

 

   Marketing Technology (MediaAlpha)
 
 
 
 
 
 
 
 
     Advertising and commission revenues
 
74.5

 
37.9

 
216.4

 
101.2

     Other revenues
 

 

 
1.6

 

Total Marketing Technology revenues
 
74.5

 
37.9

 
218.0

 
101.2

   Other
 
 
 
 
 
 
 
 
     Net investment income
 
8.6

 
8.9

 
32.4

 
30.8

     Net realized and unrealized investment gains
 
70.2

 
31.7

 
37.3

 
99.3

     Advertising and commission revenues
 
1.1

 
.9

 
3.0

 
2.7

     Other revenues
 
.4

 
1.4

 
.6

 
6.3

Total Other revenues
 
80.3

 
42.9

 
73.3

 
139.1

Total revenues
 
198.7

 
87.5

 
363.1

 
259.8

Expenses:
 
 
 
 
 
 
 
 
   Financial Guarantee (HG Global/BAM)
 
 
 
 
 
 
 
 
     Insurance acquisition expenses
 
1.2

 
.9

 
3.9

 
3.0

     Other underwriting expenses
 
.1

 
.1

 
.3

 
.3

     General and administrative expenses
 
11.3

 
10.6

 
36.5

 
31.5

Total Financial Guarantee expenses
 
12.6

 
11.6

 
40.7

 
34.8

Specialty Insurance Distribution (NSM)
 
 
 
 
 
 
 
 
     General and administrative expenses
 
25.8

 

 
37.9

 

     Broker commission expense
 
10.9

 

 
17.5

 

     Amortization of other intangible assets
 
5.0

 

 
5.0

 

     Interest expense
 
3.2

 

 
4.8

 

Total Specialty Insurance Distribution expenses
 
44.9

 

 
65.2

 

   Marketing Technology (MediaAlpha)
 
 
 
 
 
 
 
 
     Cost of sales
 
61.8

 
32.2

 
179.1

 
86.0

     General and administrative expenses
 
5.4

 
3.8

 
21.2

 
10.7

     Amortization of other intangible assets
 
2.4

 
2.3

 
7.8

 
7.2

     Interest expense
 
.2

 
.1

 
.9

 
.6

Total Marketing Technology expenses
 
69.8

 
38.4

 
209.0

 
104.5

   Other
 
 
 
 
 
 
 
 
     Cost of sales
 
1.1

 
.9

 
2.9

 
2.7

     General and administrative and other expenses
 
26.0

 
27.3

 
79.0

 
113.9

     Amortization of other intangible assets
 

 
.1

 
.1

 
.1

     Interest expense
 

 
.8

 
.3

 
1.2

Total Other expenses
 
27.1

 
29.1

 
82.3

 
117.9

Total expenses
 
154.4

 
79.1

 
397.2

 
257.2

Pre-tax income (loss) from continuing operations
 
44.3

 
8.4

 
(34.1
)
 
2.6

Income tax benefit
 
3.6

 
4.0

 
.4

 
5.3

Net income (loss) from continuing operations
 
47.9

 
12.4

 
(33.7
)
 
7.9

Net (loss) gain from sale of discontinued operations, net of tax
 
(17.3
)
 
554.3

 
(17.2
)
 
552.7

Net (loss) income from discontinued operations, net of tax
 

 
(15.2
)
 

 
20.5

Net income (loss)
 
30.6

 
551.5

 
(50.9
)
 
581.1

Net loss attributable to non-controlling interests
 
10.2

 
10.6

 
47.2

 
23.6

Net income (loss) attributable to White Mountains’s common shareholders
 
$
40.8

 
$
562.1

 
$
(3.7
)
 
$
604.7



7






WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions)
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss) attributable to White Mountains’s common shareholders
 
$
40.8

 
$
562.1

 
$
(3.7
)
 
$
604.7

Other comprehensive (loss) income, net of tax
 
(.8
)
 

 
(1.7
)
 
.2

Comprehensive income from discontinued operations, net of tax
 

 
3.0

 

 
3.2

Comprehensive income (loss)
 
40.0

 
565.1

 
(5.4
)
 
608.1

Other comprehensive income attributable to non-controlling interests
 
.2

 

 
.2

 
(.1
)
Comprehensive income (loss) attributable to White Mountains’s
   common shareholders
 
$
40.2

 
$
565.1

 
$
(5.2
)
 
$
608.0



WHITE MOUNTAINS INSURANCE GROUP, LTD.
EARNINGS PER SHARE
(Unaudited)

Income (loss) per share attributable to White Mountains’s
    common shareholders
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Basic income (loss) per share
 
 
 
 
 
 
 
 
Continuing operations
 
$
18.27

 
$
5.36

 
$
3.90

 
$
7.03

Discontinued operations
 
(5.44
)
 
125.45

 
(4.98
)
 
128.03

Total consolidated operations
 
$
12.83

 
$
130.81

 
$
(1.08
)
 
$
135.06

 
 
 
 
 
 
 
 
 
Diluted income (loss) per share
 
 
 
 
 
 
 
 
Continuing operations
 
$
18.27

 
$
5.36

 
$
3.90

 
$
7.03

Discontinued operations
 
(5.44
)
 
125.45

 
(4.98
)
 
128.03

Total consolidated operations
 
$
12.83

 
$
130.81

 
$
(1.08
)
 
$
135.06

Dividends declared per White Mountains’s common share
 
$

 
$

 
$
1.00

 
$
1.00



8


WHITE MOUNTAINS INSURANCE GROUP, LTD.
QTD SEGMENT STATEMENTS OF PRE-TAX INCOME (LOSS)
(millions)
(Unaudited)

For the Three Months Ended September 30, 2018
 
HG Global/BAM
 
 
 
 
 
 
 
 
 
 
HG Global
 
BAM
 
NSM
 
MediaAlpha
 
Other
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Earned insurance premiums
 
$
2.6

 
$
.7

 
$

 
$

 
$

 
$
3.3

Net investment income
 
1.6

 
3.2

 

 

 
8.6

 
13.4

Net investment income (loss) - BAM surplus note interest
 
5.7

 
(5.7
)
 

 

 

 

Net realized and unrealized investment (losses) gains
 
(.7
)
 
(3.4
)
 

 

 
70.2

 
66.1

Advertising and commission revenues
 

 

 
36.6

 
74.5

 
1.1

 
112.2

Other revenues
 

 
.2

 
3.1

 

 
.4

 
3.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
9.2

 
(5.0
)
 
39.7

 
74.5

 
80.3

 
198.7

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Insurance acquisition expenses
 
.6

 
.6

 

 

 

 
1.2

Other underwriting expenses
 

 
.1

 

 

 

 
.1

Cost of sales
 

 

 

 
61.8

 
1.1

 
62.9

General and administrative expenses
 
.2

 
11.1

 
25.8

 
5.4

 
26.0

 
68.5

Broker commission expense
 

 

 
10.9

 

 

 
10.9

Amortization of other intangible assets
 

 

 
5.0

 
2.4

 

 
7.4

Interest expense
 

 

 
3.2

 
.2

 

 
3.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
.8

 
11.8

 
44.9

 
69.8

 
27.1

 
154.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-tax income (loss)
 
$
8.4

 
$
(16.8
)
 
$
(5.2
)
 
$
4.7

 
$
53.2

 
$
44.3



For the Three Months Ended September 30, 2017
 
HG Global/BAM
 
 
 
 
 
 
 
 
HG Global
 
BAM
 
MediaAlpha
 
Other
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
Earned insurance premiums
 
$
1.8

 
$
.6

 
$

 
$

 
$
2.4

Net investment income
 
1.0

 
2.3

 

 
8.9

 
12.2

Net investment income (loss) - BAM surplus note interest
 
4.8

 
(4.8
)
 

 

 

Net realized and unrealized investment gains
 
.1

 
.7

 

 
31.7

 
32.5

Advertising and commission revenues
 

 

 
37.9

 
.9

 
38.8

Other revenues
 

 
.2

 

 
1.4

 
1.6

 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
7.7

 
(1.0
)
 
37.9

 
42.9

 
87.5

Expenses:
 
 
 
 
 
 
 
 
 
 
Insurance acquisition expenses
 
.4

 
.5

 

 

 
.9

Other underwriting expenses
 

 
.1

 

 

 
.1

Cost of sales
 

 

 
32.2

 
.9

 
33.1

General and administrative expenses
 
.3

 
10.3

 
3.8

 
27.3

 
41.7

Amortization of other intangible assets
 

 

 
2.3

 
.1

 
2.4

Interest expense
 

 

 
.1

 
.8

 
.9

 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
.7

 
10.9

 
38.4

 
29.1

 
79.1

 
 
 
 
 
 
 
 
 
 
 
Pre-tax income (loss)
 
$
7.0

 
$
(11.9
)
 
$
(.5
)
 
$
13.8

 
$
8.4







9


WHITE MOUNTAINS INSURANCE GROUP, LTD.
YTD SEGMENT STATEMENTS OF PRE-TAX INCOME (LOSS)
(millions)
(Unaudited)

For the Nine Months Ended September 30, 2018
 
HG Global/BAM
 
 
 
 
 
 
 
 
 
 
HG Global
 
BAM
 
NSM (1)
 
MediaAlpha
 
Other
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Earned insurance premiums
 
$
7.6

 
$
2.1

 
$

 
$

 
$

 
$
9.7

Net investment income
 
4.1

 
8.4

 

 

 
32.4

 
44.9

Net investment income (loss) - BAM surplus note interest
 
17.2

 
(17.2
)
 

 

 

 

Net realized and unrealized investment (losses) gains
 
(5.5
)
 
(8.9
)
 

 

 
37.3

 
22.9

Advertising and commission revenues
 

 

 
59.2

 
216.4

 
3.0

 
278.6

Other revenue
 

 
.8

 
4.0

 
1.6

 
.6

 
7.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
23.4

 
(14.8
)
 
63.2

 
218.0

 
73.3

 
363.1

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Insurance acquisition expenses
 
1.8

 
2.1

 

 

 

 
3.9

Other underwriting expenses
 

 
.3

 

 

 

 
.3

Cost of sales
 

 

 

 
179.1

 
2.9

 
182.0

General and administrative expenses
 
.8

 
35.7

 
37.9

 
21.2

 
79.0

 
174.6

Broker commission expense
 

 

 
17.5

 

 

 
17.5

Amortization of other intangible assets
 

 

 
5.0

 
7.8

 
.1

 
12.9

Interest expense
 

 

 
4.8

 
.9

 
.3

 
6.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
2.6

 
38.1

 
65.2

 
209.0

 
82.3

 
397.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-tax income (loss)
 
$
20.8

 
$
(52.9
)
 
$
(2.0
)
 
$
9.0

 
$
(9.0
)
 
$
(34.1
)
(1) NSM's results are from May 11, 2018, the date of acquisition, to the end of the third quarter.

For the Nine Months Ended September 30, 2017
 
HG Global/BAM
 
 
 
 
 
 
 
 
HG Global
 
BAM
 
MediaAlpha
 
Other
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
Earned insurance premiums
 
$
5.0

 
$
1.6

 
$

 
$

 
$
6.6

Net investment income
 
2.4

 
6.5

 

 
30.8

 
39.7

Net investment income (loss) - BAM surplus note interest
 
14.3

 
(14.3
)
 

 

 

Net realized and unrealized investment gains
 
.4

 
2.8

 

 
99.3

 
102.5

Advertising and commission revenues
 

 

 
101.2

 
2.7

 
103.9

Other revenue
 

 
.8

 

 
6.3

 
7.1

 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
22.1

 
(2.6
)
 
101.2

 
139.1

 
259.8

Expenses:
 
 
 
 
 
 
 
 
 
 
Insurance acquisition expenses
 
1.0

 
2.0

 

 

 
3.0

Other underwriting expenses
 

 
.3

 

 

 
.3

Cost of sales
 

 

 
86.0

 
2.7

 
88.7

General and administrative expenses
 
.8

 
30.7

 
10.7

 
113.9

 
156.1

Amortization of other intangible assets
 

 

 
7.2

 
.1

 
7.3

Interest expense
 

 

 
.6

 
1.2

 
1.8

 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
1.8

 
33.0

 
104.5

 
117.9

 
257.2

 
 
 
 
 
 
 
 
 
 
 
Pre-tax income (loss)
 
$
20.3

 
$
(35.6
)
 
$
(3.3
)
 
$
21.2

 
$
2.6





10


WHITE MOUNTAINS INSURANCE GROUP, LTD.
SELECTED FINANCIAL DATA
(millions)
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
BAM
 
2018
 
2017
 
2018
 
2017
Gross par value of primary market policies issued
 
$
2,029.4

 
$
1,872.5

 
$
5,953.6

 
$
6,487.8

Gross par value of secondary market policies issued
 
144.9

 
170.9

 
605.0

 
627.6

Total gross par value of market policies issued
 
$
2,174.3

 
$
2,043.4

 
$
6,558.6

 
$
7,115.4

 
 
 
 
 
 
 
 
 
Gross written premiums
 
$
3.9

 
$
10.9

 
$
28.9

 
$
42.0

Member surplus contributions (MSC) collected
 
12.1

 
8.4

 
26.9

 
25.7

Total gross written premiums and MSC collected
 
$
16.0

 
$
19.3

 
$
55.8

 
$
67.7

Present value of future installment MSC collections
 
.2

 
1.7

 
3.0

 
2.9

Gross written premium adjustments on existing installment policies
 

 

 
1.1

 

Gross written premiums and MSC from new business
 
$
16.2

 
$
21.0

 
$
59.9

 
$
70.6

Total pricing
 
75 bps

 
103 bps

 
91 bps

 
99 bps


 
 
As of
September 30, 2018
 
As of
December 31, 2017
Policyholders’ surplus
 
$
419.8

 
$
427.3

Contingency reserve
 
44.9

 
34.8

Qualified statutory capital
 
464.7

 
462.1

Statutory net unearned premiums
 
33.3

 
30.5

Present value of future installment premiums and MSC
 
12.7

 
9.0

HG Re, Ltd collateral trusts at statutory value
 
223.9

 
206.8

Fidus Re, Ltd collateral trusts at statutory value
 
100.0

 

     Claims paying resources
 
$
834.6

 
$
708.4

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
HG Global
 
2018
 
2017
 
2018
 
2017
Net written premiums
 
$
3.4

 
$
9.0

 
$
24.5

 
$
35.4

Earned premiums
 
$
2.6

 
$
1.8

 
$
7.6

 
$
5.0

 
 
As of
September 30, 2018
 
As of
December 31, 2017
Unearned premiums
 
$
124.1

 
$
107.2

Deferred acquisition costs
 
$
30.3

 
$
25.1



11


WHITE MOUNTAINS INSURANCE GROUP, LTD.
SELECTED FINANCIAL DATA (continued)
(millions)
(Unaudited)

NSM
Three Months Ended September 30, 2018
 
Period Ended
September 30, 2018 (1)
Commission revenues
$
36.6

 
$
59.2

Broker commission expense
10.9

 
17.5

Gross profit
25.7

 
41.7

Other revenue
3.1

 
4.0

General and administrative expenses
25.8

 
37.9

Amortization of other intangible assets
5.0

 
5.0

Interest expense
3.2

 
4.8

GAAP pre-tax loss
(5.2
)
 
(2.0
)
Income tax benefit
(1.6
)
 
(.5
)
GAAP net loss
(3.6
)
 
(1.5
)
 
 
 
 
Add back:
 
 
 
Change in fair value of contingent consideration earnout liabilities
2.6

 
2.6

Interest expense
3.2

 
4.8

Income tax benefit
(1.6
)
 
(.5
)
General and administrative expenses - depreciation
.6

 
1.0

Amortization of other intangible assets
5.0

 
5.0

Adjusted EBITDA
$
6.2

 
$
11.4

(1) NSM’s results are from May 11, 2018, the date of acquisition, to the end of the third quarter.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
MediaAlpha
2018
 
2017
 
2018
 
2017
Advertising and commission revenues
$
74.5

 
$
37.9

 
$
216.4

 
$
101.2

Cost of sales
61.8

 
32.2

 
179.1

 
86.0

Gross profit
12.7

 
5.7

 
37.3

 
15.2

Other revenue

 

 
1.6

 

General and administrative expenses
5.4

 
3.8

 
21.2

 
10.7

Amortization of other intangible assets
2.4

 
2.3

 
7.8

 
7.2

Interest expense
.2

 
.1

 
.9

 
.6

GAAP pre-tax income (loss)
4.7

 
(.5
)
 
9.0

 
(3.3
)
Income tax expense

 

 

 

GAAP net income (loss)
4.7

 
(.5
)
 
9.0

 
(3.3
)
 
 
 
 
 
 
 
 
Add back:
 
 
 
 
 
 
 
Non-cash equity-based compensation expense
.2

 

 
6.9

 

Interest expense
.2

 
.1

 
.9

 
.6

Income tax expense

 

 

 

General and administrative expenses - depreciation
.2

 

 
.2

 
.1

Amortization of other intangible assets
2.4

 
2.3

 
7.8

 
7.2

Adjusted EBITDA
$
7.7

 
$
1.9

 
$
24.8

 
$
4.6



12


Regulation G

This earnings release includes three non-GAAP financial measures that have been reconciled to their most comparable GAAP financial measures.
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 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. 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 surplus notes, the present value of the BAM surplus notes, including accrued interest, was estimated to be $151 million, $155 million, $162 million and $167 million less than the nominal GAAP carrying values as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, respectively. The value of HG Global’s unearned premium reserve, net of deferred acquisition costs, was $94 million, $93 million, $82 million and $71 million as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, 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 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 bo