NOTE 1. Summary of Significant Accounting Policies

Basis of presentation

The accompanying consolidated financial statements include the accounts of White Mountains Insurance Group, Ltd. (the “Company” or the “Registrant”) and its subsidiaries (collectively with the Company, “White Mountains”) and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company is an exempted Bermuda limited liability company whose principal businesses are conducted through its property and casualty insurance and reinsurance subsidiaries and affiliates. The Company’s headquarters is located at 14 Wesley Street, Hamilton, Bermuda HM 11, its principal executive office is located at 80 South Main Street, Hanover, New Hampshire 03755-2053 and its registered office is located at Clarendon House, 2 Church Street, Hamilton, Bermu da HM 11. White Mountains’ reportable segments are OneBeacon, White Mountains Re, Esurance and Other Operations.

The OneBeacon segment consists of OneBeacon Insurance Group, Ltd. (“OneBeacon Ltd.”), an exempted Bermuda limited liability company that owns a family of U.S. based property and casualty insurance companies (collectively “OneBeacon”), most of which operate in a multi-company pool. OneBeacon is a specialty property and casualty insurance writer that offers a wide range of insurance products through independent agencies, regional and national brokers, wholesalers and managing general agencies. During the fourth quarter of 2006, White Mountains sold 27.6 million, or 27.6%, of OneBeacon Ltd.’s common shares in an initial public offering (the “OneBeacon Offering”).  As of December 31, 2010 and 2009, White Mountains owned 76.0% and 75.4% of OneBeacon Ltd.’s outstanding common shares. ;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The White Mountains Re segment consists of White Mountains Re Ltd., an exempted Bermuda limited liability company, and its subsidiaries (collectively, #147;White Mountains Re#148;). White Mountains Re provides insurance and reinsurance products for property, accidentnbsp;amp; health, aviation and space, trade credit, marine, casualty, agriculture and certain other exposures on a worldwide basis through its subsidiaries, Sirius International Insurance Corporation (#147;WMRe Sirius#148;) and White Mountains Reinsurance Company of America (#147;WMRe America#148;, formerly known as Folksamerica Reinsurance Company).nbsp; White Mountains Re also specializes in the acquisition and management of run-off insurance and reinsurance companies both in the United States and internationally through its White Mountains Re Solutions division.nb sp; White Mountains Re also includes Scandinavian Reinsurance Company,nbsp;Ltd. (#147;Scandinavian Re#148;), which is in run-off, Central National Insurance Company of Omaha (#147;Central National#148;), which was acquired during the first quarter of 2010 and is in run-off (See bNote 2/b), and the consolidated results of the Tuckerman Capital II, LP fund (#147;Tuckerman Fund II#148;) prior to Januarynbsp;1, 2010 (see bRecently Adopted Changes in Accounting Principles/b), which was transferred to White Mountains Re from Other Operations, effective Junenbsp;30, 2008./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The Esurance segment consists of Esurance Holdings,nbsp;Inc. and its subsidiaries and Answer Financial Inc. and its subsidiaries (#147;AFI#148;) (collectively, #147;Esurance#148;).nbsp; Esurance writes personal auto insurance directly to customers in 30 states through its website and over the phone and also sells other lines of personal insurance for unaffiliated insurance companies.nbsp; Esurance also writes personal auto policies through select online agents and provides other insurance products through partnerships with industry leading online providers.nbsp; Esurance earns commissions and fees by referring to unaffiliated insurance companies those shoppers that it cannot underwrite because of pricing or underwriting eligibility.nbsp; AFI, which White Mountains acquired during 2008 (See bNote 2/b), is one of the la rgest independent personal insurance agencies in the United States.nbsp; AFI sells insurance online and through call centers for both Esurance and unaffiliated companies utilizing a comparison quoting platform./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; Other Operations segment consists of the Company and its intermediate holding companies, its wholly-owned investment management subsidiary, White Mountains Advisors LLC (#147;WM Advisors#148;), White Mountains#146; investment in common shares and warrants to purchase common shares of Symetra Financial Corporation (#147;Symetra#148;), the consolidated results of the Tuckerman Capital, LP fund (#147;Tuckerman Fund I#148;) and Tuckerman Fund II until its transfer to White Mountains Re (effective Junenbsp;30, 2008, White Mountains#146; variable annuity reinsurance business, White Mountains Life Reinsurance (Bermuda) Ltd. (#147;WM Life Re#148;), which is in run-off, as well as various other entities not included in other segments.nbsp; The Other Operations segment also included White Mountains #146; investment in Lightyear Delos Acquisition Corporation (#147;Delos#148;) prior to its disposition in Decembernbsp;2010, its weather risk management business prior to its disposition in Augustnbsp;2009 and the International American Group,nbsp;Inc. (the #147;International American Group#148;) prior to its disposition in Octobernbsp;2008./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"All significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Recently Adopted Changes in Accounting Principles/font/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Accounting Standards Codification/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Junenbsp;29, 2009, the Financial Accounting Standards Board (#147;FASB#148;) issued /fontfont style="FONT-SIZE: 10pt" size="2"Statement of Financial Accounting Standards (#147;FAS#148;) 168, iThe FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles /i(#147;FAS 168#148;), which establishes the FASB Accounting Standards Codification (#147;Codification#148; or Accounting Standards Codification (#147;ASC#148;)) as the source of authoritative accounting principles to be applied in the preparation of financial statements in conformity with GAAP. FAS 168 (ASC 105-10) is effective for interim and annual periods ending after Septembernbsp;15, 2009. All existing non-SEC accounting and reporting standards were superseded by the Codification. White Mountains adopted the Codification for the interim period ended Septembernbsp;30, 2009. Adoption did not have any effect on the Company#146;s accounting policies or financial statement presentation. However, because the Codification changes the basis for reference to authoritative GAAP guidance, the Company#146;s footnote disclosures that reference such guidance reflect references to the codification. New accounting guidance is now issued by the FASB in the form of Accounting Standard Updates (#147;ASUs#148;). New guidance that became effective in 2009 prior to the adoption of Codification has been described below using the original FASB Statement reference with a parenthetical reference to the principal Codification section into which the Statement has been incorporated./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Transfers of Financial Assets and Amendments to FIN 46R/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Junenbsp;12, 2009, the FASB issued ASU 2009-16, iAccounting for Transfers of Financial Assets, an amendment of FASB Statement No.nbsp;140/i (included in ASC 860) and ASU 2009-17, iAmendments to FIN46(R)/i(included in ASC 810). Both ASU 2009-16 and ASU 2009-17 became effective as of the beginning of the first annual reporting period that began after Novembernbsp;15, 2009. White Mountains adopted the new guidance on Januarynbsp;1, 2010./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"ASU 2009-16 eliminates the concept of a qualifying special-purpose entity (#147;QSPE#148;). Under the new guidance, the appropriateness of de-recognition of assets held by an entity formerly considered QSPE is evaluated based on whether or not the transferor has surrendered control of the transferred assets. The evaluation must consider any continuing involvement by the transferor. White Mountains did not have any entities that were considered a QSPE under guidance prior to the amendments to ASC 860 and there was no effect resulting from adoption./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 39pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"ASU 2009-17 amends ASC 810-10 to clarify the application of consolidation accounting for entities for which the controlling financial interest might not be solely indentified through voting rights.nbsp; Under the new guidance a variable interest represents a controlling financial interest in a variable interest entity (#147;VIE#148;) when it has both of the following:nbsp; (1)nbsp;the power to direct the activities of a variable interest entity that most significantly impact the entity#146;s economic performance and (2)nbsp;the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. A reporting entity must assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when d etermining if it has the power to direct the activities of the VIE that most significantly affect the entity#146;s economic performance. ASC 810-10 as amended requires ongoing reassessments of whether a reporting entity is the primary beneficiary of a VIE. Upon adoption, White Mountains determined that its ownership interest in Tuckerman Fund II did not meet the criteria for consolidation under the revised guidance for variable interest entities and, accordingly, effective Januarynbsp;1, 2010, White Mountains deconsolidated its investment in Tuckerman Fund II. Upon deconsolidation, White Mountains made the fair value election for its investment in Tuckerman Fund II and recognized an adjustment to decrease opening retained earnings of $0.4 million./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Disclosures about Fair Value Measurements/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains adopted ASU 2010-06,nbsp;iImproving Disclosures about Fair Value Measurements/i (included in ASC 820-10), effective Marchnbsp;31, 2010. The ASU clarifies existing disclosure requirements for fair value measurements and requires the disclosure of (1)nbsp;the amounts and nature of transfers in and out of Level 1 and Level 2 measurements; (2)nbsp;purchase, sale, issuance and settlement activity for Level 3 measurements presented on a gross rather than a net basis; (3)nbsp;fair value measurements by Level presented on a more disaggregated basis, by asset or liability class; and (4)nbsp;more detailed disclosures about inputs and valuation techniques for Level 2 and Level 3 measurements for interim and annual reporting periods. White Mountains has expanded its fair value disclosures to meet the requirements of the ASU effe ctive for the period ended Marchnbsp;31, 2010 (see bNote 5/b)./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Alternative Investments/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Effective Decembernbsp;31, 2009, White Mountains adopted ASU 2009-12,nbsp;iInvestments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)./i Alternative investments include ownership interests in hedge funds and private equity funds, which White Mountains includes in other long-term investments. Under the ASU, the fair value of an alternative investment may be estimated based on net asset value per share (#147;NAV#148;) as reported by the investee, subject to certain requirements. The investee must calculate its NAV in accordance with the measurement principles of ASC Topic 946 (#147;iUS GAAP for Investment Companies/i#148;), meaning that the investee#146;s underlying investments have been measured at fair value. In addition, in circumstances where the investor intends to sell the i nvestment for an amount that differs from the NAV, NAV may not be used to estimate fair value. The ASU also expands required disclosures, including the amount of unfunded commitments, a description of the terms and conditions upon which the investor may redeem investments, the circumstances in which an otherwise redeemable investment might not be redeemable (for instance, investment subject to a lockup period) as well as an estimate of when the restriction will lapse and, in circumstances where the investment cannot be redeemed but the investor receives distributions through the liquidation of the underlying assets, an estimate of the period of time over which the underlying assets are expected to be liquidated. Adoption did not have a material effect on White Mountains financial position, results of operations or cash flows./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Measuring Liabilities at Fair Value/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Effective Decembernbsp;31, 2009, White Mountains adopted ASU 2009-05, iMeasuring Liabilities at Fair Value/i (included in ASC 820-10). The ASU provides additional guidance for circumstances where a quoted price in an active market for an identical liability is not available. The ASU permits use of the quoted price for an identical liability when traded as an asset or quoted prices for similar liabilities when traded as an asset. The ASU also notes that valuation techniques consistent with the fair value principles of ASC 820-10 may be used, including a present value technique or market approach based on the amount that the reporting entity would pay to transfer the identical liability or would receive to enter into an identical liability at the measurement date./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains measures its variable annuity guarantee liabilities at fair value. There is no active market for these liabilities and, accordingly, White Mountains uses a valuation technique that incorporates actuarial and capital market assumptions related to the projected cash flows over the term of the contracts. Some of the assumptions are based on observable market data, such as those related to capital markets inputs, and some are based on inputs not readily observable, such as mortality, surrender and lapse rates. Where observable inputs are available, White Mountains uses the most current inputs available./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 39pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Adoption of ASU 2009-05 did not have a material effect on White Mountains#146; financial position, results of operations, cash flows, or measurement of the fair value of its variable annuity guarantee liability./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Subsequent Events/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Maynbsp;28, 2009, the FASB issued FAS No.nbsp;165,i Subsequent Events/i (#147;FAS 165#148;). FAS 165 (included in ASC 855-10) defines the period after the balance sheet date during which a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which a reporting entity should recognize events or transaction occurring after the balance sheet date and the disclosures required for events or transactions that occurred after the balance sheet date. Subsequent events that provide additional evidence about conditions that existed at the balance sheet date are to be recognized in the financial statements. Subsequent events that are conditions that arose after the balance sheet date but prior to the issuance of the financial statements are no t recognized in the financial statements, but should be disclosed if failure to do so would render the financial statements misleading. FAS165 requires disclosure of the date through which subsequent events have been evaluated. For subsequent events not recognized, disclosures should include a description of the nature of the event and either an estimate of its financial effect or a statement that such an estimate cannot be made. White Mountains adopted FAS 165 effective Junenbsp;30, 2009. Adoption did not affect the recognition or disclosure of subsequent events. White Mountains evaluates subsequent events up to the date it files its Formnbsp;10-K with the Securities and Exchange Commission for its financial statements./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Other-Than-Temporary Impairments/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Junenbsp;30, 2009, White Mountains adopted FASB Staff Position (#147;FSP#148;) FSP FAS 115-2 and FAS 124-2, iRecognition and Presentation of Other-Than-Temporary Impairments/i (included in ASC 320-10)i,/i which amends the guidance for other-than temporary impairments for debt securities classified as held-to-maturity (#147;HTM#148;) or available-for-sale (#147;AFS#148;). FSP FAS 115-2 and FAS 124-2 requires that, when evaluating whether an impairment of a debt security is other than temporary, the reporting entity is to assess whether it has the intent the sell the security or if it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. In addition, if the present value of cash flows expected to be collected is less than the amortized cost of th e security, a credit loss is deemed to exist and the security is considered to be other than temporarily impaired. The portion of the impairment loss related to a credit loss is to be recognized in earnings. The portion of the impairment loss related to factors other than credit loss is recognized as an unrealized loss./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains has made the fair value election for its investments in debt securities and, accordingly, all changes in the fair value of its debt securities are recognized in earnings regardless of whether such changes in fair value represent a temporary or other than temporary decline in value. As a result, adoption of FSP FAS 115-2 and FAS 124-2 did not impact White Mountains#146; method of accounting for its portfolio of investment securities. However, White Mountains#146; investment in Symetra is accounted for under the equity method. Symetra adopted FSP FAS 115-2 and FAS 124-2 as of Marchnbsp;31, 2009. Upon adoption, Symetra recognized a cumulative effect adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. As a result, White Mountains recorded a $2.9 million cumulative effect adj ustment to retained earnings and other comprehensive income, which represents its portion of the cumulative effect adjustment recorded by Symetra./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Determining Fair Values in an Inactive Market and Distressed Transactions/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Junenbsp;30, 2009, White Mountains adopted FSP FAS 157-4, iDetermining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly/i (#147;FSP 157-4#148;). FSP 157-4 (included in ASC 820-10-65) outlines factors to be considered by a reporting entity in determining whether a market for an asset or liability is active.nbsp; In circumstances where the reporting entity concludes that there has been a significant decrease in the volume of market activity for an asset or liability as compared to normal market activity, transactions or quoted prices may not reflect fair value. In such circumstances, FSP 157-4 requires analysis of the transactions or quoted prices and, where appropriate, adjustment to market inputs to estimate fair value. In addition, FS P 157-4 requires interim disclosures to include a description of the inputs and valuation techniques used to estimate fair value and a discussion of changes during the period. Adoption of FSP 157-4 did not have a material effect on the White Mountains#146; financial position, results of operations, or cash flow statement./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Business Combinations and Noncontrolling Interests/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;1, 2009, White Mountains adopted FAS No.nbsp;141 (Revised 2007), iBusiness Combinations #151; A Replacement of FASB Statement No.nbsp;141/i (#147;FAS 141R#148;) (included in ASC 805-10) and FAS No.nbsp;160, iNoncontrolling Interests-an amendment to ARB 51/i (#147;FAS 160#148;) (included in ASC 810-10-65)./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"FAS 141R requires an 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 cost allocation method originally described in FAS 141, iBusiness Combinations/i (#147;FAS 141#148;). In addition, FAS 141R changes the accounting for #147;step#148; acquisitions since it requires recognition of all assets acquired and liabilities assumed, regardless of the acquirer#146;s percentage of ownership in the acquired company. This means that the acquirer will measure and recognize all of the assets, liabilities and goodwill, not just the acquirer#146;s share. Changes subsequent to the acquisition date in the amount of deferred tax valuation allowances and income tax uncertainties arising f rom a business combination are generally recognized in income.nbsp; Prior to adoption such changes were recognized through goodwill. FAS 141R applies prospectively to business combinations effective Januarynbsp;1, 2009. There was no effect on White Mountains#146; financial position, results of operations or cash flows upon adoption./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"FAS 160 requires all companies to account for noncontrolling interests (formerly referred to as #147;minority interests#148;)nbsp; in subsidiaries as equity, clearly identified and presented separately from White Mountains#146; equity. Once a controlling interest has been acquired, any subsequent acquisitions or dispositions of noncontrolling interests that do not result in a change of control are 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). The recognition and measurement requirements of FAS 160 are applicable prospectively upon adoption; the presentation and disclosure requirements must be retrospectively applied. Accordingly, upon adoption of FAS 160, White Mountains changed the presentation of its financi al statements for prior periods to conform to the required presentation, as follows:nbsp; noncontrolling interests are now presented on the balance sheets within equity, separate from White Mountains#146; common shareholders#146; equity; the portion of net income, extraordinary items and comprehensive income attributable to White Mountains#146; common shareholders and the noncontrolling interests are presented separately on the consolidated statements of operations and comprehensive income; and the consolidated statements of shareholders#146; equity includes a reconciliation of the noncontrolling interests at the beginning and end of each reporting period./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Derivatives Disclosures/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;1, 2009, White Mountains adopted FAS No.nbsp;161, iDisclosures about Derivative Instruments and Hedging Activities - an amendment of FAS 133/i (#147;FAS 161#148;) (included in ASC 815-10-65-1). FAS 161 requires companies that use derivatives to provide expanded qualitative and quantitative information about their use of derivative instruments, including the objectives and strategies for using derivatives, details of credit-risk related contingent features, the amounts of derivatives used, where they have been reported in the financial statements and the effect of such instruments on a company#146;s financial position, results of operations and cash flows. The adoption of FAS 161 had no effect on the White Mountains#146; financial position, results of operations, or cash flow statements./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Participating Securities Granted in Share-Based Payment Transactions/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;1, 2009, White Mountains adopted FSP EITF 03-6-1, iDetermining Whether Instruments Granted in Share-Based Transactions are Participating Securities./i FSP EITF 03-6-1(included in ASC 260-10-45 to 55) addresses whether instruments granted in share-based payment transactions should be considered participating securities prior to vesting. FSP EITF 03-6-1 requires that such instruments that hold unforfeitable rights to dividends or dividend equivalents, regardless of whether paid or unpaid, should be considered participating securities and accordingly should be included in the calculation of earnings per share under the two-class method instead of the treasury stock method. White Mountains issues restricted stock under employee incentive compensation plans that contain dividend participation features and that are considered participating securiti es. Since adoption, White Mountains has used the two-class method to calculate earnings per share. In accordance with the adoption provisions of FSP EITF 03-6-1 all prior period earnings per share data has been adjusted retroactively to conform to the provisions of FSP EITF 03-6-1./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Fair Value Measurements/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;1, 2008, White Mountains adopted FAS No.nbsp;157, iFair Value Measurements/i (#147;FAS 157#148;) (included in ASC 820-10). FAS 157 provides a revised definition of fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. The Statement establishes a fair value hierarchy that distinguishes between inputs based on market data from independent sources (#147;observable inputs#148;) and a reporting entity#146;s internal assumptions based upon the best information available when external market data is limited or unavailable (#14 7;unobservable inputs#148;). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets or liabilities have the highest priority (#147;Level 1#148;), followed by prices determined based on observable inputs including prices for similar but not identical assets or liabilities (#147;Level 2#148;) and followed by prices based on assumptions that include significant unobservable inputs, having the lowest priority (#147;Level 3#148;)./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains carries certain financial instruments at fair value with changes therein recognized in earnings. Assets and liabilities carried at fair value include substantially all of the investment portfolio; derivative instruments, both exchange traded and over the counter instruments; and reinsurance assumed liabilities associated with variable annuity benefit guarantees. Valuation of assets and liabilities measured at fair value require management to make estimates and apply judgment to matters that may carry a significant degree of uncertainty. In determining its estimates of fair value, White Mountains uses a variety of valuation approaches and inputs. Whenever possible, White Mountains estimates fair value using valuation methods that maximize the use of observable prices and other inputs. /fontfont style="FONT-SIZE: 10pt" size="2"Where appropriate, as sets and liabilities measured at fair value have been adjusted for the effect of counterparty credit risk./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; invested assets measured at fair value include fixed maturity securities, convertible fixed maturity securities, common and preferred equity securities and other long-term investments, which include interests in hedge funds and private equity funds./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Where available, the estimated fair value of investments is based upon quoted prices in active markets. In circumstances where quoted prices are unavailable, White Mountains uses fair value estimates based upon other observable inputs including matrix pricing, benchmark interest rates, market comparables, and other relevant inputs. Where observable inputs are not available, the estimated fair value is based upon internal pricing models using assumptions that include inputs that may not be observable in the marketplace but which reflect management#146;s best judgment given the circumstances and consistent with what other market participants would use when pricing such instruments./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; process to validate the market prices obtained from outside pricing sources include, but are not limited to, periodic evaluation of model pricing methodologies and monthly analytical reviews of certain prices. White Mountains also periodically performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Fair Value Option/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;1, 2008, White Mountains adopted FAS 159 iThe Fair Value Option for Financial Assets and Financial Liabilities/i (#147;FAS 159#148;), (included in ASC 825-10), which 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. White Mountains made the fair value election for its portfolio of AFS securities which were reclassified to trading upon adoption, its investments in convertible fixed maturities, its investments in investment partnerships and for its assumed variable annuity Guaranteed Minimum Death Benefits (#147;GMDB#148;) liabilities. Changes in the fair value of financial assets and liabilities for which the fair value election has been made are reported pre-tax in revenues./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Upon adoption, White Mountains recorded an adjustment to increase opening retained earnings and decrease accumulated other comprehensive income by $199.6 million to reclassify net unrealized gains and net unrealized foreign currency translation gains related to AFS securities and investments in limited partnerships and limited liability corporations. In addition, White Mountains recorded an adjustment to decrease opening retained earnings and increase other liabilities by $0.3 million for the change in the GMDB liabilities arising from measurement at fair value. White Mountains believes that making the election for its portfolio of investment securities and investments in hedge funds and private equity funds will result in reporting its investment results on a basis consistent with one of its operating principles, namely to manage investments for total return. With respect to t he variable annuity GMDB guarantees, making the election will result in recognition of changes in fair value on the same basis used by White Mountains to economically hedge its variable annuity guarantee liabilities./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Significant Accounting Policies/font/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Investment securities/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"At Decembernbsp;31, 2010, White Mountains#146; invested assets comprise of securities and other investments held for general investment purposes.nbsp; Until Maynbsp;31, 2008, White Mountains#146; invested assets also included securities held in a segregated trust account established in connection with the OneBeacon Offering to economically defease the $300.0 million mandatorily redeemable preferred stock held by Berkshire (the #147;Berkshire Preferred Stock#148;).nbsp; The Berkshire Preferred Stock was redeemed in Maynbsp;2008 using the proceeds from the segregated trust account. The securities held in the segregated trust account were classified as held to maturity and were recorded at amortized cost./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; portfolio of fixed maturity investments and common equity securities held for general investment purposes were classified as AFS for the year ended Decembernbsp;31, 2007. Effective Januarynbsp;1, 2008, upon adoption of FAS 159,i /ithe portfolio of fixed maturity investments and common equity securities held for general investment purposes were reclassified as trading.nbsp; See bRecently Adopted Changes in Accounting Principles/b section of bNote 1/b for further discussion. AFS and trading securities are reported at fair value as of the balance sheet date.nbsp; Net unrealized investment gains and losses on AFS securities were reported net, after-tax, as a separate component of shareholder#146;s equity with changes therein, net of the effect of adjustments for noncontrolling intere st and taxes, reported as a component of other comprehensive income. Changes in unrealized gains and losses on trading securities are reported, pre-tax, in revenues. Realized investment gains and losses on AFS and trading securities are accounted for using the specific identification method and are reported pre-tax in revenues. Premiums and discounts on all fixed maturity investments are accreted to income over the anticipated life of the investment./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; invested assets measured at fair value include fixed maturity securities, common and preferred equity securities, convertible fixed maturity securities and other long-term investments, such as interests in hedge funds and private equities. In determining its estimates of fair value, White Mountains uses a variety of valuation approaches and inputs. Whenever possible, White Mountains estimates fair value using valuation methods that maximize the use of quoted prices and other observable inputs./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"As of Decembernbsp;31, 2010 and 2009, approximately 94% of the investment portfolio recorded at fair value was priced based upon quoted market prices or other observable inputs. Investments valued using Level 1 inputs include fixed maturities, primarily investments in U.S. Treasuries, common equities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs comprise fixed maturities including corporate debt, state and other governmental debt, convertible fixed maturity securities and mortgage and asset-backed securities. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains#146; investments in hedge funds and private equity funds, as well as investment s in debt securities, including certain asset-backed securities, where quoted market prices are unavailable. White Mountains uses brokers and outside pricing services to assist in determining fair values. White Mountains#146; process to validate the market prices obtained from the outside pricing sources includes, but is not limited to, periodic evaluation of model pricing methodologies and monthly analytical reviews of certain prices. White Mountains also periodically performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; investments in debt securities, including asset-backed securities, are generally valued using matrix and other pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds.nbsp; Income on mortgage-backed and 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./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Investment securities are regularly reviewed for impairment based on criteria that include 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 ability and intent to hold the investment to recovery. Investment losses that are other than temporary are recognized in earnings./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year.nbsp; Short-term investments are carried at amortized cost, which approximated fair value as of Decembernbsp;31, 2010 and Decembernbsp;31, 2009./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Other long-term investments/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; other long-term investments comprise primarily of hedge funds and private equity funds. Prior to Januarynbsp;1, 2008, changes in White Mountains#146; interest in hedge funds and private equities accounted for using the equity method were included in net realized investment gains and losses and changes in White Mountains#146; interest in hedge funds and private equities not accounted for under the equity method were reported, after-tax, as a component of shareholders#146; equity, with changes therein reported as a component of other comprehensive income. Effective Januarynbsp;1, 2008, in connection with its adoption of FAS 159 (See bRecently Adopted Changes in Accounting Principles/b section of bNote 1/b for further discussion) White Mountains made the fair value election for most of its investmen ts in hedge funds and private equity interests. For the hedge fund and private equity investments for which White Mountains has made the fair value election, changes in fair value are reported in revenues on a pre-tax basis. For those hedge fund and private equity investments for which White Mountains has not made the fair value election, White Mountains continues to account for its interests under the equity method./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 39pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Securities lending/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"During 2009, White Mountains exited its securities lending programs. White Mountains had participated in securities lending programs through both OneBeacon and White Mountains Re as a mechanism for generating additional investment income. Under the security lending arrangements, certain securities that White Mountains owned were loaned to other institutions for short periods of time through a lending agent. White Mountains retained the earnings and cash flows associated with the loaned securities and received a fee from the borrower for the temporary use of the asset. The security lending counterparty was required to provide collateral for the loaned securities, which was then invested by the lending agent. The collateral was required at a rate of 102% of the fair value of the loaned securities./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"In Februarynbsp;2009, OneBeacon amended the terms of its securities lending program to segregate the assets supporting the collateral from a collective investment vehicle managed by the lending agent into separate accounts.nbsp; Accordingly, purchases and sales of invested assets held in the separate accounts as well as changes in the payable to the borrower for the return of collateral are reflected in the investing and financing sections of the cash flow statement commencing with the quarter ended Marchnbsp;31, 2009./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"For OneBeacon#146;s program prior to Februarynbsp;2009 and for the White Mountains Re#146;s program, the collateral was fully controlled by the lending agent and could not be sold or re-pledged.nbsp; The fair value of the securities lending collateral was recorded as both an asset and as a liability; however, other than in the event of a default by the borrower, the collateral was not available to White Mountains and would have been remitted to the borrower by the lending agent upon return of the loaned securities. Because of these restrictions, White Mountains considered White Mountains Re#146;s securities lending activities and OneBeacon#146;s securities lending activities prior to Februarynbsp;2009 to be non-cash transactions./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"During 2009, OneBeacon and White Mountains Re exited their securities lending programs.nbsp; As of Decembernbsp;31, 2010, all loaned securities under the OneBeacon program had been returned except for two illiquid instruments for which OneBeacon holds $1.7 million in collateral.nbsp; As of Decembernbsp;31, 2009, all loaned securities under the White Mountains Re program had been returned to White Mountains Re and all collateral held by White Mountains Re had been returned to borrowers./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Derivative financial instruments/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains holds a variety of derivative financial instruments for both risk management and investment purposes. White Mountains recognizes all derivatives as either assets or liabilities, measured at fair value, in the consolidated balance sheets./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Warrants/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains holds warrants to acquire common shares of Symetra. White Mountains also holds warrants that it has received in the restructuring (e.g.,nbsp;securities received from bankruptcy proceedings) of certain of its common equity and/or fixed maturity investments. The Symetra warrants held by White Mountains are entitled to dividends declared to common shareholders. White Mountains accounts for its investments in warrants as derivatives./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains uses a Black Scholes valuation model to determine the fair value of the Symetra warrants. The major assumptions used in valuing the Symetra warrants at Decembernbsp;31, 2010 were a risk-free rate of 1.29%, volatility of 25%, an expected life of 3.58 years, a strike price of $11.49 per share and a share price of $13.70 per share./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p div style="BORDER-RIGHT: white 1pt solid; PADDING-RIGHT: 0in; BORDER-TOP: white 1pt solid; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: white 1pt solid; PADDING-TOP: 0in; BORDER-BOTTOM: white 1pt solid" p style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; MARGIN: 0in 0in 0pt; BORDER-LEFT: medium none; TEXT-INDENT: 0.25in; PADDING-TOP: 0in; BORDER-BOTTOM: medium none"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Symetra#146;s warrants are not publicly traded. Accordingly, the fair value measurement of the warrants is based on observable and unobservable inputs.nbsp; Due to an insufficient history of Symetra#146;s volatility, it is classified as a Level 3 measurement./font/p/div p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Cash flow hedge/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Concurrent with entering into a variable rate mortgage note, OneBeacon entered into an interest rate swap agreement under which it paid a fixed rate and received a variable rate to hedge its exposure to interest rate fluctuations. The notional amount of the swap was equal to the outstanding principal of the mortgage note it hedges andnbsp; was adjusted to match the drawdowns and repayments on the mortgage note so that the principal amount of the mortgage note and the notional amount of the swap were equal at all times. The underlying index used to determine the variable interest paid under the swap was the same as that used for OneBeacon#146;s variable rate mortgage note. White Mountains accounted for the swap as a cash flow hedge and recorded the interest rate swap at fair value on the balance sheet in other assets. Changes in the fair value of the interest rate swap , after tax, were reported as a component of other comprehensive income. Any gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness were recorded in revenues. On Maynbsp;7, 2009, OneBeacon repaid the outstanding principal on the mortgage note and at the same time paid $7.4 million to settle the interest rate swap. The interest rate swap settlement was recorded as a reduction of other revenues on a pre-tax basis with a corresponding $4.8 million increase in other comprehensive income on an after tax basis ($7.4 million pre-tax)./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Interest rate lock/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"In anticipation of the issuance of the WMRe Senior Notes (see bNote 6/b), White Mountains Re entered into an interest rate lock agreement to hedge its interest rate exposure from the date of the agreement until the pricing of the WMRe Senior Notes. The agreement was terminated on Marchnbsp;15, 2007 and the resulting loss of $2.4nbsp;million was recorded in accumulated other comprehensive income. The loss is being reclassified from accumulated other comprehensive income to interest expense over the life of the WMRe Senior notes using the interest method./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Derivatives#151;Variable annuity reinsurance/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains has entered into agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan through its wholly owned subsidiary, WM Life Re. The accounting for benefit guarantees differs depending on whether or not the guarantee is classified as a derivative or an insurance liability./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Guaranteed minimum accumulation benefits (#147;GMABs#148;) are paid to an annuitant for any shortfall between accumulated account value at the end of the accumulation period and the annuitant#146;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. 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./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"If an annuitant dies during the accumulation period of an annuity contract, guaranteed minimum death benefits (#147;GMDBs#148;) are paid to the annuitant#146;s beneficiary for shortfalls between accumulated account value at the time of an annuitant#146;s death and the annuitant#146;s total deposit, less any living benefit payments or withdrawal payments previously made to the annuitant. For the year ended Decembernbsp;31, 2007, GMDBs were accounted for as life insurance liabilities. The life insurance liability for the reinsured GMDB contracts is calculated based on investment returns, mortality, surrender rates and other assumptions and is recognized over the contract period. Effective Januarynbsp;1, 2008, upon adoption of FAS 159, White Mountains elected to measure its GMDB liabilities at fair value./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The valuation of these liabilities involves 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./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"WM Life Re has entered into derivative contracts that are designed to economically hedge against changes in the fair value of living and death benefit liabilities associated with its variable annuity reinsurance arrangements. The derivatives include futures and over-the-counter option contracts on interest rates, major bond and equity indices, and foreign currencies. All WM Life Re#146;s derivative instruments are recorded as assets or liabilities at fair value on the balance sheet within other assets. These derivative financial instruments do not meet the criteria for hedge accounting treatment, and accordingly, changes in fair value are recognized in the current period as gains or losses in the income statement within other revenues./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"In accordance with FAS 157, WM Life Re has considered the effect of counterparty credit risk in determining the fair value of its derivative contracts and its GMAB and GMDB liabilities for the years ended Decembernbsp;31, 2010 and 2009./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Cash/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Cash includes amounts on hand and demand deposits with banks and other financial institutions. Amounts presented in the statement of cash flows are shown net of balances acquired and sold in the purchase or sale of the Company#146;s consolidated subsidiaries and exclude changes in amounts of restricted cash (See bNote 8/b)./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Insurance and reinsurance operations/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains accounts for insurance and reinsurance policies that it writes in accordance with ASC 944. Premiums written are recognized as revenues and are earned ratably over the term of the related policy or reinsurance treaty. Unearned premiums represent the portion of premiums written that are applicable to future insurance or reinsurance coverage provided by policies or treaties in force. AutoOne Insurance, which acts as a limited assigned distribution (#147;LAD#148;) servicing carrier, enters into contractual arrangements with insurance companies to assume private passenger automobile assigned risk exposures in the state of New York. AutoOne Insurance receives LAD servicing fees for assuming these risks. LAD servicing fees are typically a percentage of the total premiums that AutoOne Insurance must write to fulfill the obligation of the transferor company. LA D servicing carriers may choose to write certain policies voluntarily by taking risks out of the New York Automobile Insurance Plan (#147;NYAIP#148;). These policies generate takeout credits which can be sold for fees to the transferor company (#147;takeout fees#148;). These fees are also typically a percentage of the transferor company#146;s NYAIP premium assignments. AutoOne Insurance#146;s LAD servicing and takeout fees are recorded as written premium when billed and are earned ratably over the term of the related policy to which the fee relates./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains charges fees on certain of its insurance policies. Refundable fees are classified with premiums and recognized in earnings over the policy term. Fees that represent a reimbursement of expenses, such as installment fees, are recorded as a reduction of underwriting expenses./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Deferred acquisition costs represent commissions, premium taxes, brokerage expenses and other costs which are directly attributable to and vary with the production of business. These costs are deferred and amortized over the applicable premium recognition period as insurance and reinsurance acquisition expenses. Deferred 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 expenses (#147;LAE#148;), expected dividends to policyholders, unamortized acquisition costs, and maintenance costs exceeds related unearned premiums and anticipated investment income. A premium deficiency is recognized by charging any unamortized acquisition costs to expense to the ex tent required in order to eliminate the deficiency. If the premium deficiency exceeds unamortized acquisition costs then a liability is accrued for the excess deficiency./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Losses and LAE are charged against income as incurred. Unpaid insurance losses and LAE are based on estimates (generally determined by claims adjusters, legal counsel and actuarial staff) of the ultimate costs of settling claims, including the effects of inflation and other societal and economic factors. Unpaid reinsurance losses and LAE are based primarily on reports received from ceding companies and actuarial projections. Unpaid loss and LAE reserves represent management#146;s best estimate of ultimate losses and LAE, net of estimated salvage and subrogation recoveries, if applicable. Such estimates are regularly reviewed and updated and any adjustments resulting there from are reflected in current operations. The process of estimating loss and LAE involves a considerable degree of judgment by management and the ultimate amount of expense to be incurred could be conside rably greater than or less than the amounts currently reflected in the financial statements./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"OneBeacon discounts certain of its long-term workers compensation loss and LAE reserves when such liabilities constitute unpaid but settled claims under which the payment pattern and ultimate costs are fixed and determinable on an individual claim basis. OneBeacon discounts these reserves using an average discount rate which is determined based on the various assumptions including consideration of when the claims will be settled (5.0% and 5.3% at Decembernbsp;31, 2010 and 2009). As of Decembernbsp;31, 2010 and 2009, the discount on OneBeacon#146;s workers compensation loss and LAE reserves amounted to $119.4nbsp;million and $127.0nbsp;million./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"In connection with purchase accounting for the OneBeacon Acquisition, White Mountains was required to adjust to fair value OneBeacon#146;s loss and LAE reserves and the related reinsurance recoverables by $646.9nbsp;million and $346.9nbsp;million, respectively, on OneBeacon#146;s acquired balance sheet as of Junenbsp;1, 2001. This net reduction to loss and LAE reserves of $300.0nbsp;million is being accreted through an income statement charge ratably with and over the period the claims are settled (See bNotenbsp;3/b)./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"In connection with purchase accounting for WMRe Sirius, White Mountains was required to adjust to fair value the loss and LAE reserves on WMRe Sirius#146; acquired balance sheet by $58.1nbsp;million. This fair value adjustment is being accreted through an income statement charge ratably with and over the period the claims are settled (See bNotenbsp;3/b)./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains#146; insurance and reinsurance subsidiaries enter into ceded reinsurance contracts from time to time to protect their businesses from losses due to concentration of risk, to manage their operating leverage ratios and to limit losses arising from catastrophic events. Such reinsurance contracts are executed through excess of loss treaties and catastrophe contracts under which the reinsurer indemnifies for a specified part or all of certain types of losses over stipulated amounts arising from any one occurrence or event. White Mountains has also entered into quota share treaties with reinsurers under which all risks meeting prescribed criteria are covered on a pro-rata basis. The amount of each risk ceded by White Mountains is subject to maximum limits which vary by line of business and type of coverage./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. The collectability of reinsurance recoverables is subject to the solvency of the reinsurers. White Mountains 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./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"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 by ceding companies represent amounts due to White Mountains in connection with certain assumed reinsurance agreements in which the ceding company retains a portion of the premium to provide security against future loss payments. The funds held by ceding companies are generally invested by the ceding company and a contractually agreed interest amount is cred ited to the Company and recognized as investment income. Funds held under reinsurance treaties represent contractual payments due to the reinsurer that White Mountains has retained to secure obligations of the reinsurer. Such amounts are recorded as liabilities in the consolidated financial statements./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"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./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Mandatory Shared Market Mechanisms/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"As a condition to its licenses to do business in certain states, White Mountains#146; insurance operations must participate in various mandatory shared market mechanisms commonly referred to as #147;residual#148; or #147;involuntary#148; markets. These markets generally consist of risks considered to be undesirable from a standard or routine underwriting perspective. Each state dictates the levels of insurance coverage that are mandatorily assigned to participating insurers within these markets. The total amount of such business an insurer must accept in a particular state is generally based on that insurer#146;s market share of voluntary business written within that state. In certain cases, White Mountains is obligated to write business from shared market mechanisms at a future date based on its historical market share of all voluntary policies wr itten within that state. Involuntary business generated from mandatory shared market mechanisms is accounted for as direct insurance business or as assumed reinsurance depending upon the structure of the mechanism./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"OneBeacon#146;s market assignments are typically required to be written in the current period, however, in certain cases OneBeacon is required to accept policy assignments at a future date. OneBeacon#146;s residual market assignments to be written in the future primarily relate to private passenger automobile assigned risk exposures within the State of New York where several of OneBeacon#146;s insurance subsidiaries write voluntary automobile insurance. The share of involuntary written premium for policies assigned by the NYAIP to a particular insurer in a given year is based on the proportion of the total voluntary writings in New York two years prior. Anticipated losses associated with future market assignments are recognized when the amount of such anticipated losses is determined to be probable and can be reasonably estimated./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Insurance-Related Assessments/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Under existing guaranty fund laws in all states, insurers licensed to do business in those states can be assessed for certain obligations of insolvent insurance companies to policyholders and claimants. White Mountains#146; insurance subsidiaries record guaranty fund assessments when it is probable that an assessment will be made and the amount can be reasonably estimated./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Deferred Software Costs/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"White Mountains capitalizes costs related to computer software developed for internal use during the application development stage of software development projects. These costs generally consist of certain external, payroll and payroll-related costs. White Mountains begins amortization of these costs once the project is completed and ready for its intended use. Amortization is on a straight-line basis and over a useful life of three to five years. At Decembernbsp;31, 2010 and 2009, White Mountains had unamortized deferred software costs of $30.6nbsp;million and $30.2nbsp;million./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Federal and foreign income taxes/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The majority of White Mountains#146; subsidiaries file consolidated tax returns in the United States. Income earned or losses generated by companies outside the United States are generally subject to an overall effective tax rate lower than that imposed by the United States./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Deferred tax assets and liabilities are recorded when a difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for tax purposes exists, and for other temporary differences. The deferred tax asset or liability is recorded based on tax rates expected to be in effect when the difference reverses. The deferred tax asset is recognized when it is more likely than not that it will be realized./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Foreign currency exchange/font/i/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The U.S. dollar is the functional currency for all of the Company#146;s businesses except for WMRe Sirius, the Canadian reinsurance operations of WMRe America and certain other smaller international activities.nbsp; White Mountains also invests in securities denominated in foreign currencies. Assets and liabilities recorded in these foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are converted using the average exchange rates for the period. Net foreign exchange gains and losses arising from the translation are generally reported in shareholders#146; equity, in accumulated other comprehensive income or loss./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Assets and liabilities relating to foreign operations are translated into the functional currency using current exchange rates; revenues and expenses are translated into the functional currency using the weighted average exchange rate for the period.nbsp; The resulting exchange gains and losses are reported as a component of net income in the period in which they arise. As of Decembernbsp;31, 2010 and 2009, White Mountains had an unrealized foreign currency translation gains of $61.4nbsp;million and $11.5nbsp;million recorded on its consolidated balance sheet./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"The following rates of exchange for the U.S. dollar have been used for the most significant operations:/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p table style="MARGIN-LEFT: 1in; WIDTH: 73.34%; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="73%" border="0" tr style="HEIGHT: 0px" td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 24.98%; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign="bottom" width="24%" p style="MARGIN: 0in 0in 0pt"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman" size="1"Currency/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 3.4%; PADDING-TOP: 0in" valign="bottom" width="3%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign="bottom" width="15%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman" size="1"Openingbr / Ratenbsp;2010/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign="bottom" width="15%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman" size="1"Closingnbsp;Ratebr / 2010/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign="bottom" width="15%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman" size="1"Openingnbsp;Ratebr / 2009/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign="bottom" width="15%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman" size="1"Closingnbsp;Ratebr / 2009/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 1.36%; PADDING-TOP: 0in" valign="bottom" width="1%" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align="center"nbsp;/p/td/tr tr style="HEIGHT: 0px" td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 24.98%; PADDING-TOP: 0in; BORDER-BOTTOM: medium none" valign="top" width="24%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt 10pt; TEXT-INDENT: -10pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Swedish kronor/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.4%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: medium none" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"7.1280/font/b/p/td td style="PADDING-RIGHT: 0in; 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PADDING-TOP: 0in; BORDER-BOTTOM: medium none" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"7.7831/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 0in; BORDER-TOP: medium none; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 15%; PADDING-TOP: 0in; BORDER-BOTTOM: medium none" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"7.1280/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 1.36%; PADDING-TOP: 0in" valign="bottom" width="1%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td/tr tr style="HEIGHT: 0px" td style="PADDING-RIGHT: 0in; 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PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; WIDTH: 1.36%; PADDING-TOP: 0in" valign="bottom" width="1%" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td/tr tr style="HEIGHT: 0px" td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 24.98%; PADDING-TOP: 0in" valign="top" width="24%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt 10pt; TEXT-INDENT: -10pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Canadian dollar/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.4%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 15%; PADDING-TOP: 0in" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"1.0485/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 15%; PADDING-TOP: 0in" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2".9981/font/b/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 15%; PADDING-TOP: 0in" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"1.2202/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 3.42%; PADDING-TOP: 0in" valign="bottom" width="3%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 15%; PADDING-TOP: 0in" valign="bottom" width="15%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align="right"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"1.0485/font/p/td td style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BACKGROUND: #cceeff; PADDING-BOTTOM: 0in; WIDTH: 1.36%; PADDING-TOP: 0in" valign="bottom" width="1%" bgcolor="#CCEEFF" p style="MARGIN: 0in 0in 0pt"nbsp;/p/td/tr/table p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Noncontrolling Interest/font/i/b/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Noncontrolling interests consist of the ownership interests of noncontrolling shareholders in consolidated subsidiaries, and are presented separately on the balance sheet. The portion of comprehensive income attributable to noncontrolling interests is presented net of related income taxes in the statement of operations and comprehensive income. The change in unrealized investment gains (losses) prior to the Januarynbsp;1, 2008 adoption of FAS 159, foreign currency translation and the change in the fair value of the interest rate swap to hedge OneBeacon#146;s exposure to variability in the interest rate on its mortgage note are presented in accumulated other comprehensive income net of noncontrolling interest.nbsp; The percentage of the noncontrolling shareholders#146; ownership interest in OneBeacon Ltd. at Decembernbsp;31, 2010 and Decembernbsp;31 , 2009 was 24.0% and 24.6%./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Maynbsp;24, 2007, White Mountains Re Group,nbsp;Ltd. (#147;WMRe Group#148;), an intermediate holding company of White Mountains Re, issued 250,000 non-cumulative perpetual preference shares with a $1,000 per share liquidation preference (#147;the WMRe Preference Shares#148;). Proceeds of $245.7nbsp;million, net of $4.3nbsp;million of issuance costs and commissions, were received from the issuance. These shares were issued in an offering that was exempt from the registration requirements of the Securities Act of 1933. Holders of the WMRe Preference Shares receive dividends on a non-cumulative basis when and if declared by WMRe Group. The holders of the WMRe Preference Shares have the right to elect two directors to WMRe Group#146;s board in the event of non-payment of dividends for six quarterly dividend periods. The right ceases u pon the payment of dividends for four quarterly periods or the redemption of the WMRe Preference Shares. In addition, WMRe Group may not declare or pay dividends on its common shares (other than stock dividends and dividends paid for purposes of any employee benefit plans of WMRe Group and its subsidiaries) unless it is current on its most recent dividend period. The dividend rate is fixed at an annual rate of 7.506% until Junenbsp;30, 2017. After Junenbsp;30, 2017, the dividend rate will be paid at a floating annual rate, equal to the greater of 3nbsp;month LIBOR plus 3.20% or 7.506%. The WMRe Preference Shares are redeemable solely at the discretion of WMRe Group on or after Junenbsp;30, 2017 at their liquidation preference of $1,000 per share, plus any declared but unpaid dividends. Prior to Junenbsp;30, 2017, WMRe Group may elect to redeem the WMRe Preference Shares at an amount equal to the greater of 1)nbsp;the aggregate liquidation preference of the shares to be redeemed and 2)nbsp;the sum of the present values of the aggregate liquidation preference of the shares to be redeemed and the remaining scheduled dividend payments on the shares to be redeemed (excluding Junenbsp;30, 2017), discounted to the redemption date on a semi-annual basis at a rate equal to the rate on a comparable treasury issue, plus 45 basis points. In the event of a liquidation of WMRe Group, the holders of the WMRe Preference Shares would have preference over the common shareholders and would receive a distribution equal to the liquidation preference per share, subject to availability of funds. The WMRe Preference Shares and dividends thereon are included in noncontrolling interest on the balance sheet and as noncontrolling interest expense on the statement of income and comprehensive income./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"At Decembernbsp;31, 2010 and 2009, the noncontrolling equity interest in White Mountains consolidated limited partnerships was $59.7 million and $80.5 million.nbsp; At Decembernbsp;31, 2010 and 2009, the noncontrolling equity interest in A.W.G. Dewar Inc, a subsidiary of OneBeacon, was $3.1 million and $2.6 million./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"At Junenbsp;30, 2008, White Mountains owned 68.9% of AFI, while the noncontrolling shareholders of AFI held 31.1% of its common equity shares and a $29.6 million Secured Senior Note from AFI (See bNote 2)./b On Julynbsp;30, 2008, White Mountains acquired the remaining equity and debt interests in AFI from the noncontrolling owner (See bNote 2/b)./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bfont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Recent Accounting Pronouncements/font/b/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt"bifont style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Policy Acquisition Costs/font/i/b/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Octobernbsp;13, 2010, the FASB issued ASU 2010-26, iAccounting for Costs Associated with Acquiring or Renewing Insurance Contracts/i (ASC 944)i./i The new standard changes the types of policy acquisition costs that are eligible for deferral. Specifically, the new guidance limits deferrable costs to those that are incremental direct costs of contract acquisition and certain costs related to acquisition activities performed by the insurer, such as underwriting, policy issuance and processing, medical and inspection costs and sales force contract selling. The ASU defines incremental direct costs as those costs that result directly from and were essential to the contract acquisition and would not have been incurred absent the acquisition. Accordingly, under the new guidance, deferrable acquisition costs are limited to costs related to success ful contract acquisitions. Acquisition costs that are not eligible for deferral are to be charged to expense in the period incurred./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.25in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"ASU 2010-26 is effective for interim periods and annual fiscal years beginning after Decembernbsp;15, 2011 and may be applied prospectively or retrospectively.nbsp; White Mountains currently defers certain advertising costs associated with contract acquisition that will likely not meet the criteria for deferral under ASU 2010-26 when it is adopted. White Mountains is currently evaluating the effect the adoption of ASU 2010-26 will have on its financial position and results of operations./font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p/td/tr/table