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

July 24, 2008

Date of Report (Date of earliest event reported)

WHITE MOUNTAINS INSURANCE GROUP, LTD.

(Exact name of registrant as specified in its charter)

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:

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

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

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

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

ITEM 7.01               Regulation FD.

The financial statements of White Mountains Re Group, Ltd. (“White Mountains Re”), a wholly-owned subsidiary of White Mountains Insurance Group, Ltd., as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, are attached as Exhibit 99.1 hereto and incorporated by reference herein.  White Mountains Re recently provided these financial statements to the holders of its $400 million face value senior unsecured notes issued on March 19, 2007 and its 250,000 non-cumulative perpetual preference shares with liquidation preference of $1,000 per share issued on May 24, 2007.

ITEM 9.01     Financial Statements and Exhibits

(d) Exhibits.  The following exhibit is furnished herewith:

EXHIBIT INDEX

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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.

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Exhibit 99.1

White Mountains Re Group, Ltd.

Consolidated Financial Statements

For the years ended

December 31, 2005, 2006, and 2007

White Mountains Re Group, Ltd.

Consolidated Financial Statements

For the years ended December 31, 2005, 2006, and 2007

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

  White Mountains Re Group, Ltd.:

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of White Mountains Re Group, Ltd. (the “Company”), at December 31, 2007 and December 31, 2006 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York

March 21, 2008

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White Mountains Re Group, Ltd.

Consolidated Balance Sheets

As of December 31, 2006 and 2007

($ in millions, except share amounts)

See accompanying notes to the consolidated financial statements,

including Note 13 for Commitments and Contingencies.

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White Mountains Re Group, Ltd.

Consolidated Statements of Income and Comprehensive Income (Loss)

For the Years Ended December 31, 2005, 2006, and 2007

($ in millions)

See accompanying notes to the consolidated financial statements.

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White Mountains Re Group, Ltd.

Consolidated Statements of Shareholders’ Equity

For the Years Ended December 31, 2005, 2006, and 2007

($ in millions)

See accompanying notes to the consolidated financial statements.

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White Mountains Re Group, Ltd.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2005, 2006, and 2007

($ in millions)

See accompanying notes to the consolidated financial statements.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

NOTE 1.        Organization

White Mountains Re Group, Ltd. (the “Company” or “White Mountains Re”) is a Bermuda domiciled holding company that provides reinsurance on a worldwide basis through its wholly-owned subsidiaries; Folksamerica Reinsurance Company (“FRC”), Sirius International Insurance Company (“Sirius International”) and White Mountains Re Bermuda, Ltd (“WMRB”). The Company is a subsidiary of White Mountains Insurance Group, Ltd. (“White Mountains” or the “Parent”). White Mountains shares are listed on the New York Stock Exchange.

FRC is a reinsurance company that is domiciled in the state of New York and mainly underwrites property, casualty, agriculture and accident and health reinsurance primarily in the United States of America, Canada, Continental Europe, Latin America, the Caribbean and Japan. Virtually all assumed reinsurance is obtained through reinsurance intermediaries. Sirius America Insurance Company (“Sirius America”) was a wholly-owned subsidiary of FRC through August 3, 2006 and was acquired in 2004. Sirius America was a property and casualty insurance company domiciled in the state of Delaware which was licensed to write direct insurance business through general agents and managing general agents in the United States of America. Stockbridge Insurance Company (“Stockbridge”) was a wholly-owned subsidiary of FRC through November 1, 2007. Stockbridge was a Minnesota domiciled run-off insurance company that was acquired on December 22, 2006 (See Note 2) by FRC. Commercial Casualty Insurance Company (“CCIC”) is a wholly-owned subsidiary of Folksamerica Holding Company (“Folksamerica Holdings”), parent of FRC. CCIC is a California domiciled insurance company that was acquired in 2004 and subsequently placed into voluntary run-off.

Sirius International is a reinsurance company that is domiciled in Sweden with branch offices in Stockholm; London, United Kingdom; Zurich, Switzerland; Singapore; Liege, Belgium; Copenhagen, Denmark; and Hamburg, Germany. Sirius International primarily provides property, casualty, aviation and space, accident and health reinsurance throughout Scandinavia, Europe and Asia.

WMRB is a Class III Bermuda reinsurance company licensed to write multi-line reinsurance. During 2007, White Mountains Re increased the capital of WMRB to $776 million as of December 31, 2007.

Scandinavian Reinsurance Company, Ltd. (“Scandinavian Re”) is a multi-line reinsurance company which was acquired in 2004 along with Sirius International and has been in run-off since 2002.

White Mountains Re Underwriting Services, Ltd (“WMRUS”) is a reinsurance advisory company specializing primarily in property and other short-tailed lines of reinsurance. WMRUS provides underwriting advice and reinsurance portfolio analysis services to FRC and Sirius International.

On April 2, 2007, White Mountains contributed its investment in Galileo Weather Risks Advisors Limited, a United Kingdom domiciled company and Galileo Weather Risk Management Ltd., a Bermuda domiciled company (collectively, “Galileo”) to the Company. As of March 31, 2007. Galileo’s principle balance sheet components included $65.0 million of cash and invested assets, $4.1 million of net liability for weather derivatives contracts, $25.3 million of liability for collateral received from derivative counterparties and $27.0 million of shareholder’s equity. Galileo provides products for the weather risk management business. Galileo sells its weather risk management products as derivatives that are designed to assist corporate and governmental customers, primarily energy companies, utilities and construction companies, in managing their economic exposure to variations in weather conditions. Galileo then manages its weather derivative portfolio through the employment of a variety of risk management strategies to preserve its expected margins. These strategies include geographical diversification of risk exposures and economic hedging through the use of derivatives traded in both the over-the-counter and exchange-traded derivative markets. Additionally, Galileo economically hedges its risk exposure by buying and selling similar weather risk contracts with different counterparties.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

NOTE 2.                       Acquisitions and Dispositions

The Company has completed the following transactions:

·                  On September 30, 2005 Folksamerica Holdings sold one of its subsidiaries, California Indemnity Insurance Company, an inactive shell company, for total proceeds of $19.8 million, $19.3 million of which was paid in cash, and recognized a gain of approximately $5.0 million ($3.3 million after-tax) on the sale as other revenue.

·                  On August 3, 2006, the Company sold its wholly-owned subsidiary, Sirius America, to an investor group led by Lightyear Capital for $138.8 million in cash, which was $16.9 million above the book value of Sirius America at the time of the sale. As part of the transaction, White Mountains acquired an equity interest of approximately 18% in the acquiring entity and accounts for its remaining interest in Sirius America on the equity method. The Company recognized a gain of $14.0 million ($9.1 million after-tax) on the sale through other revenues in 2006 and White Mountains has deferred $2.9 million ($1.9 million after-tax) of the gain related to its remaining equity interest in Sirius America. White Mountains has contributed the $1.9 million to the Company, which the Company has recorded as a capital contribution.

·                  On December 22, 2006, the Company completed its acquisition of Mutual Service Casualty Insurance Company (“MSC”), a run-off insurer formerly affiliated with Country Insurance & Financial Services. As part of a sponsored demutualization and conversion to a stock company, MSC was renamed Stockbridge. The Company paid approximately $33.6 million for Stockbridge and recorded an after-tax extraordinary gain of $21.4 million, which represents the excess of fair value of acquired assets over the purchase price. The fair value of net assets acquired were $55.1 million, including $81.0 million of cash and investments, $55.5 million of reinsurance recoverables, $12.2 million of deferred tax assets, $91.2 million of loss and LAE reserves and $2.3 million of deferred tax liabilities. The Company did not acquire any infrastructure or employees and is managing Stockbridge’s run-off administration through the use of Third Party Administrators (“TPAs”), under the Company’s direction.

As part of the transaction, Country provided Stockbridge with approximately $25 million of reinsurance protection in excess of Stockbridge’s carried reserves as of September 30, 2006. On October 1, 2007, substantially all of the assets and liabilities of Stockbridge were transferred to FRC through a Transfer and Assumption Agreement (the “Portfolio Transfer”) approved by the New York Insurance Department (“New York Insurance Department”) and the Minnesota Department of Commerce. As a result of the Portfolio Transfer, Stockbridge was left with minimum capital and surplus to maintain its licenses. On November 1, 2007, White Mountains Re sold its 100% ownership interest in Stockbridge to an external party for approximately $26 million and recognized a gain of approximately $10.0 million ($6.5 million after tax) on the sale as other revenue.

NOTE 3.                       Summary of Significant Accounting Policies

The Company’s consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“US GAAP”). The following is a description of the significant accounting policies and practices employed by the Company.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and variable interest entities (see Note 8). All significant intercompany transactions have been eliminated in consolidation. The consolidated financial statements include all adjustments considered necessary by management to fairly present the Company’s financial position, its results of operations and its cash flows.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.

Investments

Fixed maturity investments and equity securities are classified as “available for sale securities” in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and are reported at fair value as of the balance sheet date as determined by quoted market prices when available. When quoted market prices are unavailable, the Company calculates an estimated fair value using observable market inputs such as interest rates, yield curve, prepayment speeds, etc. Net unrealized investment gains and losses on available for sale securities are reported net, after tax, as a separate component of shareholders’ equity. Changes in net unrealized investment gains and losses, after tax, are reported as a component of other comprehensive income.

Asset-backed securities are included in fixed maturity investments and consist primarily of pooled collateralized mortgage obligations. Asset-backed securities are classified as available for sale and carried at fair value. Fair values for asset-backed securities are based on quoted market prices. Income on asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life.

Investment securities are regularly reviewed for impairment based on criteria that includes the extent to which cost exceeds market value, the duration of the market decline, the financial health of and specific prospects for the issuer and the Company’s ability and intent to hold the investment to recovery. Investment losses that are other than temporary are recognized in earnings. Realized gains and losses resulting from sales of investment securities are accounted for using the weighted average method. Premiums and discounts on fixed maturity investments are accreted to income over the anticipated life of the investment.

Short-term investments consist of money market funds, certificates of deposit and other securities which mature or become available for use within one year. Short-term investments are carried at amortized cost, which approximated fair value as of December 31, 2006 and 2007.

Investments in Limited Partnerships

The Company has investments in a number of limited partnerships, which are recorded in other long-term investments. Changes in the Company’s interest in limited partnership accounted for using the equity method are included in net realized investment gains. Changes in the Company’s interest in limited partnerships not accounted for under the equity method are reported, after-tax, as a component of shareholders’ equity, with changes therein reported, as a component of other comprehensive income.

Securities Lending

The Company participates in a securities lending program as a mechanism for generating additional investment income on its fixed maturity portfolio. Under the security lending arrangements, certain of its fixed maturity investments are loaned to other institutions for short periods of time through a lending agent. The Company maintains control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the asset. The collateral is required at a rate of 102% of the fair value of the loaned securities, is controlled by the lending agent and may not be sold or re-pledged. In the event that the lending agent does not return the full amount of collateral to the security lending counter party, the Company is obligated to make up any deficiency. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on the loan. The fair value of the securities lending

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

collateral is recorded as both an asset and liability on the consolidated balance sheet. At December 31, 2007 and 2006, security lending collateral was invested entirely in securities rated AA or better by Standard and Poor’s. At December 31, 2007 and 2006, the fair value of securities held as collateral exceeded the amounts required to be returned to the security lending counter party by the lending agent upon return of the loaned securities. However, other than in the event of default by the borrower, this collateral is not available to the Company. Because of these restrictions, the Company considers its securities lending activities to be non-cash transactions.

Convertible bonds

The Company owns convertible bonds. The equity conversion option is considered an embedded derivative. Prior to January 1, 2006, in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), the Company bifurcated all equity option derivatives that were embedded in its convertible bonds. The original host instruments were reported, at fair value, in fixed maturity investments and the embedded derivatives were reported, at fair value, in other investments. Changes in the fair values of the equity options were included in realized investment gains (losses). Effective January 1, 2006, the Company adopted SFAS No. 155, “Accounting for Certain Hybrid Instruments, an amendment to Statement Nos. 133 and 140” (“SFAS 155”). SFAS 155 eliminated the requirement to bifurcate financial instruments with embedded derivatives if the holder of the instrument elects to account for the entire instrument on a fair value basis with changes in fair value of the entire instrument recorded through income as realized investment gains (losses). Prior to the adoption of SFAS 155, the Company had recorded $14.7 million related to the host instrument in fixed maturity investments and $7.4 million for the equity conversion option in other investments. Upon adoption of SFAS 155, the Company recorded an adjustment of $0.7 million to reclassify net unrealized gains on investments to opening retained earnings to reflect the cumulative effect of adoption. The fair value of convertible bonds at December 31, 2006 and 2007 was $49.7 million and $96.9 million, respectively and was included in fixed maturity investments.

Warrants

The Company accounts for its investments in warrants in accordance with SFAS 133 as derivatives. Generally, warrants are recorded in other long-term investments at fair value, which changes therein recorded in realized investment gains or losses in the period in which they occur.

At December 31, 2005, the Company held warrants to acquire 3.6 million common shares of Montpelier Re Holdings, Ltd. (“Montpelier”) at $16.67 per share (as adjusted for stock split) that were exercisable until December 2011. The major assumptions used in the valuation of the Montpelier warrants were a risk-free rate of 4.35%, volatility of 30% and an expected life of approximately 5 years. The fair value of the warrants as of December 31, 2005 was $25.3 million. During 2006, the Company sold its investment in Montpelier warrants to its parent, White Mountains, for its carrying value at the date of sale. No gain or loss was realized on this sale.

At December 31, 2006, the Company held warrants to acquire 1.1 million common shares of Symetra Financial Corporation (“Symetra”) at $100 per share. The Company used a Black-Scholes valuation model to determine the fair value of the Symetra warrants. At December 31, 2006, the major assumptions used in valuing the Symetra warrants were a risk-free rate of 4.70%, volatility of 25%, and an expected life of approximately 5 years. The Symetra warrants are included in the investment in unconsolidated affiliate - Symetra line on the consolidated balance sheet with changes in fair value included in realized investment gains (losses) in the consolidated statements of income and comprehensive income (loss). During the first quarter of 2007, the Company dividended its investment in Symetra warrants to White Mountains at its carrying value of $54.0 million (see Note 11).

Derivatives – Variable Annuity Reinsurance

The Company entered into agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan. The accounting for benefit guarantees differs depending on whether or not the guarantee is classified as a derivative or an insurance liability.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

Guaranteed minimum accumulation benefits (“GMABs”) are paid to an annuitant for any shortfall between accumulated account value at the end of the accumulation period and the annuitant’s total deposit, less any withdrawal payments made to the annuitant during the accumulation period. GMABs meet the definition of a derivative for accounting purposes and are accounted for under SFAS 133. Therefore, GMABs are carried at fair value, with changes thereon recognized in income in the period of the change. The liability for the reinsured GMAB contracts has been determined using internal valuation models that use assumptions for interest rates, equity markets, foreign exchange rates and market volatilities at the valuation date, as well as annuitant-related actuarial assumptions, including surrender and mortality rates.

If an annuitant dies during the accumulation period of an annuity contract, guaranteed minimum death benefits (“GMDBs”) are paid to the annuitant’s beneficiary for shortfalls between accumulated account value at the time of an annuitant’s death and the annuitant’s total deposit, less any living benefit payments or withdrawal payments previously made to the annuitant. GMDBs are accounted for as life insurance liabilities in accordance with Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts”. The liability for the reinsured GMDB contracts has been calculated based on investment returns, mortality, surrender rates and other assumptions and is recognized over the contract period.

The valuation of these liabilities involve significant judgment and is subject to change based upon changes in capital market assumptions and emerging surrender and mortality experience of the underlying contracts in force.

Concurrent with the agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan, the Company entered into an agreement with White Mountains Life Reinsurance (Bermuda) Ltd. (“WM Life Re”), a subsidiary of White Mountains, whereby 100% of the liability of the Company is retroceded to WM Life Re. As a result, the Company had amounts due to (from) WM Life Re in the amount of $13.8 million and $(12.7) million and is recorded in other liabilities and other assets. The Company also has amounts due from (to) the Japanese ceding company in regards to the variable annuities of $13.8 million and $(12.7) million and is recorded in other assets and other liabilities on the Company’s December 31, 2006 and 2007 consolidated balance sheet. For the years ended December 31, 2006 and 2007, the Company recorded fee income of $0.1 million and $0.3 million, respectively, from WM Life Re.

Cash

Cash includes amounts on hand and demand deposits with banks and other financial institutions.

Premium Revenue

The Company accounts for the insurance and reinsurance policies and contracts that it writes in accordance with the provisions of SFAS No. 60, “Accounting and Reporting by Insurance Enterprises”. Premiums written, which include the effect of premium adjustments on contracts that require deposits, experience-rated contracts, as well as reinstatement premiums, are recognized as revenues ratably over the terms of the related reinsurance treaties or policies in force. Unearned premiums are established to cover the unexpired portion of premiums written and are computed by pro rata methods on the basis of statistical data or reports received from ceding companies. Premiums written and changes in unearned premiums are presented after deductions for reinsurance ceded to other insurance companies.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs represent commission and brokerage expenses, which are deferred and amortized over the applicable premium recognition period, generally one year. Deferred policy acquisition costs are limited to the amount expected to be recovered from future earned premiums and anticipated investment income. This limitation is referred to as a premium deficiency. A premium deficiency is recognized if the sum of expected loss and loss adjustment expense and unamortized acquisition costs exceeds related unearned premiums and investment income. A premium deficiency is recognized by charging any unamortized acquisition costs to expense to the extent required in order to eliminate the deficiency. If the premium deficiency exceeds unamortized acquisition costs then a liability is accrued for

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

the excess deficiency. The Company’s business is not subject to any premium deficiency at December 31, 2007.

Loss and Loss Adjustment Expense Reserve

The estimated liability for loss and loss adjustment expense reserves (“LAE”) is based on individual case estimates and reports received from ceding companies. This liability also includes an estimate, which is based on historical experience and modified for current trends, and for loss and LAE that have been incurred but not reported (“IBNR”). The methods of determining such estimates and establishing the resulting reserves are regularly reviewed and modified to reflect current conditions. The estimated liability for unpaid loss and LAE also includes balances for certain types of latent injury (including asbestos) or toxic tort exposures that cannot be estimated with traditional reserving techniques since such exposures are subject to evolving legal interpretation and environmental liability reform. Accordingly, the reserves carried for these exposures represent management’s informed estimate based on currently available information. Such reserves are subject to a higher degree of potential variability than the reserves established for the majority of the book of business using traditional reserving techniques. Any adjustments relating to changes in reserve estimates are reflected in results of operations currently. Loss and LAE reserves are presented gross of reinsurance recoverables and incurred loss and LAE are presented net of ceded reinsurance.

In connection with the acquisitions of Sirius International (including its subsidiary at the time of the acquisition, Scandinavian Re) and Stockbridge, the Company was required to adjust to fair value the loss and LAE reserves on Sirius International acquired consolidated balance sheet and Stockbridge’s acquired balance sheet by reducing loss and LAE reserves by $58.1 million and $6.7 million, respectively. These fair value adjustments are being accreted through an income statement charge ratably over the period in which these claims are settled (see Note 5).

Contingent Commissions

Accruals for contingent commission liabilities are established for reinsurance contracts that provide for the stated commission percentage to increase or decrease based on the loss experience of the contract. Changes in the estimated liability for such arrangements are recorded as contingent commissions. Accruals for contingent commission liabilities are determined through the review of the contracts that have these adjustable features and are estimated based on expected loss and LAE.

Reinsurance

In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. The collectibility of reinsurance recoverables is subject to the solvency of the reinsurers. The Company is selective in regard to its reinsurers, principally placing reinsurance with those reinsurers with a strong financial condition, industry ratings and underwriting ability. Management monitors the financial condition and ratings of its reinsurers on an ongoing basis. Amounts related to reinsurance contracts that meet “risk transfer” are recorded in accordance with SFAS No. 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts” (“SFAS 113”). Reinsurance contracts do not relieve the Company of its obligation to its ceding companies.

Reinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies are reported as a reduction of premiums written. Expense allowances received in connection with reinsurance ceded have been accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly. Funds held under reinsurance treaties represent contractual payments due to the reinsurer that the Company has retained to secure obligations of the reinsurer. Such amounts are recorded as liabilities in the consolidated financial statements.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

Reserves for Structured Contracts

The reserves for structured contracts represent deposit liabilities for reinsurance contracts that do not satisfy the conditions for reinsurance accounting established in SFAS 113. These contracts were written primarily by Scandinavian Re prior to its being placed into run-off in 2002. For insurance and reinsurance contracts that transfer only significant timing risk or that transfer neither significant timing risk nor significant underwriting risk, the amount of the deposit asset or liability is adjusted at the balance sheet date by calculating the effective yield on the deposit to reflect actual payments to date and expected future payments. Changes in carrying amount of the deposit are reported as a component of investment income. Fees related to these contracts are recorded as investment income and are earned using the effective yield method or evenly over the life of the contract depending upon contract terms.

Weather Contracts

Galileo offers weather and weather contingent risk management products, which at December 31, 2007, were all in the form of derivative financial instruments. All weather and weather contingent derivatives are recognized as either assets or liabilities in the consolidated balance sheet. The majority of Galileo’s business consists of receiving an upfront payment, carried as an asset, in exchange for bearing the risk of variations in quantifiable weather related index, carried as a liability. The fair value for Galileo’s derivative financial contracts are based upon quoted market prices, where available. Where quoted market prices are not available, management uses available market data and internal pricing models based upon consistent statistical methodologies to estimate the fair value. The gain or loss at the inception date for contracts valued based upon internal pricing models are deferred and amortized into income over the period at risk for each underlying contract. Galileo’s weather and weather contingent derivatives are not designed to meet the US GAAP criteria for hedge accounting. Accordingly, changes in the fair value subsequent to inception are recognized in the period in which they occur and are recorded in other revenues within the income statement.

Federal and Foreign Income Taxes

The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries. The majority of the Company’s worldwide operations are domiciled and subject to tax in the United States, Sweden, Luxembourg, Ireland, and Bermuda. Income earned or losses incurred by non-U.S. companies will generally be subject to an overall effective tax rate lower than that imposed by the United States.

Deferred tax assets and liabilities have been established for expenses and revenues recognized for financial statement purposes in periods different from those for income tax purposes, net of a valuation allowance against net deductible temporary differences, if applicable.

Safety Reserve

In accordance with provisions of Swedish law, Sirius International is permitted to transfer up to the full amount of its pre-tax earnings, subject to certain limitations, into an untaxed reserve (referred to as a safety reserve), which amounted to $1.4 billion at December 31, 2007. Under US GAAP, an amount equal to the safety reserve, net of the related deferred tax liability established at the Swedish tax rate of 28%, is classified as shareholders’ equity. Generally, this deferred tax liability is only required to be paid by Sirius International if it fails to maintain predetermined levels of premium writings and loss and LAE reserves in future years. As a result of the indefinite deferral of these taxes, Swedish regulatory authorities do not apply any taxes to the safety reserve when calculating solvency capital under Swedish insurance regulations. Accordingly, under local statutory requirements, an amount equal to the deferred tax liability on Sirius International’s safety reserves ($398 million at December 31, 2007) is included in regulatory capital at December 31, 2007. Access to the safety reserve is restricted to coverage of aggregate losses and requires the approval of Swedish regulatory authorities.

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

Foreign Currency Exchange

The U.S. dollar is the functional currency for all of the Company’s businesses except for the foreign reinsurance operations of FRC’s Canadian branch and Sirius International. The national currencies of the subsidiaries are their functional currencies since their business is primarily transacted in such local currency. Assets and liabilities that are translated from a foreign subsidiary’s functional currency into the Company’s reporting currency (the U.S. dollar), are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are converted using the weighted average exchange rates for the period. Net foreign exchange gains and losses arising from the translation are generally reported in shareholders’ equity net of deferred income taxes, in accumulated other comprehensive income or loss.

Assets and liabilities that are denominated in foreign currencies are translated into the functional currency using current exchange rates; revenues and expenses that are denominated in foreign currencies are translated into the functional currency using the weighted average exchange rate for the period. The resulting exchange gains and losses are reported as a component of net income in the period in which they arise. During 2005, 2006, and 2007, the Company recorded exchange (losses) gains of ($6.2) million, $20.7 million and ($12.5) million, respectively.

The following rates of exchange for the U.S. dollar have been used for the most significant operations:

Variable Interest Entities

Variable interest entities (“VIEs”) are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an entity has a variable interest, or a combination of variable interests, that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. The entity with a controlling financial interest is the primary beneficiary and consolidates the VIE.

In accordance with the Financial Accounting Standards Board (“FASB”) Interpretation No. 46-R, “Consolidation of Variable Interest Entities”, the Company consolidates VIEs for which it is the primary beneficiary. The Company determines whether or not it is the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE that includes a review of, among other factors, its capital structure, contractual terms, which interest creates or absorbs variability, related party relationships and the design of the VIE. Where qualitative analysis is not conclusive, the Company performs a quantitative analysis to calculate whether the Company’s financial interest in the VIE is large enough to absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected returns, or both (see Note 8).

Minority Interest – Prospector Offshore Fund (Bermuda), Ltd.

Minority interest consists of the ownership interests of noncontrolling shareholders in a consolidated limited partnership, and are presented separately on the consolidated balance sheets. The portion of income attributable to minority interest is presented in the consolidated statements of income and comprehensive income (loss) (see Note 8).

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White Mountains Re Group, Ltd.

Notes to the Consolidated Financial Statements

Recently Adopted Changes in Accounting Principles

Federal State and Foreign Income Taxes

On January 1, 2007 the Company adopted FASB Interpretation no. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes when the impact of a given tax position should be recognized and how it should be measured. Under the new guidance, recognition is based upon whether or not a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. In evaluating the more-likely-than-not recognition threshold, the Company must presume that the tax position will be subject to examination by a taxing authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement.

In connection with the adoption of FIN 48, the Company recognized a $2.7 million decrease in the liability for unrecognized tax benefits, primarily as a result of reductions in its estimates of accrued liabilities. The effect of adoption has been recorded as an adjustment to opening retained earnings.

Hybrid Financial Instruments

On February 16, 2006, the FASB issues SFAS No. 155. “Accounting for Certain Hybrid Instruments, an amendment to Statement Nos. 133 and 140” (“SFAS 155”). The Statement eliminates the requirement to bifurcate financial instruments with embedded derivatives if the holder of the instrument elects to account for the entire instrument on a fair value basis. Changes in fair value are recorded as realized gains. The fair value election may be applied upon adoption of the statement for hybrid instruments that had been bifurcated under SFAS 133 prior to adoption. The Statement is effective for fiscal years commencing after September 15, 2006 with early adoption permitted as of the beginning of an entity’s fiscal year.

The Company adopted SFAS 155 effective January 1, 2006. See Convertible bonds section of Note 3 for discussion of effect of adoption.

Recent Accounting Pronouncements

Fair Value Measurement

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). The Statement provides a revised definition of fair value and guidance on the methods used to measure fair value. The Statement also expands financial statement disclosure requirements for fair value information. The Statement establishes a fair value 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”). The fair value hierarchy in SFAS 157 prioritizes inputs within three levels. Quoted prices in active markets have the highest priority (Level 1) followed by observable inputs other than the quoted prices (Level 2) and unobservable inputs having the lowest priority (Level 3). The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and must be adopted prospectively.  The Company will adopt SFAS 157 effective January 1, 2008. Upon adoption of SFAS 157 the Company expects that with the exception of its investments in limited partnerships, its fair value measurements will not change materially. The Company holds a number of investments in limited partnerships, the carrying value of which may be affected by the effect of the adoption of SFAS 157 by those partnerships. The limited partnerships that the Company holds investments in have not yet provided an assessment of the effects of adoption of SFAS 157. As a result, the Company is not yet able to determine the potential effect of adoption on the carrying value of its limited partnerships.

Fair Value Option

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). The statement allows companies to make an election, on an individual instrument basis, to report financial assets and liabilities at fair value. The election must be made at the inception of a transaction and may not be reversed. The election may also be made for existing financial assets and liabilities at the time of adoption. Unrealized gains and losses on assets or liabilities for which

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Notes to the Consolidated Financial Statements

the fair value option has been elected are to be reported in earnings. The Statements requires additional disclosures for instruments for which the election has been made, including a description of management’s reasons for making the election. The Statement is effective for fiscal years beginning after November 15, 2007 will be adopted prospectively.  The Company will adopt SFAS 159 effective January 1, 2008. The Company has decided to make the fair value election for its portfolio of available for sale securities, and its investments in private equity investment partnerships. Upon adoption, the Company will increase retained earnings and decrease accumulated other comprehensive income by $41.2 million to reclassify net unrealized gains related to available for sale securities. Subsequent to adoption, the Company will report changes in fair value in earnings, before the effect of tax rather than through other comprehensive income, net of tax. The Company believes that making the election will result in reporting its investment results on a basis consistent with one of its operating principles, namely to manage investments for total return.

Business Combination and Non-controlling interests

In December 2007, the FASB issued SFAS 141 (Revised 2007), Business Combinations (“SFAS 141R”) and SFAS 160, Noncontrolling Interests – an amendment to ARB 51. SFAS 141R and SFAS 160 are effective for fiscal years beginning after December 15, 2008. The Company is in the process of evaluating the potential effect of adoption. SFAS 141R requires the acquiring company to recognize the fair value of all assets acquired and liabilities assumed at their fair values at the acquisition date, with certain exceptions. This represents a basic change in approach from the old cost allocation method originally described in SFAS 141. In addition, SFAS 141R changes the accounting for step acquisitions since it requires recognition of all assets acquired and liabilities assumed, regardless of the acquirer’s percentage of ownership in the acquire. This means that the acquirer will measure and recognize all of the assets, liabilities and goodwill, not just the acquirer’s share. Assets and liabilities arising from contractual contingencies are to be recognized at the acquisition date, at fair value. Non-contractual contingencies are to be recognized when it is more likely than not that they meet the FASB Concepts Statement No. 6, Elements of Financial Statements, criteria for an asset or liability. Acquisition related costs, such as legal fees and due diligence costs would be expensed and would not be recognized as part of goodwill. Changes in the amount of deferred taxes arising from a business combination are to be recognized in either income or through a change in contributed capital, depending on the circumstances. Previously under SFAS 109, such changes were recognized through goodwill. The classification of insurance and reinsurance contracts are re-evaluated at the acquisition date only if their terms were changed in connection with the acquisition.

SFAS 160 requires all companies to account for minority interests in subsidiaries as equity, clearly identified and presented separately from parent company equity. Once a controlling interest has been acquired, any subsequent acquisitions or dispositions of noncontrolling interest that do not result in a change of control are to be accounted for as equity transactions. Assets and liabilities acquired are measured at fair value only once; at the original acquisition date, i.e., the date at which the acquirer gained control.

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Notes to the Consolidated Financial Statements

NOTE 4.        Investments

The cost or amortized cost and carrying values of investments in fixed maturity investments, other long-term investments, and equity securities at December 31, 2006 and 2007, were as follows (in millions):

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Notes to the Consolidated Financial Statements

The amortized cost and carrying value of fixed maturity investments as of December 31, 2007 by contractual maturity, are shown below (in millions). Expected maturities could differ from contractual maturities because borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.