UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
May 8, 2017
Date of Report (Date of earliest event reported)
WHITE MOUNTAINS INSURANCE GROUP, LTD.
(Exact name of registrant as specified in its charter)
Bermuda (State or other jurisdiction of incorporation or organization) | 1-8993 (Commission file number) | 94-2708455 (I.R.S. Employer Identification No.) |
80 South Main Street, Hanover, New Hampshire 03755
(Address of principal executive offices)
(603) 640-2200
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
ITEM 7.01 | Regulation FD. |
The Registrant’s executive officers intend to utilize the presentation furnished as Exhibit 99.1 to this Form 8-K, in whole or in part, in discussions with its investors. The presentation is incorporated by reference herein.
The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 7.01 and shall not be deemed to be filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
ITEM 9.01 Financial Statements and Exhibits
(d) Exhibits. The following exhibit is furnished herewith:
EXHIBIT INDEX
99.1 Supplemental Regulation FD Disclosure.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WHITE MOUNTAINS INSURANCE GROUP, LTD. | ||||
(Registrant) | ||||
Date: | May 8, 2017 | By: /s/ J. Brian Palmer | ||
J. Brian Palmer | ||||
Managing Director and Chief Accounting Officer | ||||
White Mountains Insurance Group, Ltd.
Investor Presentation – May 2017
Exhibit 99.1
1
Forward-Looking Statements
Forward-Looking Statements
This presentation may contain, and management may make, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this presentation which
address activities, events or developments which White Mountains expects or anticipates will or may occur in the future are forward-looking statements. The
words "will", "believe," "intend," "expect," "anticipate," "project," "estimate," "predict," “plan,” “envision,” “imply,” “seek,” “future” and similar expressions are
also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains’s:
(i) change in adjusted book value per share or return on equity; (ii) business strategy; (iii) financial and operating targets or plans; (iv) incurred loss and loss
adjustment expenses and the adequacy of its loss and loss adjustment expense reserves and related reinsurance; (v) projections of revenues, income (or loss),
earnings (or loss) per share, dividends, market share or other financial forecasts; (vi) expansion and growth of its business and operations; and (vii) future
capital expenditures.
These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends,
current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual
results and developments will conform to its expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to
differ materially from expectations, including: (i) the risk that the acquisition of OneBeacon Insurance Group, Ltd. (“OneBeacon”) by Intact Financial
Corporation (the “Transaction”) may not be completed on the currently contemplated timeline; (ii) the possibility that any or all of the various conditions to the
consummation of the Transaction may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable
governmental entities (or any conditions, limitations or restrictions placed on such approvals); (iii) the occurrence of any event, change or other circumstance
that could give rise to the termination of the merger agreement dated May 2, 2017, among OneBeacon, Intact Financial Corporation and the other parties
thereto (the “Merger Agreement”), including in circumstances which would require OneBeacon to pay a termination fee or other expenses; (iv) the risks related
to diverting management’s attention from White Mountains’s or OneBeacon’s ongoing business operations and other risks related to the announcement or
pendency of the Transaction, including on White Mountains’s or OneBeacon’s ability to retain and hire key personnel, their ability to maintain relationships
with customers, policyholders, brokers, service providers and others with whom they do business and their operating results and business generally; (v) the
risk that shareholder litigation in connection with the Transactions may result in significant costs of defense, indemnification and liability; (vi) the risks that are
described from time to time in White Mountains's filings with the Securities and Exchange Commission , including but not limited to White Mountains's
Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed February 27, 2017 ;(vii) claims arising from catastrophic events, such as
hurricanes, earthquakes, floods, fires, terrorist attacks or severe winter weather; (viii) the continued availability of capital and financing; (ix) general economic,
market or business conditions; (x) business opportunities (or lack thereof) that may be presented and pursued; (xi) competitive forces, including the conduct of
other property and casualty insurers and reinsurers; (xii) changes in domestic or foreign laws or regulations, or their interpretation, applicable to White
Mountains, its competitors or its customers; (xiii) an economic downturn or other economic conditions adversely affecting White Mountains’s financial
position; (xiv) recorded loss reserves subsequently proving to have been inadequate; (xv) actions taken by ratings agencies from time to time, such as financial
strength or credit ratings downgrades or placing ratings on negative watch; and (xvi) other factors, most of which are beyond White Mountains's control.
Consequently, all of the forward-looking statements made in this presentation are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected
consequences to, or effects on, White Mountains or its business or operations. White Mountains assumes no obligation to publicly update any such forward-
looking statements, whether as a result of new information, future events or otherwise.
2
Non-GAAP Financial Measures
Figures designated as “pro forma” or “PF” are adjusted as if the OneBeacon transaction occurred on 3/31/17.
Non-GAAP Financial Measures
Management believes the non-GAAP measures included in this presentation to be useful in evaluating the Company’s financial
position and performance. The following non-GAAP financial measures are presented: (i) Adjusted Book Value Per Share (ABVPS);
(ii) Adjusted Book Value; (iii) ABVPS Denominator, and (iv) Growth in ABVPS. Please see the appendix at the end of the
presentation for an explanation of each such non-GAAP financial measure and a reconciliation of the measure to its most closely
comparable GAAP financial measure.
An electronic copy of this presentation can be found at our website: www.whitemountains.com
Two Years of Transformative Activity
4
OneBeacon Transaction
Announced all-cash transaction with Intact Financial on May 2; expected to close by year-end
Purchase price of $18.10 per share, or $1.7 billion in total consideration
1.65x price-to-tangible book multiple;
$0.7 billion premium over 3/31/17 tangible book value
Economics to WTM (76% owner):
Pro forma increase in ABVPS of $107
Net cash proceeds of $1.3 billion
WTM returns over 16-year holding period:
2.5x multiple of invested capital
14% after-tax IRR (vs. S&P 500 total return of 6%)
5
Operating Asset Sales
Closing
Date
Price
/TBV
WTM Gain
(per share)
WTM
Proceeds
($ billions) IRR
Symetra 1Q16 1.6x [1] $43 $0.7 15%
Sirius Group 2Q16 1.3x $90 $2.6 11%
Tranzact 3Q16 n/a $16 $0.2 35%
OneBeacon PF exp 4Q17 1.7x $107 $1.3 14%
Total $256 $4.2 [2]
[1] Reflects deal multiple on Symetra’s book value excluding accumulated other comprehensive income
[2] Total is adjusted to avoid double counting of $0.6 billion of proceeds from the sale of Symetra shares held by Sirius Group
6
Capital Management
Returned $887 million to shareholders through share repurchases in 2016
Repurchased 1.1 million shares, roughly 20% of the company, at an average price of $802
Share repurchases slowed since 4Q16 as our share price steadily climbed
Share repurchase activity since 2010:
shares repurchased $ millions per share
2010 687,871 226$ 328$
2011 646,502 253 391
2012 1,329,640 669 503
2013 141,535 80 564
2014 217,879 134 617
20 5 387,495 284 733
2016 1,106,145 887 802
total 4,517,067 2,534$ 561$
7
Management Team Changes
Chairman: Morgan Davis (31 years with White Mountains)
CEO: Manning Rountree (13 years with White Mountains)
CFO: Reid Campbell (23 years with White Mountains)
8
A Picture Says 1,000 Words
9/30/2015
(Actual)
3/31/17
(PF for OB Transaction)
Operating Assets
ABVPS $655 $906
Run Rate GABVPS mid/high single digits low single digits
Undeployed Capital $0.6 billion $3.1 billion
CAPITAL
C PITAL
White Mountains after OneBeacon
10
WTM Pro Forma for OneBeacon Transaction
Total capital of $4.2 billion, substantially all in common shareholders’ equity
Parent undeployed capital of roughly $3.1 billion, or 75% of total capital
No parent company financial leverage
Two principal operating assets:
HG Global / BAM
WMC portfolio companies
Low single-digit GAAP returns, reflecting:
GAAP “unfriendly” return profile of both HG Global/BAM and WMC; and
Muted investment return outlook for substantial undeployed capital position
11
WTM Pro Forma Financial Position
3/31/17
($ millions, except where noted otherwise) Actual
OneBeacon
Transaction
Pro Forma
Common equity $ 3,625 $ 486 $ 4,111
Non-controlling interest – OneBeacon 251 (251) 0
Non-controlling interest – Other (excluding BAM) 35 (4) 31
Total debt (at subsidiaries) 285 (273) 12
Total capital $ 4,195 $ (38) $ 4,153
Debt to total capital 7% 0%
Parent undeployed capital $ 1.8 B $ 3.1 B
12
WTM Pro Forma Allocation of Capital
($ billions, except per share) carrying value abvps
onebeacon 0.8$ 173$
hgg / bam 0.7 156
white mountains capital 0.2 34
parent udc / other 2.0 437
total 3.6$ 800$
3/31/17 (Actual)
($ billions, except per share) carrying value abvps
onebeacon -$ -$
hgg / bam 0.7 156
white mountains capital 0.2 34
parent udc / other 3.2 716
total 4.1$ 906$
3/31/17 (PF for OneBeacon Sale)
Where Do We Go From Here?
14
Challenging Market Environment Persists
Soft insurance markets
Pressure on accident year pricing / reserve releases slowing to a trickle
Carriers sowing the seeds for future distress, but will take years to blossom
Over-abundant supply of (low hurdle-rate) capital / no obvious catalyst for near-term market turn
Low interest rates / elevated equity markets / muted investment outlook
Elevated asset prices
On most deals we see, we would rather be a seller than a buyer
Middle innings on “insuretech” phenomenon; getting frothy
Implications for WTM:
We have been a net seller of insurance operating assets for a reason!
Conditions have not magically reversed now that we have money in our pocket
15
What to Expect from Us?
We expect to shrink, likely significantly, before we grow again
We have been here before (following 1991 sale of Fireman’s Fund)
Reflects willingness to “walk the walk” on capital rotation and shareholder value creation
We envision resizing as a $2.0 - $2.5B company
~$1.0B deployed to current operating assets (HG Global/BAM & WMC)
~$1.0 - $1.5B “war chest” for deployment into new operating assets
This implies distributing $1.5 – $2.0B of currently undeployed capital
Plan to pursue in a flexible and disciplined manner over the medium term
Will aim to create value for continuing shareholders
We are reducing our expense base and shifting our human capital accordingly
16
Capital Redeployment Approach
Fundamental philosophy and approach is unchanged
Will remain focused on economics and shareholder value creation (not accounting or empire building)
Will stick to our knitting: primarily insurance, broader financial services, and adjacent sectors
Will remain value-oriented, opportunistic and highly flexible
Focus will be on “chunkier deployments”
Bogey of $200 million of annual deployments; will be lumpy, not smooth
Targeting deals of $50 million and higher, preferably much higher
Preference for majority stakes in operating businesses that we understand and can enhance
Working through traditional channels and also developing “special situations”
Core belief that deals will come, but patience is required
Strong deal team with relevant expertise
Circumstances will naturally change over time, and opportunities will emerge (and we will be there)
Expect run rate returns to increase as we normalize our undeployed capital position
Update on Current Businesses
18
Launched into a very challenging environment
Low interest rates and compressed credit spreads
Aggressive price competition and low capture rates at the outset
Insured penetration has improved somewhat; substantial room for further improvement
Given the environment, BAM’s execution has been strong
Captured market share of +/- 50%. Broad market acceptance. Strong trading value
Pristine balance sheet. High-quality, risk-controlled portfolio. No legacy exposures. No Puerto Rico, structured finance
Superior model for the long term
Financial results will emerge over time
On a GAAP basis, WTM expects to earn 4% per year, roughly equal to the coupon on the surplus notes, in the near term
GAAP earnings are delayed/masked because of (i) UPR and (ii) member surplus contributions (straight to balance sheet)
The system is generating positive cashflow today, which is accreting claims paying resources and cash
It will take time for this cash to flow through the system and up and out to the private investors
Our fundamental strategy is to “hold” and to mature the asset
HG Global / BAM - Four Years In
19
Build America Mutual
(New York)
$500 million capital
(Series A & B Surplus Notes)
HG Global Ltd.
(Bermuda)
$200 million Series A Surplus Notes
WTM & Management
States and Municipalities
(Bond Issuers)
HG Re Ltd.
(Bermuda)
Reg. 114 Trust
(New York)
Supplemental Trust
(New York)
$300 million Series B Surplus Notes
$100 million reinsurance capital
• 15% First Loss Reinsurance Treaty
• Receives 60% of BAM’s risk premiums
• Retains 40% of risk premiums
• Retains 100% of member surplus contributions
HG Global / BAM Structure
20
BAM Key Metrics
2013A 2014A 2015A 2016A 1Q16A 1Q17A
par insured (closed) 4,708$ 7,830$ 10,606$ 11,303$ 2,179$ 2,379$
total premiums (%) 0.65% 0.43% 0.52% 0.68% 0.62% 1.19%
total premiums ($) 31$ 33$ 56$ 77$ 14$ 28$
gross expenses (BAM & HG Re) 36$ 40$ 41$ 45$ 11$ 13$
s&p RAP 3.21% 2.26% 2.35% 3.53% 3.04% 4.61%
qualified statutory capital 470$ 454$ 450$ 454$ 448$ 455$
claims paying resources 579$ 581$ 601$ 644$ 607$ 662$
year ended quarter ended
21
Pivot from “traditional” insurance balance sheet transactions in late 2012
Frustrated by the M&A market in core sector; deals not available at attractive prices
Sought alternative ways to leverage our unique capabilities; typically looking for an “insurance angle”
Different type of investment / financial profile
Generally cash flow (or path to cash flow) businesses, rather than book value businesses
Lower required capital; higher risk / higher return propositions
The WMC portfolio has performed well to-date
4 exits generating 1.3x multiple of invested capital and $230 million of p/t proceeds
Excited about the prospects of a number of the remaining WMC businesses
But the WMC portfolio does not move the needle today
Only $150 million of deployed capital currently
Smaller, option-like deals make less sense today, given undeployed capital levels
White Mountains Capital
22
WMC Portfolio Overview
current wtm value ($ millions) - 3/31/17
operating ownership, gross invested net invested carrying
location fd/fc capital, a/t capital, a/t value
A. cashflow businesses
mediaalpha US 56% 36$ 22$ 17$
wobi Israel 94% 46 46 19
passportcard Israel/Intl 50% 21 21 21
B. venture businesses
compare US 22% 34$ 34$ 22$
captricity US 22% 29 29 29
durchblicker Austria 45% 12 12 9
buzzmove UK 66% 8 8 7
C. insurance businesses
onetitle US 20% 3$ 3$ 3$
D. other investments
enlightenment capital US 30$ 14$ 24$
nyca partners US 1 1 2
total 220$ 190$ 153$
Appendices
1. Track Record vs S&P 500 (p.24)
2. Non-GAAP Financial Measures (p. 25-27)
24
Track Record vs. S&P 500
Return Period Ended 3/31/17
(growth including dividends) 1-year 5-year 10-year 15-year
Since WTM IPO
(1985)
White Mountains – ABVPS PF 28.8% 10.0% 8.5% 10.5% 14.2%
S&P 500 17.0% 13.2% 7.5% 7.0% 10.6%
25
Adjusted Book Value, ABVPS Denominator and Adjusted Book Value Per Share
Adjusted Book Value, ABVPS Denominator and Adjusted Book Value Per Share
Adjusted Book Value is a non-GAAP financial measure that is derived by excluding from GAAP shareholders' equity the equity in unrealized
gains from Symetra's fixed maturity portfolio. ABVPS Denominator excludes from GAAP common shares outstanding unearned shares of
of restricted stock, the compensation cost of which, at the date of calculation, has yet to be amortized.
Adjusted Book Value Per Share (ABVPS) is the result of dividing Adjusted Book Value by ABVPS Denominator.
Sept. 30,
2015 2017A 2017PF
Book value per share numerators ($ in millions):
GAAP common shareholders' equity 3,746$ 3,625$ 4,111$
less: equity in net unrealized gains from Symetra's fixed maturity portfolio (6) - -
Adjusted Book Value (ABVPS numerator) 3,740$ 3,625$ 4,111$
Book value per share denominators (in 000's):
GAAP common shares outstanding 5,745 4,573 4,573
Unearned restricted shares (31) (35) (35)
ABVPS Denominator 5,714 4,538 4,538
GAAP book value per share 652$ 793$ 900$
Adjusted Book Value Per Share 655$ 799$ 906$
March 31
26
Growth in Adjusted Book Value Per Share
Growth in Adjusted Book Value Per Share
The Company calculates its annual growth in values per share on an IRR basis, which includes the value per share at the beginning of the year,
the dividends received each year and the value per share at the end of the year. See the table below for comparison of growth in GAAP book
value per share and growth in ABVPS over a range of return periods:
Annualized Growth: 1-year 5-year 10-year 15-year Since IPO
GAAP book value per share PF 28.7% 10.1% 8.4% 10.5% 14.8%
Adjusted Book Value Per Share PF 28.8% 10.0% 8.5% 10.5% 14.2%
Return Period Ended December 31, 2016
27
Adjusted Book Value Per Share - Allocation of Capital
Adjusted Book Value Per Share - Allocation of Capital
Adjusted Book Value Per Share (ABVPS) is the result of dividing Adjusted Book Value by ABVPS Denominator. ABVPS Denominator
excludes from GAAP common shares outstanding unearned shares of restricted stock, the compensation cost of which, at the date of
calculation, has yet to be amortized.
GAAP
3/31/17 A per share ABVPS
OneBeacon 0.8$ 172$ 173$
HG Global / BAM 0.7 155 156
White Mountains Capital 0.2 33 34
Parent undeployed capital / other 2.0 433 436
3.6$ 793$ 799$
GAAP
3/31/17 PF per share ABVPS
OneBeacon -$ -$ -$
HG Global / BAM 0.7 155 156
White Mountains Capital 0.2 33 34
Parent undeployed capital / other 3.2 712 716
4.1$ 900$ 906$
Book value per share denominators (in 000's): 3/31/17 A
GAAP common shares outstanding 4,573
Unearned restricted shares (35)
ABVPS denominator 4,538