SEC Filing | White Mountains Insurance Group

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 1-8993

WHITE MOUNTAINS INSURANCE GROUP, LTD.
(Exact name of registrant as specified in its charter)

Bermuda (State or other jurisdiction of incorporation or organization)		94-2708455 (I.R.S. Employer Identification No.)
80 SOUTH MAIN STREET, HANOVER, NEW HAMPSHIRE 03755-2053 (Address of principal executive offices including zip code)
(603) 640-2200 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý] No

As of November 4, 2003, 9,002,395 common shares with a par value of $1.00 per share ("Common Shares") were outstanding (which includes 6,000 restricted Common Shares which were not vested at such date).

WHITE MOUNTAINS INSURANCE GROUP, LTD.

Table of Contents

			Page No.
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets, September 30, 2003 (Unaudited) and December 31, 2002	3
		Consolidated Statements of Income and Comprehensive Income (Unaudited), Three and Nine Months Ended September 30, 2003 and 2002	4
		Consolidated Statements of Common Shareholders' Equity (Unaudited), Nine Months Ended September 30, 2003 and 2002	5
		Consolidated Statements of Cash Flows (Unaudited), Nine Months Ended September 30, 2003 and 2002	6
		Notes to Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
		Results of Operations—Three and Nine Months Ended September 30, 2003 and 2002	33
		Liquidity and Capital Resources	54
		Related Party Transactions	58
		Critical Accounting Policies and Estimates	58
		Forward-Looking Statements	58
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
	Item 4.	Controls and Procedures	59
PART II. OTHER INFORMATION
	Items 1 through 6		60
SIGNATURES			62

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

			September 30, 2003			December 31, 2002
			(Unaudited)
			(dollars in millions, except share amounts)
Assets
Fixed maturity investments, at fair value (cost: $5,623.5 and $6,407.5)			$	5,892.4		$	6,669.1
Short-term investments, at amortized cost (which approximates fair value)				1,680.5			1,790.6
Common equity securities, at fair value (cost: $382.7 and $252.3)				439.9			275.0
Other investments (cost: $266.0 and $142.3)				306.3			164.7

		Total investments		8,319.1			8,899.4
Cash				172.2			121.5
Reinsurance recoverable on unpaid losses				1,267.1			1,445.2
Reinsurance recoverable on unpaid losses—Berkshire Hathaway Inc.				2,366.6			2,626.7
Reinsurance recoverable on paid losses				132.6			159.8
Accounts receivable on unsettled investment sales				952.6			160.8
Insurance and reinsurance premiums receivable				833.8			830.5
Investments in unconsolidated insurance affiliates				468.3			399.9
Deferred tax asset				326.0			430.0
Deferred acquisition costs				241.7			244.9
Ceded unearned premiums				186.3			163.9
Investment income accrued				65.0			91.4
Other assets				601.3			459.6

Total assets			$	15,932.6		$	16,033.6

Liabilities
Loss and loss adjustment expense reserves			$	8,030.5		$	8,875.3
Unearned insurance and reinsurance premiums				1,482.1			1,514.4
Accounts payable on unsettled investment purchases				1,077.8			495.2
Debt				742.5			793.2
Funds held under reinsurance treaties				200.2			262.4
Other liabilities				1,326.1			1,285.3
Preferred stock subject to mandatory redemption:
	Held by Berkshire Hathaway Inc. (redemption value $300.0)			258.8			—
	Held by others (redemption value $20.0)			20.0			—

		Total liabilities		13,138.0			13,225.8

Convertible preference shares				—			219.0
Minority interest—mandatorily redeemable preferred stock of subsidiaries				—			180.9

Common shareholders' equity
Common Shares at $1 par value per share—authorized 50,000,000 shares; issued and outstanding 9,002,395 and 8,351,387 shares				9.0			8.4
Paid-in surplus				1,395.6			1,126.2
Retained earnings				1,139.9			1,071.9
Accumulated other comprehensive income, after tax:
	Unrealized gains on investments			257.9			213.9
	Unrealized foreign currency translation losses			(6.1	)		(7.2	)
Unearned compensation—restricted Common Share awards				(1.7	)		(5.3	)

		Total common shareholders' equity		2,794.6			2,407.9

Total liabilities, convertible preference shares, minority interest and common shareholders' equity			$	15,932.6		$	16,033.6

See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Unaudited

			Three Months Ended September 30,						Nine Months Ended September 30,
			2003			2002			2003			2002
			(dollars in millions, except per share amounts)
Revenues:
	Earned insurance and reinsurance premiums		$	788.2		$	878.5		$	2,346.4		$	2,736.3
	Net investment income			67.5			88.1			219.1			276.2
	Net realized investment gains (losses)			(34.2	)		119.3			114.0			116.7
	Other revenue (loss)			71.2			(4.4	)		118.6			62.3

		Total revenues		892.7			1,081.5			2,798.1			3,191.5

Expenses:
	Loss and loss adjustment expenses			600.5			637.5			1,634.5			2,010.5
	Insurance and reinsurance acquisition expenses			149.5			227.8			456.9			622.1
	General and administrative expenses			74.2			102.7			313.6			380.5
	Accretion of fair value adjustment to loss and loss adjustment expense reserves			10.1			14.2			38.5			65.6
	Interest expense on debt			11.0			17.3			37.1			53.0
	Interest expense—dividends and accretion on preferred stock subject to mandatory redemption			9.2			—			9.2			—

		Total expenses		854.5			999.5			2,489.8			3,131.7

Pretax income				38.2			82.0			308.3			59.8
	Income tax provision			(14.4	)		(20.3	)		(105.2	)		(1.3	)

Net income before minority interest, equity in earnings of affiliates, accounting changes and extraordinary item				23.8			61.7			203.1			58.5
	Dividends on mandatorily redeemable preferred stock of subsidiaries			—			(7.6	)		(15.1	)		(22.7	)
	Accretion of mandatorily redeemable preferred stock of subsidiary to face value			—			(2.7	)		(6.4	)		(7.7	)
	Equity in earnings of unconsolidated insurance affiliates			13.6			3.2			42.3			7.8

Net income from continuing operations				37.4			54.6			223.9			35.9
	Cumulative effect of changes in accounting principles			(89.8	)		—			(89.8	)		660.2
	Excess of fair value of acquired net assets over cost			—			—			—			7.1

Net income (loss)				(52.4	)		54.6			134.1			703.2

	Net change in unrealized gains and losses for investments held			(39.6	)		154.6			119.0			271.3
	Net change in foreign currency translation			(.4	)		(1.0	)		1.1			(3.0	)
	Recognition of unrealized gains and losses for investments sold			17.2			(75.4	)		(75.0	)		(82.3	)

Comprehensive net income (loss)			$	(75.2	)	$	132.8		$	179.2		$	889.2

Computation of net income (loss) available to common shareholders
	Net income (loss)		$	(52.4	)	$	54.6		$	134.1		$	703.2
	Redemption value adjustment—Convertible preference shares			—			—			(49.5	)		—

Net income (loss) available to common shareholders			$	(52.4	)	$	54.6		$	84.6		$	703.2

Basic earnings per Common Share:
	Net income from continuing operations		$	4.16		$	6.67		$	20.20		$	4.38
	Net income (loss)			(5.82	)		6.67			9.80			85.90
Diluted earnings per Common Share:
	Net income from continuing operations		$	3.69		$	6.04		$	18.08		$	3.87
	Net income (loss)			(5.33	)		6.04			8.67			77.67

Dividends declared and paid per Common Share			$	—		$	—		$	1.00		$	1.00

See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

Unaudited

(millions)

	Common shareholders' equity			Common Shares and paid-in surplus			Retained earnings			Accum. other comprehensive income, after tax		Unearned compensation
Balances at January 1, 2003	$	2,407.9		$	1,134.6		$	1,071.9		$	206.7	$	(5.3	)

Net income		134.1			—			134.1			—		—
Other comprehensive income, after tax		45.1			—			—			45.1		—
Redemption value adjustment—Convertible Preference Shares		(49.5	)		—			(49.5	)		—		—
Dividends declared on Common Shares		(8.3	)		—			(8.3	)		—		—
Changes to accrued option expense		4.0			4.0			—			—		—
Issuances of Common Shares		269.5			271.5			—			—		(2.0	)
Repurchases and retirements of Common Shares		(13.8	)		(5.5	)		(8.3	)		—		—
Amortization of restricted Common Share awards		5.6			—			—			—		5.6

Balances at September 30, 2003	$	2,794.6		$	1,404.6		$	1,139.9		$	251.8	$	(1.7	)

	Common shareholders' equity			Common Shares and paid-in surplus			Retained earnings			Accum. other comprehensive income, after tax		Unearned compensation
Balances at January 1, 2002	$	1,444.6		$	1,106.6		$	355.1		$	4.4	$	(21.5	)

Net income		703.2			—			703.2			—		—
Other comprehensive income, after tax		186.0			—			—			186.0		—
Dividends declared on Common Shares		(8.3	)		—			(8.3	)		—		—
Changes to accrued option expense		(3.0	)		(3.0	)		—			—		—
Issuance of Common Shares		7.1			7.1			—			—		—
Amortization of restricted Common Share awards		12.2			—			—			—		12.2

Balances at September 30, 2002	$	2,341.8		$	1,110.7		$	1,050.0		$	190.4	$	(9.3	)

See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

		Nine Months Ended September 30,
		2003			2002
		(millions)
Cash flows from operations:
Net income		$	134.1		$	703.2
Charges (credits) to reconcile net income to cash flows from operations:
	Cumulative effect of changes in accounting principles		89.8			(660.2	)
	Excess of fair value of acquired assets over cost		—			(7.1	)
	Dividends on preferred stock subject to mandatory redemption		22.7			22.7
	Deferred income tax provision		64.8			54.5
	Net realized investment gains		(114.0	)		(116.7	)
	Undistributed equity in earnings of unconsolidated insurance affiliates, after tax		(42.3	)		(7.8	)
Other operating items:
	Net change in reinsurance recoverable on paid and unpaid losses		465.4			19.2
	Net change in loss and loss adjustment expense reserves		(844.8	)		(394.4	)
	Net change in insurance and reinsurance premiums receivable		(3.3	)		237.0
	Net change in unearned insurance and reinsurance premiums		(32.3	)		(163.0	)
	Net change in deferred acquisition costs		3.2			53.6
	Net change in funds held under reinsurance treaties		(62.2	)		(99.2	)
	Net change in other assets and liabilities		(77.4	)		168.1

Net cash flows used for operations			(396.3	)		(190.1	)

Cash flows from investing activities:
	Net decrease in short-term investments		110.1			276.0
	Sales of fixed maturity investments		15,052.6			8,544.6
	Maturities of fixed maturity investments		2,064.5			210.6
	Sales of common equity securities and other investments		96.4			58.9
	Purchases of fixed maturity investments		(16,282.4	)		(8,966.7	)
	Purchases of common equity securities and other investments		(355.5	)		(301.4	)
	Net change in unsettled investment purchases and sales		(209.2	)		550.9
	Purchases of consolidated affiliates		—			(.5	)
	Net dispositions (acquisitions) of fixed assets		47.2			(12.8	)

Net cash flows provided from investing activities			523.7			359.6

Cash flows from financing activities:
	Issuances of debt		693.4			—
	Repayments of debt		(739.9	)		(77.3	)
	Cash dividends paid to common shareholders		(8.3	)		(8.3	)
Cash dividends paid to preferred shareholders			(22.7	)		(22.7	)
	Proceeds from issuances of Common Shares		.8			1.2

Net cash used for financing activities			(76.7	)		(107.1	)

Net increase in cash during period			50.7			62.4
Cash balances at beginning of period			121.5			67.4

Cash balances at end of period		$	172.2		$	129.8

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

These interim consolidated financial statements include the accounts of White Mountains Insurance Group, Ltd. (the "Company" or the "Registrant") and its subsidiaries (collectively, "White Mountains") and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company is a Bermuda limited liability company with its headquarters located at Crawford House, 23 Church Street, Hamilton, Bermuda HM 11. The Company's 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, Bermuda HM 11.

The Company's reportable segments are OneBeacon, Reinsurance and Other Operations. The OneBeacon Insurance Group LLC family of companies are U.S.-based property and casualty insurance writers including, among several others, OneBeacon Insurance Company, Pennsylvania General Insurance Company and Camden Fire Insurance Association (collectively "OneBeacon"). OneBeacon was acquired by White Mountains from Aviva plc ("Aviva", formerly CGNU plc) on June 1, 2001 (the "Acquisition").

White Mountains' reinsurance operations are conducted primarily through Folksamerica Holding Company Inc. (together with its reinsurance subsidiary, Folksamerica Reinsurance Company, "Folksamerica"). In connection with the Acquisition, Folksamerica was contributed to OneBeacon. OneBeacon and Folksamerica are run as separate entities, with distinct operations, management and business strategies. White Mountains' reinsurance operations also include its wholly-owned subsidiaries White Mountains Underwriting Limited ("WMU") and Fund American Reinsurance Company Ltd. ("Fund American Re"), as well as its unconsolidated investment in Montpelier Re Holdings Ltd. ("Montpelier"), a Bermuda-domiciled reinsurance holding company. Fund American Re is commercially domiciled in Bermuda but maintains its executive office and an operating branch in Stockholm, Sweden, and operates through an additional branch in Singapore. WMU is an Ireland- domiciled consulting services provider specializing in international property excess reinsurance.

White Mountains' other operations consist of the International American Group and Esurance Inc. ("Esurance"), which are owned by Folksamerica, as well as the Company and the Company's intermediate holding companies. The International American Group consists of Peninsula Insurance Company ("Peninsula"), American Centennial Insurance Company ("American Centennial") and British Insurance Company of Cayman ("British Insurance Company"), which were purchased by White Mountains in 1999. See Note 12—Subsequent Events for disclosure regarding the pending sale of Peninsula.

All significant intercompany transactions have been eliminated in consolidation. The financial statements include all adjustments considered necessary by management to fairly present the financial position, results of operations and cash flows of White Mountains. These interim financial statements may not be indicative of financial results for the full year and should be read in conjunction with the Company's 2002 Annual Report on Form 10-K/A. 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 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 with the current presentation. Refer to the Company's 2002 Annual Report on Form 10-K/A for a complete discussion regarding White Mountains' significant accounting policies.

Recently Adopted Changes in Accounting Principles

Mandatorily Redeemable Preferred Stock

In July 2003, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), which, among other things, requires an issuer of mandatorily redeemable financial instruments to classify such instruments as a liability and to initially measure the liability at its fair value. Subsequently, these instruments are to be measured at their present value, using the interest rate implicit at the inception of the contract. In addition, all future dividends paid to holders of those instruments, as well as any accretion related to those instruments, are to be reflected as interest cost. For financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption, transition is achieved by reporting the difference between the measurement of the liability upon adoption and the previous carrying value as the cumulative effect of a change in accounting principle. White Mountains has two classes of mandatorily redeemable preferred stock of subsidiaries, which were previously classified as minority interests, that fall within the scope of SFAS No. 150 and therefore have been classified as liabilities upon White Mountains' adoption of SFAS No. 150 in the third quarter of 2003. White Mountains recognized a charge of $89.8 million as a cumulative effect of a change in accounting principle during the third quarter of 2003 as a result of its adoption of SFAS No. 150. In addition, beginning in the third quarter of 2003, all dividends and accretion on White Mountains' mandatorily redeemable preferred stock are recorded as interest expense. (See Note 10.)

Stock-Based Compensation

In January 2003, the Company adopted the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" ("SFAS No. 148"), an amendment to SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 amends the disclosure provisions of SFAS No. 123 to require prominent annual disclosure about the effects on reported net income in the Summary of Significant Accounting Policies and also requires disclosure about these effects in interim financial statements. See Note 9.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which addresses consolidation issues surrounding special purpose entities and certain other entities, collectively termed variable interest entities ("VIE"), to which the usual condition for consolidation does not apply. A VIE is an entity in which the equity investors do not have the characteristics of a controlling interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Under FIN 46, the primary beneficiary of a VIE is required to consolidate the VIE in its financial statements. The primary beneficiary is the entity that has a variable interest that will absorb the majority of the VIE's expected losses or receive a majority of the entity's expected residual returns or both. FIN 46 was effective immediately for new VIEs established or purchased subsequent to January 31, 2003. For VIEs entered into prior to February 1, 2003, additional disclosure requirements were effective for financial statements issued after January 31, 2003. White Mountains did not identify any material VIEs created subsequent to January 31, 2003 which required consolidation. White Mountains adopted the disclosure provisions of FIN 46 beginning with its December 31, 2002 Form 10-K/A.

On October 9, 2003, the FASB issued FASB Staff Position 46-6 ("FSP 46-6") deferring the effective date for applying the provisions of FIN 46 for interests held by public entities in VIEs or potential VIEs created before February 1, 2003. According to FSP 46-6, a public entity need not apply

the provisions of FIN 46 to an interest held in a VIE or potential VIE until the end of the first interim or annual period ending after December 15, 2003 (as of December 31, 2003, for an entity with a calendar year-end or quarter-end of December 31). At September 30, 2003 and December 31, 2002, White Mountains held certain investments that, for purposes of FIN 46, are being evaluated to determine whether they should be consolidated or disclosed as VIEs in the Company's future financial statements. Such investments include limited partnerships currently accounted for under the equity method (with a $72.8 million carrying value at September 30, 2003) and OneBeacon's surplus note investment in New Jersey Skylands Insurance Association (together with New Jersey Skylands Insurance Company, "New Jersey Skylands"). OneBeacon has no ownership interest in New Jersey Skylands, which is a reciprocal carrier that is owned by its policyholders. OneBeacon's potential loss is limited to its $31.3 million surplus note investment in New Jersey Skylands that is currently carried at cost as an other investment.

Note 2. Acquisition of OneBeacon and Related Transactions

On June 1, 2001, White Mountains acquired OneBeacon from Aviva for $2,114.3 million, of which $260.0 million consisted of a convertible note (the "Seller Note"), which was subsequently repaid in November 2002, with the balance paid in cash.

On November 1, 2001, OneBeacon transferred its regional agency business, agents and operations in 42 states and the District of Columbia to Liberty Mutual Insurance Group ("Liberty Mutual") pursuant to a renewal rights agreement (the "Renewal Rights Agreement"). This transfer amounted to approximately 45% of OneBeacon's total business. The operating results and cash flows of policies renewed from November 1, 2001 through October 31, 2003 pursuant to the Renewal Rights Agreement are shared between Liberty Mutual and OneBeacon. A reinsurance agreement pro-rates results so that OneBeacon assumed approximately two-thirds of the operating results from renewals through October 31, 2002 and assumes approximately one-third of the operating results from renewals from November 1, 2002 to October 31, 2003. OneBeacon will also receive commissions of 3% of written premiums on policies transferred to Liberty Mutual that are renewed in the year after the Renewal Rights Agreement expires. Additionally, OneBeacon had the option of assuming 10% of Liberty Mutual's regional agency markets business for the years 2004 to 2006 on a pari passu basis with Liberty Mutual. During the third quarter of 2003, OneBeacon elected not to exercise this option.

Note 3. Loss and Loss Adjustment Expense Reserves

The following table summarizes the loss and loss adjustment expense ("LAE") reserve activities of White Mountains' insurance and reinsurance subsidiaries for the three and nine months ended September 30, 2003 and 2002:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
		Millions
Gross beginning balance		$	8,286.5		$	9,179.9		$	8,875.3		$	9,527.6
	Less beginning reinsurance recoverable on unpaid losses		(3,814.4	)		(4,067.7	)		(4,071.9	)		(4,203.5	)

Net loss and LAE reserves			4,472.1			5,112.2			4,803.4			5,324.1
Net loss and LAE reserves acquired			—			17.5			—			28.5
Loss and LAE incurred relating to:
	Current year losses		493.6			629.5			1,497.2			2,003.4
	Prior year losses		106.9			8.0			137.3			7.1

Total incurred loss and LAE			600.5			637.5			1,634.5			2,010.5
Accretion of fair value adjustment to loss and LAE reserves			10.1			14.2			38.5			65.6
Loss and LAE paid relating to:
	Current year losses		(307.7	)		(321.2	)		(498.0	)		(787.3	)
	Prior year losses		(378.2	)		(504.3	)		(1,581.6	)		(1,685.5	)

Total loss and LAE payments			(685.9	)		(825.5	)		(2,079.6	)		(2,472.8	)
Net ending balance			4,396.8			4,955.9			4,396.8			4,955.9
	Plus ending reinsurance recoverable on unpaid losses		3,633.7			4,177.3			3,633.7			4,177.3

Gross ending balance		$	8,030.5		$	9,133.2		$	8,030.5		$	9,133.2

White Mountains recorded $106.9 million and $137.3 million of net unfavorable loss reserve development on prior accident year loss and LAE reserves during the three and nine months ended September 30, 2003, of which approximately $100 million and $120 million, respectively, were experienced by OneBeacon. The net unfavorable development at OneBeacon in the third quarter of 2003 primarily related to construction defect claims in its non-core operations as part of the review of all claims recalled from Liberty Mutual by OneBeacon. See page 41 for a detailed discussion of the third quarter loss reserve development at OneBeacon. The development at OneBeacon during the first nine months of 2003 also included approximately $12 million for a significant 1995 property claim from a pool in which OneBeacon had participated (the Industrial Risk Insurers pool) which had been in litigation and was settled through an arbitration decision during the second quarter of 2003. Folksamerica experienced approximately $7 million and $17 million of unfavorable loss reserve development for the three and nine months ended September 30, 2003, primarily due to higher than expected losses in casualty lines from the 1999 and 2000 accident years, before significant rate increases took place.

White Mountains recorded net unfavorable loss reserve development for the three and nine months ended September 30, 2002 of $8.0 million and $7.1 million, respectively, of which approximately $8 million and $4 million, respectively, were experienced by Folksamerica. Included in Folksamerica's net development for the nine-month period was $17 million of favorable development from the reversal of an allowance for doubtful reinsurance recoveries originally established in connection with its 2000 acquisition of PCA Property and Casualty Insurance Company ("PCA"). Excluding this PCA allowance reversal, Folksamerica's unfavorable development of $8 million and $21 million for the three and nine

months ended September 30, 2002, respectively, was primarily covered under the retroactive portion of the Imagine Cover (as defined below) and, as such, the benefit received under the Imagine Cover will be realized in the period that the corresponding deferred gain is recognized.

In connection with purchase accounting for the Acquisition, White Mountains was required to adjust to fair value OneBeacon's loss and LAE reserves and the related reinsurance recoverables by $646.9 million and $346.9 million, respectively, on OneBeacon's acquired balance sheet. This net reduction to loss and LAE reserves of $300.0 million at June 1, 2001 ($125.7 million at September 30, 2003) is being recognized through an income statement charge ratably with and over the period the claims are settled. As such, White Mountains recognized $10.1 million and $38.5 million of such charges, recorded as loss and LAE, for the three and nine months ended September 30, 2003, respectively, and $14.2 million and $65.6 million for the three and nine months ended September 30, 2002, respectively.

Note 4. Third Party Reinsurance

In the normal course of business, White Mountains' insurance and reinsurance subsidiaries seek to limit losses that may arise from catastrophes or other events by reinsuring with third party reinsurers. White Mountains remains liable for risks reinsured in the event that the reinsurer is unable to honor its obligations under reinsurance contracts.

OneBeacon

During the first four months of 2003, OneBeacon was able to significantly reduce the cost of its reinsurance program by purchasing less property catastrophe reinsurance during the low catastrophe season and postpone its annual renewal date to May 1. Effective May 1, 2003, OneBeacon purchased its normal property catastrophe reinsurance program to cover its full estimated probable maximum loss for the next twelve months. Under that cover, the first $200.0 million of losses resulting from any single catastrophe are retained by OneBeacon and losses from a single event in excess of $200.0 million and up to $850.0 million are reinsured for 100% of the loss.

In connection with the Acquisition, Aviva caused OneBeacon to purchase two reinsurance contracts; a full risk-transfer cover from National Indemnity Company ("NICO") for up to $2.5 billion in old asbestos and environmental ("A&E") claims and certain other exposures (the "NICO Cover") and an adverse development cover from General Reinsurance Corporation ("GRC") for up to $400.0 million of adverse development on losses occurring in years 2000 and prior (the "GRC Cover") in addition to $170.0 million of reserves ceded as of the date of the Acquisition.

Under the terms of the NICO Cover, NICO receives the economic benefit of reinsurance recoverables from certain of OneBeacon's third party reinsurers in existence at the time the NICO Cover was executed ("Third Party Recoverables"). As a result, the Third Party Recoverables serve to protect the $2.5 billion limit of NICO coverage for the benefit of OneBeacon. Third Party Recoverables are typically for the amount of loss in excess of a stated level each year. White Mountains estimates that on an incurred basis, net of Third Party Recoverables, it has exhausted approximately $1,771 million of the coverage provided by NICO at September 30, 2003. Approximately $579 million of these incurred losses have been paid by NICO through September 30, 2003. To the extent that actual experience differs from White Mountains' estimate of ultimate A&E losses and Third Party Recoverables, future losses could utilize some or all of the $729 million protection remaining under the NICO Cover.

Pursuant to the GRC Cover, OneBeacon is not entitled to recover losses to the full contract limit if such losses are reimbursed by GRC more quickly than anticipated at the time the contract was signed. OneBeacon has recorded $531.7 million in recoverables due from GRC at September 30, 2003

and December 31, 2002. OneBeacon will only seek reimbursement from GRC for claims which result in payment patterns similar to those supporting its recoverables recorded pursuant to the GRC Cover.

At September 30, 2003, OneBeacon had $51.4 million of reinsurance currently recoverable on paid losses and $3,151.8 million that will become recoverable if claims are paid in accordance with current reserve estimates. Because reinsurance contracts do not relieve OneBeacon of its primary obligation to its policyholders, the financial position and solvency of OneBeacon's reinsurers is critical to the collectibility of its reinsurance coverages. OneBeacon is selective with regard to its reinsurers, placing reinsurance with only those reinsurers having strong financial strength ratings. OneBeacon monitors the financial strength of its reinsurers on an ongoing basis. As a result, uncollectible amounts have not historically been significant. The following table provides a listing of OneBeacon's top reinsurers based upon recoverable amounts, the percentage of total reinsurance recoverables and the reinsurer's A.M. Best rating.

Top Reinsurers (dollars in millions)	Balance at September 30, 2003		% of Total		A.M. Best Rating(3)
Subsidiaries of Berkshire (NICO and GRC)	$	2,332.5	73	%	A	++
Liberty Mutual and subsidiaries(1)		215.6	7		A
Tokio Fire and Marine Insurance Company		56.0	2		A	++
American Re-Insurance Company		43.6	1		A	+
Aviva plc and its affiliates(2)		30.8	1		not rated

(1): At September 30, 2003, OneBeacon had assumed balances payable and expenses payable of approximately $113.6 million under the Renewal Rights Agreement. In the event of Liberty Mutual insolvency, OneBeacon has the right to offset these balances against its reinsurance recoverable due from Liberty Mutual.
(2): Represents non-U.S. insurance entities whose balances are fully collateralized through funds held, letters of credit and/or trust agreements.
(3): A.M. Best ratings as detailed above are: A++ (Superior, which is the highest of fifteen ratings), A+ (Superior, which is the second highest of fifteen ratings) and A (Excellent, which is the third highest of fifteen ratings).

Folksamerica

Folksamerica has quota share retrocessional arrangements with Olympus Reinsurance Company ("Olympus") which are designed to increase Folksamerica's capacity to capitalize on the improved pricing trends which accelerated after the terrorist attacks of September 11, 2001 and to reduce its potential loss exposure to any large, or series of smaller, property catastrophe events. Under the quota share agreements with Olympus, Folksamerica cedes up to 75% of substantially all of its short-tailed excess of loss business, mainly property and marine, and 50% of its proportional property business to Olympus and receives an override commission on the premiums ceded to Olympus.

In 2000, Folksamerica purchased a reinsurance contract from Imagine Re (the "Imagine Cover") to reduce its statutory operating leverage and protect its surplus from adverse development relating to A&E exposures as well as the reserves assumed in several acquisitions. In accordance with SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS No. 113"), amounts related to reserves transferred to Imagine Re for liabilities incurred as a result of past insurable events have been accounted for as retroactive reinsurance. At September 30, 2003 and December 31, 2002, Folksamerica's reinsurance recoverables included $306.7 million and $381.2 million, respectively, recorded under the Imagine Cover. All balances due from Imagine Re are

fully collateralized, either with Folksamerica as the beneficiary of invested assets in a trust, with funds held, or through a letter of credit. As of September 30, 2003, there was approximately $5.2 million of coverage remaining under this contract. At September 30, 2003 and December 31, 2002, Folksamerica had also recorded $52.7 million and $53.9 million in deferred gains, respectively, related to adverse development on loss reserves transferred to Imagine Re at the inception of the Imagine Cover. Folksamerica is recognizing these deferred gains into income over the expected settlement period of the underlying claims, and accordingly recognized $2.1 million and $6.2 million of such deferred gains during the three and nine months ended September 30, 2003, respectively, and $1.8 million and $5.6 million during the three and nine months ended September 30, 2002, respectively.

At September 30, 2003, Folksamerica had $65.5 million of reinsurance currently recoverable on paid losses and $757.8 million that will become recoverable if claims are paid in accordance with current reserve estimates. Because reinsurance contracts do not relieve Folksamerica of its obligation to its ceding companies, the financial position and solvency of Folksamerica's reinsurers is critical to the collectibility of its reinsurance coverages. Folksamerica is selective with regard to its reinsurers, placing reinsurance with only those reinsurers having strong financial strength ratings. Folksamerica monitors the financial strength of its reinsurers on an ongoing basis. The following table provides a listing of Folksamerica's top reinsurers based upon recoverable amounts, the percentage of total recoverables and the reinsurer's A.M. Best Rating.

Top Reinsurers (dollars in millions)	Balance at September 30, 2003		% of Total		A.M. Best Rating(2)
Imagine Re(1)	$	306.7	37.3	%	A	-
London Life & General Reinsurance Company Ltd. and London Life & Casualty Reinsurance Corp.(1)		135.4	16.5	%	A
Olympus(1)		114.4	13.9	%	A	-
GRC and affiliates		34.0	4.1	%	A	++
Federal Insurance Company		31.2	3.8	%	A	++

(1): Represents non-U.S. insurance entities whose balances are fully collateralized through funds held, letters of credit or trust agreements.
(2): A.M. Best ratings as detailed above are: A++ (Superior, which is the highest of fifteen ratings), A (Excellent, which is the third highest of fifteen ratings) and A- (Excellent, which is the fourth highest of fifteen ratings).

Note 5. Investment Securities

White Mountains' net investment income is comprised primarily of interest income associated with the fixed maturity investments of its consolidated insurance and reinsurance operations, dividend

income from its equity investments and interest income from its short-term investments. Net investment income for the three and nine months ended September 30, 2003 and 2002 consisted of the following:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
		Millions
Investment income:
	Fixed maturity investments	$	63.8		$	82.0		$	201.4		$	265.3
	Short-term investments		.7			1.4			9.1			3.2
	Common equity securities		2.4			2.8			6.8			5.8
	Other		.9			2.6			4.0			4.8

Total investment income			67.8			88.8			221.3			279.1
	Less investment expenses and other charges		(.3	)		(.7	)		(2.2	)		(2.9	)

Net investment income, before tax		$	67.5		$	88.1		$	219.1		$	276.2

The composition of realized investment gains (losses) for the three and nine months ended September 30, 2003 and 2002 consisted of the following:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
		Millions
Fixed maturity investments		$	(31.3	)	$	118.8		$	94.7		$	125.9
Common equity securities			3.4			(2.1	)		25.2			3.7
Other investments			(6.3	)		2.6			(5.9	)		(12.9	)

	Net realized investment gains (losses), before tax	$	(34.2	)	$	119.3		$	114.0		$	116.7

In 2001, the Company received warrants to acquire 4,781,572 common shares of Montpelier at $16.67 per share (as adjusted for stock splits) that are exercisable until December 2011. White Mountains' investment in the Montpelier warrants constitutes a derivative security under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), thereby requiring the instruments to be recorded at fair value with the resulting gain or loss recognized through the income statement as a realized investment gain or loss. In accordance with SFAS No. 133, White Mountains has determined the fair value of the Montpelier warrants to be $63.1 million as of September 30, 2003 and has recognized other investment gains (losses) of $(6.4) million and $5.1 million for the three and nine months ended September 30, 2003, respectively, and other investment gains of $32.3 million and $36.3 million for the three and nine months ended September 30, 2002. Realized gains and losses on other investments for the three and nine months ended September 30, 2002 also included $30.3 million and $46.3 million of losses on the Company's interest rate swap agreements recognized in accordance with SFAS No. 133. See Note 6.

White Mountains' portfolio of fixed maturity investments is comprised primarily of investment grade corporate debt securities, U.S. government and agency securities and mortgage-backed securities (greater than 99% of such securities received a rating from the National Association of Insurance Commissioners of 1 or 2) and are classified as available for sale. Nearly all of the fixed maturity securities currently held by White Mountains are publicly traded.

TBA trades are settled in the future, since at the time of the trade, the specific identification of the mortgage loans underlying the mortgage-backed security is not final. Mortgage pools (including fixed rate or variable rate mortgages) guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac are subsequently allocated to the TBA transactions. The period between the TBA trade date and the ultimate cash settlement date can be as long as 180 days, though it typically runs between 45 and 60 days. At the time of a TBA purchase trade, White Mountains intends to take delivery of the mortgage-backed security on the cash settlement date.

Note 6. Debt

White Mountains' debt outstanding as of September 30, 2003 and December 31, 2002 consisted of the following:

			September 30, 2003			December 31, 2002
			Millions
Senior Notes, face value			$	700.0		$	—
	Unamortized original issue discount			(2.0	)		—

		Senior Notes, carrying value		698.0			—
New Bank Facility				—			—
Old Bank Facility:
	Revolving loan			—			125.0
	Term loans			—			621.4

		Total Old Bank Facility		—			746.4
Medium Term Notes				—			5.1
Other debt				44.5			41.7

		Total debt	$	742.5		$	793.2

Senior Notes

On May 19, 2003, Fund American Companies, Inc. ("Fund American"), a wholly-owned subsidiary of the Company, issued $700.0 million face value of senior unsecured debt through a public offering, at an issue price of 99.7% (the "Senior Notes"). After reducing for a $4.5 million underwriting discount, the resulting $693.4 million in proceeds to Fund American were used to repay all of the term loans and a portion of the revolving loan (with the remainder repaid with cash on hand) under Fund American's Old Bank Facility (see below). The Senior Notes bear an annual interest rate of 5.9%, payable semi-annually in arrears on May 15 and November 15, until maturity on May 15, 2013, and are fully and unconditionally guaranteed as to the payment of principal and interest by the Company. Fund American incurred $7.3 million in expenses related to the issuance of the Senior Notes (including the $4.5 million underwriting discount), which have been deferred and are being recognized into interest expense over the life of the Senior Notes. Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the Senior Notes have an effective yield to maturity of approximately 6.0% per annum.

The Senior Notes were issued under an indenture with Bank One, N.A. as trustee, which contains certain covenants that, among other things, limit the ability of the Company, Fund American and their respective subsidiaries to create liens and enter into sale and leaseback transactions and substantially limits the ability of Fund American and its respective subsidiaries to consolidate, merge or transfer its properties and assets. The indenture does not contain any financial ratios or specified levels of net worth or liquidity to which the Company or Fund American must adhere.

Old Bank Facility

In connection with the Acquisition, Fund American had borrowed $825.0 million from a banking syndicate arranged by Lehman Brothers Inc. (the "Old Bank Facility"), which was initially comprised of two term loan facilities (subsequently refinanced into three term loan facilities) and a revolving credit facility. On May 19, 2003, using proceeds from the Senior Notes offering, Fund American repaid the entire $614.9 million of term loans then outstanding under the Old Bank Facility. In addition, on May 27, 2003, using the remaining $78.5 million in proceeds from the Senior Notes offering and cash on hand, Fund American repaid the entire $125.0 million of revolving loans outstanding under the Old Bank Facility.

New Bank Facility

In September 2003, Fund American terminated the Old Bank Facility, which then consisted solely of an undrawn $175.0 million revolving credit line, and replaced it with a new $300.0 million revolving credit facility (the "New Bank Facility") arranged through Fleet Securities, Inc. and Banc One Capital Markets, Inc., which matures in September 2006 and under which both Fund American and the Company are permitted borrowers. Under the New Credit Facility, the Company guarantees all obligations of Fund American, and Fund American guarantees all borrowings of the Company subject to certain limitations imposed by the terms of the Berkshire Preferred Stock. Amounts outstanding under the New Bank Facility bear interest at a variable base rate (Fleet National Bank's prime rate) or a variable Eurodollar rate plus an applicable margin based on the level of borrowings outstanding under the New Bank Facility and White Mountains' public debt ratings. If fully drawn, the New Bank Facility would currently have an all-in margin of 1.125% over the Eurodollar rate compared to 2.125% for the old revolving credit commitment under the Old Bank Facility. As of September 30, 2003, both Fund American and the Company had yet to draw any funds under the New Bank Facility.

The New Bank Facility contains various affirmative, negative and financial covenants which White Mountains considers to be customary for such borrowings and include maintaining certain minimum net worth and maximum debt to capitalization standards for White Mountains. Failure to meet one or more of these covenants could result in an event of default, which ultimately could result in acceleration of principal repayment. At September 30, 2003, White Mountains was in compliance with all of the covenants under the New Bank Facility, and anticipates it will continue to remain in compliance with these covenants for the foreseeable future.

Interest Rate Swaps

Fund American had entered into a series of interest rate swaps with large financial institutions in order to achieve a fixed interest rate on the term loans under the Old Bank Facility. The swap investments did not match the duration of the Old Bank Facility and as a result did not satisfy the criteria for hedge accounting under SFAS No. 133. Pursuant to SFAS No. 133, the interest rate swaps had been carried at fair value on White Mountains' balance sheet as an other investment, with changes in their fair value reported directly through the income statement as realized gains or losses.

In connection with the repayment of the Old Bank Facility, Fund American negotiated with the corresponding banks for an early termination of the interest rate swap agreements and as a result paid a total of $56.4 million on May 20, 2003 in full satisfaction of the swap agreements. As of December 31, 2002, White Mountains had recorded the aggregate fair value of the interest rate swaps as an other investment of $(52.2) million. Accordingly, White Mountains recorded realized losses of $4.2 million for the nine months ended September 30, 2003.

Medium Term Notes

The Company's $5.1 million in medium term notes were prepaid in 2001 into an escrow account which was disbursed to holders of the notes during the first quarter of 2003 upon maturity of the notes.

Note 7. Earnings Per Share

Basic earnings (loss) per share amounts are based on the weighted average number of Common Shares outstanding. Diluted earnings per share amounts are based on the weighted average number of Common Shares and the net effect of potentially dilutive Common Shares outstanding, based on the treasury stock method. The following table details the Company's computation of earnings per Common Share for the three and nine months ended September 30, 2003 and 2002:

		Three months ended September 30,						Nine months ended September 30,
		2003			2002			2003			2002
Basic earnings (loss) per share numerators (in millions):
Net income from continuing operations		$	37.4		$	54.6		$	223.9		$	35.9
	Redemption value adjustment—Convertible Preference Shares		—			—			(49.5	)		—

Net income from continuing operations available to common shareholders		$	37.4		$	54.6		$	174.4		$	35.9

	Cumulative effect of changes in accounting principles		(89.8	)		—			(89.8	)		660.2
	Excess of fair value of acquired net assets over cost		—			—			—			7.1

Net income (loss) available to common shareholders		$	(52.4	)	$	54.6		$	84.6		$	703.2

Diluted earnings (loss) per share numerators (in millions):
Net income from continuing operations available to common shareholders		$	37.4		$	54.6		$	174.4		$	35.9
	Other effects on diluted earnings(1)		(.7	)		(.4	)		(1.9	)		(.9	)

Adjusted net income from continuing operations available to common shareholders		$	36.7		$	54.2		$	172.5		$	35.0

Net income (loss) available to common shareholders		$	(52.4	)	$	54.6		$	84.6		$	703.2
	Other effects on diluted earnings(1)		(.7	)		(.4	)		(1.9	)		(.9	)

Adjusted net income (loss) available to common shareholders		$	(53.1	)	$	54.2		$	82.7		$	702.3

Earnings (loss) per share denominators (in thousands):
Basic earnings (loss) per share denominator (average Common Shares outstanding)			8,996			8,190			8,634			8,187
	Average outstanding dilutive options and Warrants		962			784			907			856

Diluted earnings (loss) per share denominator(2)			9,958			8,974			9,541			9,043

Basic earnings (loss) per share (in dollars):
Net income from continuing operations		$	4.16		$	6.67		$	20.20		$	4.38
	Cumulative effect of changes in accounting principles		(9.98	)		—			(10.40	)		80.65
	Excess of fair value of acquired net assets over cost		—			—			—			.87

Net income (loss)		$	(5.82	)	$	6.67		$	9.80		$	85.90

Diluted earnings (loss) per share (in dollars):
Net income from continuing operations		$	3.69		$	6.04		$	18.08		$	3.87
	Cumulative effect of changes in accounting principles		(9.02	)		—			(9.41	)		73.01
	Excess of fair value of acquired net assets over cost		—			—			—			.79

Net income (loss)		$	(5.33	)	$	6.04		$	8.67		$	77.67

(1): Includes an adjustment to White Mountains' equity in earnings recorded on its investment in the common shares of Montpelier, which is reflective of dilution in Montpelier's earnings brought

about by outstanding warrants and options to acquire common shares of Montpelier that are currently in-the-money.

(2): The following potentially dilutive Common Share equivalents are not included in the dilutive per share calculation as their inclusion would be anti-dilutive: (i) for the three and nine months ended September 30, 2003, average restricted Common Shares outstanding of 6,000 and 44,533 Common Shares, respectively, and average options to acquire 55,365 and 57,240 Common Shares, respectively, at an average price of $129.77 and $127.98 per Common Share, respectively; and (ii) for the three and nine months ended September 30, 2002, average restricted Common Shares outstanding of 94,500 Common Shares.

Note 8. Segment Information

White Mountains has determined that its reportable segments include "OneBeacon" (consisting solely of the operations of OneBeacon), "Reinsurance" (consisting of Folksamerica, Fund American Re, WMU and White Mountains' investment in Montpelier) and "Other Operations" (consisting of the International American Group, Esurance, the operations of the Company and the Company's intermediate subsidiary holding companies).

White Mountains has made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company's subsidiaries and affiliates; (ii) the manner in which the Company's subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the Board of Directors. Significant intercompany transactions among White Mountains' segments have been eliminated herein. Certain amounts in the prior periods have been reclassified to conform with the current presentation. Financial information for White Mountains' segments follows:

Millions	OneBeacon			Reinsurance			Other Operations			Total
Three months ended September 30, 2003
Earned insurance and reinsurance premiums	$	550.7		$	229.2		$	8.3		$	788.2
Net investment income		50.2			13.2			4.1			67.5
Net realized investment losses		(17.5	)		(15.4	)		(1.3	)		(34.2	)
Other revenue		15.0			16.7			39.5			71.2

Total revenues	$	598.4		$	243.7		$	50.6		$	892.7

Loss and LAE		434.7			158.8			7.0			600.5
Insurance and reinsurance acquisition expenses		98.3			45.9			5.3			149.5
General and administrative expenses		37.5			18.4			18.3			74.2
Accretion of fair value adjustment to loss and LAE reserves		—			—			10.1			10.1
Interest expense on debt		—			.5			10.5			11.0
Interest expense on preferred stock subject to mandatory redemption		—			—			9.2			9.2

Total expenses		570.5			223.6			60.4			854.5

Pretax income (loss)	$	27.9		$	20.1		$	(9.8	)	$	38.2

Nine months ended September 30, 2003
Earned insurance and reinsurance premiums	$	1,658.5	$	664.5	$	23.4		$	2,346.4
Net investment income		173.3		40.0		5.8			219.1
Net realized investment gains (losses)		112.2		10.0		(8.2	)		114.0
Other revenue		16.4		52.2		50.0			118.6

Total revenues	$	1,960.4	$	766.7	$	71.0		$	2,798.1

Loss and LAE		1,169.1		446.9		18.5			1,634.5
Insurance and reinsurance acquisition expenses		301.4		141.2		14.3			456.9
General and administrative expenses		180.8		50.0		82.8			313.6
Accretion of fair value adjustment to loss and LAE reserves		—		—		38.5			38.5
Interest expense on debt		—		1.5		35.6			37.1
Interest expense on preferred stock subject to mandatory redemption		—		—		9.2			9.2

Total expenses		1,651.3		639.6		198.9			2,489.8

Pretax income (loss)	$	309.1	$	127.1	$	(127.9	)	$	308.3

Three months ended September 30, 2002
Earned insurance and reinsurance premiums	$	688.8	$	182.1	$	7.6		$	878.5
Net investment income		73.2		13.8		1.1			88.1
Net realized investment gains (losses)		83.9		65.6		(30.2	)		119.3
Other revenue (loss)		—		9.5		(13.9	)		(4.4	)

Total revenues	$	845.9	$	271.0	$	(35.4	)	$	1,081.5

Loss and LAE		488.5		141.6		7.4			637.5
Insurance and reinsurance acquisition expenses		188.0		38.7		1.1			227.8
General and administrative expenses		70.0		21.0		11.7			102.7
Accretion of fair value adjustment to loss and LAE reserves		—		—		14.2			14.2
Interest expense on debt		—		.5		16.8			17.3

Total expenses		746.5		201.8		51.2			999.5

Pretax income (loss)	$	99.4	$	69.2	$	(86.6	)	$	82.0

Nine months ended September 30, 2002
Earned insurance and reinsurance premiums	$	2,241.4	$	472.8	$	22.1		$	2,736.3
Net investment income (loss)		235.6		43.1		(2.5	)		276.2
Net realized investment gains (losses)		98.5		62.7		(44.5	)		116.7
Other revenue		.1		38.4		23.8			62.3

Total revenues	$	2,575.6	$	617.0	$	(1.1	)	$	3,191.5

Loss and LAE		1,663.4		329.5		17.6			2,010.5
Insurance and reinsurance acquisition expenses		502.6		116.7		2.8			622.1
General and administrative expenses		269.7		49.8		61.0			380.5
Accretion of fair value adjustment to loss and LAE reserves		—		—		65.6			65.6
Interest expense on debt		—		1.5		51.5			53.0

Total expenses		2,435.7		497.5		198.5			3,131.7

Pretax income (loss)	$	139.9	$	119.5	$	(199.6	)	$	59.8

Selected Balance Sheet Data	OneBeacon		Reinsurance		Other Operations			Total
September 30, 2003
Total investments	$	5,741.3	$	1,996.3	$	581.5		$	8,319.1
Reinsurance recoverable on paid and unpaid losses		3,203.3		831.2		(268.2	)		3,766.3
Total assets		11,493.4		4,024.0		415.2			15,932.6
Loss and LAE reserves		6,630.8		1,762.8		(363.1	)		8,030.5
Total liabilities		9,586.1		2,603.7		948.2			13,138.0
Total equity		1,907.4		1,420.3		(533.1	)		2,794.6

December 31, 2002
Total investments	$	6,648.5	$	1,850.2	$	400.7		$	8,899.4
Reinsurance recoverable on paid and unpaid losses		3,638.6		880.2		(287.1	)		4,231.7
Total assets		12,247.9		3,621.6		164.1			16,033.6
Loss and LAE reserves		7,630.5		1,664.2		(419.4	)		8,875.3
Total liabilities		10,324.6		2,323.4		577.8			13,225.8
Total equity		1,923.3		1,298.1		(813.5	)		2,407.9

Note 9. Stock-Based Compensation

White Mountains' share-based compensation plans consist primarily of performance shares, with limited use of incentive stock options to acquire Common Shares ("Options") and restricted Common Share awards ("Restricted Shares"). White Mountains expenses all its share-based compensation, including its outstanding Options, and accounts for these obligations under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations, including FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Options or Award Plans ("FIN 28"). White Mountains recorded compensation charges of $30.3 million and $106.6 million for outstanding performance shares during the three and nine months ended September 30, 2003, respectively, and ($4.6) million and $9.9 million for the three and nine months ended September 30, 2002, respectively. Compensation expense charged to earnings for Restricted Shares was $.2 million and $5.6 million for the three and nine months ended September 30, 2003, respectively, and $4.1 million and $12.2 million for the three and nine months ended September 30, 2002, respectively.

In 2000, the Company issued a one-time award of 81,000 Options to nine key employees. The Options were issued at an exercise price equal to the market value of the underlying Common Shares on February 27, 2000 (the grant date). The exercise price escalates on a straight-line basis by 6% per annum over the ten-year life of the Options. As a result, the Company accounts for the outstanding Options as variable options under FIN 28, with compensation expense charged to earnings over the service period based on the intrinsic value of the underlying Common Shares. Compensation expense charged against earnings for Options was $.4 million and $4.1 million for the three and nine months ended September 30, 2003, respectively, and $(.3) million and $(.9) million for the three and nine months ended September 30, 2002, respectively. At September 30, 2003, the Company had 55,365 Options outstanding (4,965 of which were exercisable) with a weighted average exercise price of $130.67 per Common Share. During the nine months ended September 30, 2003, 6,600 Options were exercised at an average exercise price of $126.29 per Common Share.

White Mountains has adopted the disclosure-only provisions of SFAS No. 123 with respect to its outstanding Options and Restricted Shares. The following table illustrates the pro forma effect on net income (loss) and earnings per share for each period indicated as if the Company applied the fair value recognition provisions of SFAS No. 123 to its employee Option incentive compensation program. The effects of Restricted Share and performance share expense are not included below because the accounting treatment that the Company follows under APB 25 is identical to the fair value accounting prescribed by SFAS No. 123 for these instruments.

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
		Millions, except per share amounts
Net income (loss) as reported		$	(52.4	)	$	54.6		$	134.1		$	703.2
	Add: Option expense included in reported net income		.4			(.3	)		4.1			(.9	)
	Deduct: Option expense determined under fair value based method		—			(.1	)		(.1	)		(.1	)

Net income (loss), pro forma		$	(52.0	)	$	54.2		$	138.1		$	702.2

Earnings per share:
	Basic—as reported	$	(5.82	)	$	6.67		$	9.80		$	85.90
	Basic—pro forma		(5.78	)		6.62			10.26			85.77
	Diluted—as reported		(5.33	)		6.04			8.67			77.67
	Diluted—pro forma		(5.29	)		5.99			9.09			77.55

Note 10. Mandatorily Redeemable Preferred and Convertible Preference Shares

Berkshire Preferred

As part of the financing for the Acquisition, Berkshire Hathaway Inc. ("Berkshire") invested a total of $300 million in cash, of which (i) $225 million was for the purchase of mandatorily redeemable preferred stock (the "Berkshire Preferred Stock") with a $300 million redemption value and (ii) $75 million was for warrants to purchase 1,714,285 common shares at $175 per share (the "Warrants"). The Berkshire Preferred Stock is entitled to a dividend of no less than 2.35% per quarter and is mandatorily redeemable after seven years. The Berkshire Preferred Stock was initially recorded at $145.2 million, as the aggregate proceeds received from Berkshire of $300 million were originally allocated between the Berkshire Preferred Stock and the Warrants, based on their relative fair values in accordance with Accounting Principles Board Opinion No. 14—"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". Through June 30, 2003, the carrying value of the Berkshire Preferred Stock had been accreted up to $167.3 million.

SFAS No. 150 specifies that the Berkshire Preferred Stock be classified as a liability, measured initially at its fair value and subsequently at its present value using the interest rate implicit at the inception of the contract. White Mountains determined that the fair value of the Berkshire Preferred Stock as of the inception of the contract was $245.4 million, and the subsequent present value of the instrument, using the interest rate implicit at its inception, was $257.1 million on July 1, 2003. Accordingly, upon adoption of SFAS No. 150 on July 1, 2003, White Mountains reclassified this instrument from minority interest to a liability and recorded such liability at its present value of $257.1 million, resulting in a $89.8 million mark-up of the instrument from its previous carrying value. This charge has been recorded by White Mountains as a cumulative effect of a change in accounting principle during the third quarter of 2003. Beginning in the third quarter of 2003, White Mountains is accreting the instrument up to its $300.0 million redemption value using the interest method, recognizing this accretion as interest expense on the income statement. Also, beginning in the third quarter of 2003, all quarterly dividends paid to Berkshire are reflected as interest expense, as opposed to dividends on preferred stock.

Zenith Preferred

On June 1, 2001, Zenith Insurance Company ("Zenith") purchased $20.0 million in cumulative non-voting preferred stock of a subsidiary of the Company (the "Zenith Preferred Stock"). The Zenith Preferred Stock is entitled to a dividend of no less than a 2.5% per quarter through June 30, 2007 and a dividend of no less than 3.5% per quarter thereafter and is mandatorily redeemable after ten years. The Company received $20 million in cash consideration for the $20 million redemption value payable to Zenith. Accordingly, this instrument has a zero percent implicit rate at the inception of the contract. Therefore, the present value of the Zenith Preferred Stock at the date of SFAS No. 150 adoption is equal to its $20 million carrying value. Upon adoption of SFAS No. 150 on July 1, 2003, White Mountains reclassified this instrument from minority interest to a liability at its face value of $20 million. Similar to the Berkshire Preferred Stock, beginning in the third quarter of 2003, all quarterly dividends paid to Zenith are recognized as interest expense.

Convertible Preference Shares

In October of 2002, White Mountains sold $200.0 million of its equity securities in a private transaction. Investment funds managed by Franklin Mutual Advisers, LLC purchased 677,966 convertible preference shares of the Company at a price of $200.0 million ($295.00 per share). Upon shareholder approval at the Company's Annual Meeting held on May 19, 2003, the convertible preference shares were repurchased and cancelled in consideration of 677,966 Common Shares. Because the redemption value of the convertible preference shares was in excess of the cash received

upon their issuance, they were required to be marked-to-market until the date they were converted to shareholders' equity, resulting in a cumulative $68.5 million charge to retained earnings ($49.5 million of which was recognized during the nine months ended September 30, 2003), with an offsetting increase to paid-in surplus.

Note 11. Consolidating Financial Information

The Company will fully and unconditionally guarantee any debt securities, preference shares or trust preferred securities issued by Fund American pursuant to its December 2001 shelf registration statement, including Fund American's May 2003 issuance of the Senior Notes (see Note 6). The following tables present White Mountains' consolidating balance sheets as of September 30, 2003 and December 31, 2002 and statements of income for the three and nine months ended September 30, 2003 and statements of cash flows for the nine months ended September 30, 2003 and 2002. These financial statements reflect the Company's financial position, results of operations and cash flows on a stand-alone basis, that of Fund American and of the Company's other entities, as well as the necessary adjustments to eliminate intercompany balances and transactions.

Consolidating Balance Sheet
as of September 30, 2003

		The Company		Other Entities		Fund American		Eliminations			Total
		(Dollars in Millions)
ASSETS
Fixed maturity investments, at fair value		$	—	$	110.5	$	5,781.9	$	—		$	5,892.4
Short-term investments, at amortized cost			12.7		179.6		1,491.2		(3.0	)		1,680.5
Common equity securities, at fair value			—		—		439.9		—			439.9
Other investments			—		82.6		223.7		—			306.3

	Total investments		12.7		372.7		7,936.7		(3.0	)		8,319.1
Cash			—		57.0		115.2		—			172.2
Reinsurance recoverable on paid and unpaid losses			—		8.0		3,758.3		—			3,766.3
Accounts receivable on unsettled investment sales			—		—		952.6		—			952.6
Insurance and reinsurance premiums receivable			—		33.6		800.2		—			833.8
Investments in unconsolidated insurance affiliates			—		63.1		405.2		—			468.3
Deferred tax asset			—		31.8		381.8		(87.6	)		326.0
Deferred acquisition costs			—		4.8		236.9		—			241.7
Ceded unearned premiums			—		1.2		185.1		—			186.3
Investment income accrued			—		.2		64.8		—			65.0
Investments in subsidiaries			2,809.2		—		—		(2,809.2	)		—
Other assets			3.9		66.4		529.3		1.7			601.3

	Total assets	$	2,825.8	$	638.8	$	15,366.1	$	(2,898.1	)	$	15,932.6

LIABILITIES, MINORITY INTEREST AND COMMON SHAREHOLDERS' EQUITY
Loss and LAE reserves		$	—	$	64.4	$	7,966.1	$	—		$	8,030.5
Unearned insurance and reinsurance premiums			—		28.3		1,453.8		—			1,482.1
Accounts payable on unsettled investment purchases			—		—		1,077.8		—			1,077.8
Debt			—		12.4		730.1		—			742.5
Funds held under reinsurance treaties			—		—		200.2		—			200.2
Other liabilities			31.2		219.5		1,164.3		(88.9	)		1,326.1
Preferred stock subject to mandatory redemption			—		20.0		258.8		—			278.8

	Total liabilities		31.2		344.6		12,851.1		(88.9	)		13,138.0

Common shareholders' equity		$	2,794.6	$	294.2	$	2,515.0	$	(2,809.2	)	$	2,794.6

Total liabilities and common shareholders' equity		$	2,825.8	$	638.8	$	15,366.1	$	(2,898.1	)	$	15,932.6

Consolidating Balance Sheet
as of December 31, 2002

		The Company			Other Entities		Fund American		Eliminations			Total
		(Dollars in Mllions)
ASSETS
Fixed maturity investments, at fair value		$	—		$	47.1	$	6,622.0	$	—		$	6,669.1
Short-term investments, at amortized cost			15.6			222.6		1,555.0		(2.6	)		1,790.6
Common equity securities, at fair value			—			—		275.0		—			275.0
Other investments			30.7			44.9		89.1		—			164.7

	Total investments		46.3			314.6		8,541.1		(2.6	)		8,899.4
Cash			(.8	)		41.5		80.9		(.1	)		121.5
Reinsurance recoverable on paid and unpaid losses			—			5.2		4,226.5		—			4,231.7
Accounts receivable on unsettled investment sales			—			—		160.8		—			160.8
Insurance and reinsurance premiums receivable			—			28.6		801.9		—			830.5
Investments in unconsolidated insurance affiliates			58.0			—		341.9		—			399.9
Deferred tax asset			—			18.2		543.4		(131.6	)		430.0
Deferred acquisition costs			(.3	)		3.0		242.2		—			244.9
Ceded unearned premiums			—			1.3		162.6		—			163.9
Investment income accrued			—			.7		90.7		—			91.4
Investments in subsidiaries			2,500.9			—		—		(2,500.9	)		—
Other assets			42.9			54.7		361.9		.1			459.6

	Total assets	$	2,647.0		$	467.8	$	15,553.9	$	(2,635.1	)	$	16,033.6

LIABILITIES, CONVERTIBLE PREFERENCE SHARES, MINORITY INTEREST AND COMMON SHAREHOLDERS' EQUITY
Loss and LAE reserves		$	—		$	61.4	$	8,813.9	$	—		$	8,875.3
Unearned insurance and reinsurance premiums			—			17.3		1,497.1		—			1,514.4
Accounts payable on unsettled investment purchases			—			—		495.2		—			495.2
Debt			5.1			9.7		778.4		—			793.2
Funds held under reinsurance treaties			—			—		262.4		—			262.4
Other liabilities			15.0			224.7		1,179.8		(134.2	)		1,285.3

	Total liabilities		20.1			313.1		13,026.8		(134.2	)		13,225.8

Convertible preference shares			219.0			—		—		—			219.0
Minority interest—mandatorily redeemable preferred stock of subsidiaries			—			20.0		160.9		—			180.9
Common shareholders' equity			2,407.9			134.7		2,366.2		(2,500.9	)		2,407.9

Total liabilities, convertible preference shares, minority interest and common shareholders' equity		$	2,647.0		$	467.8	$	15,553.9	$	(2,635.1	)	$	16,033.6

Consolidating Statement of Income
for the Three Months Ended
September 30, 2003

		The Company			Other Entities			Fund American			Eliminations			Total
		(Dollars in Millions)
Earned insurance and reinsurance premiums		$	—		$	15.6		$	772.6		$	—		$	788.2
Net investment income			—			1.0			66.5			—			67.5
Net realized investment losses			—			(7.7	)		(26.5	)		—			(34.2	)
Other revenue (loss)			(.7	)		21.2			54.2			(3.5	)		71.2

	Total revenues		(.7	)		30.1			866.8			(3.5	)		892.7

Loss and LAE			—			9.8			590.7			—			600.5
Insurance and reinsurance acquisition expenses			—			4.3			148.7			(3.5	)		149.5
General and administrative expenses			7.9			2.2			64.1			—			74.2
Accretion of fair value adjustment to loss and LAE reserves			—			—			10.1			—			10.1
Interest expense			—			.1			10.9			—			11.0
Interest expense on preferred shares			—			.5			8.7			—			9.2

	Total expenses		7.9			16.9			833.2			(3.5	)		854.5

Pretax income (loss)			(8.6	)		13.2			33.6			—			38.2
Income tax provision			—			(1.7	)		(12.7	)		—			(14.4	)
Equity in earnings of subsidiaries			(43.8	)		—			—			43.8		$	—
Equity in earnings of unconsolidated insurance affiliates			—			—			13.6			—			13.6
Cumulative effect of changes in accounting principles			—			—			(89.8	)		—			(89.8	)

Net income (loss)		$	(52.4	)	$	11.5		$	(55.3	)	$	43.8		$	(52.4	)

Consolidating Statement of Income
for the Three Months Ended
September 30, 2002

		The Company		Other Entities			Fund American			Eliminations			Total
		(Dollars in Millions)
Earned insurance and reinsurance premiums		$	—	$	19.1		$	859.4		$	—		$	878.5
Net investment income			.4		1.0			86.7			—			88.1
Net realized investment gains			32.2		1.4			85.7			—			119.3
Other revenue (loss)			—		(7.0	)		2.6			—			(4.4	)

	Total revenues		32.6		14.5			1,034.4			—			1,081.5

Loss and LAE			—		18.0			619.5			—			637.5
Insurance and reinsurance acquisition expenses			—		4.1			223.7			—			227.8
General and administrative expenses			2.5		4.5			95.7			—			102.7
Accretion of fair value adjustment to loss and LAE reserves			—		—			14.2			—			14.2
Interest expense			.1		3.4			13.8			—			17.3

	Total expenses		2.6		30.0			966.9			—			999.5

Pretax income (loss)			30.0		(15.5	)		67.5			—			82.0
Income tax benefit (provision)			—		2.9			(23.2	)		—			(20.3	)
Accretion and dividends on preferred stock of subsidiaries			—		(.5	)		(9.8	)		—			(10.3	)
Equity in earnings of subsidiaries			24.6		—			—			(24.6	)		—
Equity in earnings of unconsolidated insurance affiliates			—		—			3.2			—			3.2

Net income (loss)		$	54.6	$	(13.1	)	$	37.7		$	(24.6	)	$	54.6

Consolidating Statement of Income
for the Nine Months Ended
September 30, 2003

		The Company			Other Entities			Fund American			Eliminations			Total
		(Dollars in Millions)
Earned insurance and reinsurance premiums		$	—		$	50.1		$	2,296.3		$	—		$	2,346.4
Net investment income			.2			2.9			216.0			—			219.1
Net realized investment gains (losses)			(1.1	)		4.7			110.4			—			114.0
Other revenue (loss)			(.7	)		58.3			71.7			(10.7	)		118.6

	Total revenues		(1.6	)		116.0			2,694.4			(10.7	)		2,798.1

Loss and LAE			—			35.2			1,599.3			—			1,634.5
Insurance and reinsurance acquisition expenses			—			11.4			456.2			(10.7	)		456.9
General and administrative expenses			39.5			9.8			264.3			—			313.6
Accretion of fair value adjustment to loss and LAE reserves			—			—			38.5			—			38.5
Interest expense			.1			.2			36.8			—			37.1
Interest expense on preferred shares			—			.5			8.7			—			9.2

	Total expenses		39.6			57.1			2,403.8			(10.7	)		2,489.8

Pretax income (loss)			(41.2	)		58.9			290.6			—			308.3
Income tax provision			—			(2.1	)		(103.1	)		—			(105.2	)
Accretion and dividends on preferred stock of subsidiaries			—			(1.0	)		(20.5	)		—			(21.5	)
Equity in earnings of subsidiaries			175.3			—			—			(175.3	)		—
Equity in earnings of unconsolidated insurance affiliates			—			—			42.3			—			42.3
Cumulative effect of change in accounting principles			—			—			(89.8	)		—			(89.8	)

	Net income	$	134.1		$	55.8		$	119.5		$	(175.3	)	$	134.1

Consolidating Statement of Income
for the Nine Months
Ended September 30, 2002

		The Company		Other Entities			Fund American			Eliminations			Total
Earned insurance and reinsurance premiums		$	—	$	29.3		$	2,707.0		$	—		$	2,736.3
Net investment income			.9		2.1			273.2			—			276.2
Net realized investment gains			36.2		3.7			76.8			—			116.7
Other revenue			24.7		16.4			21.2			—			62.3

	Total revenues		61.8		51.5			3,078.2			—			3,191.5

Loss and LAE			—		25.4			1,985.1			—			2,010.5
Insurance and reinsurance acquisition expenses			—		7.8			614.3			—			622.1
General and administrative expenses			16.8		8.1			355.6			—			380.5
Accretion of fair value adjustment to loss and LAE reserves			—		—			65.6			—			65.6
Interest expense			.3		10.1			42.6			—			53.0

	Total expenses		17.1		51.4			3,063.2			—			3,131.7

Pretax income			44.7		.1			15.0			—			59.8
Income tax benefit (provision)			—		(2.7	)		1.4			—			(1.3	)
Accretion and dividends on preferred stock of subsidiaries			—		(1.5	)		(28.9	)		—			(30.4	)
Equity in earnings of subsidiaries			642.2		—			—			(642.2	)		—
Equity in earnings of unconsolidated insurance affiliates			—		—			7.8			—			7.8
Cumulative effect of changes in accounting principles			16.3		—			643.9			—			660.2
Excess of fair value of acquired net assets over cost			—		—			7.1			—			7.1

Net income (loss)		$	703.2	$	(4.1	)	$	646.3		$	(642.2	)	$	703.2

Consolidating Statement of Cash Flows
Nine Months Ended
September 30, 2003

		The Company			Other Entities			Fund American			Total
		(Dollars in Millions)
Cash flows from operations:
Net income (loss)		$	(42.0	)	$	56.6		$	119.5		$	134.1
Charges (credits) to reconcile net income to cash flows from operations:
	Cumulative effect of changes in accounting principles		—			—			89.8			89.8
	Dividends on mandatorily redeemable Preferred Stock of subsidiaries		—			1.5			21.2			22.7
	Deferred income tax provision (benefit)		—			(14.3	)		79.1			64.8
	Net realized investment losses (gains)		1.1			(4.7	)		(110.4	)		(114.0	)
	Undistributed equity in earnings of unconsolidated insurance affiliates, after tax		—			—			(42.3	)		(42.3	)
Other operating items:
	Net change in reinsurance recoverables on paid and unpaid losses		—			(2.8	)		468.2			465.4
	Net change in loss and loss adjustment expense reserves		—			3.0			(847.8	)		(844.8	)
	Net change in insurance and reinsurance premiums receivable		—			(5.0	)		1.7			(3.3	)
	Net change in unearned insurance and reinsurance premiums		—			11.0			(43.3	)		(32.3	)
	Net change in deferred acquisition costs		(.3	)		(1.8	)		5.3			3.2
	Net change in funds held under reinsurance treaties		—			—			(62.2	)		(62.2	)
	Net change in other assets and liabilities		46.7			18.5			(142.6	)		(77.4	)

Net cash flows provided from (used for) operations			5.5			62.0			(463.8	)		(396.3	)

Cash flows from investing activities:
Net decrease in short-term investments			2.9			43.4			63.8			110.1
Sales of fixed maturity investments			—			6.0			15,046.6			15,052.6
Maturities of fixed maturity investments			—			—			2,064.5			2,064.5
Sales of common equity securities and other investments			—			—			96.4			96.4
Purchases of fixed maturity investments			—			(68.4	)		(16,214.0	)		(16,282.4	)
Purchases of common equity securities and other investments			(.1	)		—			(355.4	)		(355.5	)
Net change in unsettled investment purchases and sales			—			—			(209.2	)		(209.2	)
Net (acquisitions) dispositions of fixed assets			—			(.9	)		48.1			47.2

Net cash flows provided from (used for) investing activities			2.8			(19.9	)		540.8			523.7

Cash flows from financing activities:
Issuances of debt		—			—			693.4			693.4
Repayments of debt		—			—			(739.9	)		(739.9	)
Intercompany dividends and transfers		—			(25.0	)		25.0			—
Cash dividends paid to common shareholders		(8.3	)		—			—			(8.3	)
Cash dividends paid to preferred shareholders		—			(1.5	)		(21.2	)		(22.7	)
Proceeds from issuance of Common Shares		.8			—			—			.8

Net cash used for financing activities		(7.5	)		(26.5	)		(42.7	)		(76.7	)

Net decrease in cash during period		.8			15.6			34.3			50.7
Cash balances at beginning of period		(.8	)		41.4			80.9			121.5

Cash balances at end of period	$	—		$	57.0		$	115.2		$	172.2

Consolidating Statement of Cash Flows
Nine Months Ended
September 30, 2002

			The Company			Other Entities			Fund American			Total
			(Dollars in Millions)
Cash flows from operations:
Net income			$	61.0		$	(4.1	)	$	646.3		$	703.2
Charges (credits) to reconcile net income to cash flows from operations:
	Cumulative effect of changes in accounting principles			(16.3	)		—			(643.9	)		(660.2	)
		Excess of fair value of acquired assets over cost		—			—			(7.1	)		(7.1	)
		Dividends on mandatorily redeemable Preferred Stock of subsidiaries		—			1.5			21.2			22.7
		Deferred income tax provision (benefit)		—			(6.0	)		60.5			54.5
		Net realized investment gains		(36.2	)		(3.7	)		(76.8	)		(116.7	)
		Undistributed equity in earnings of unconsolidated insurance affiliates, after tax		—			—			(7.8	)		(7.8	)
Other operating items:
		Net change in reinsurance recoverables on paid and unpaid losses		—			16.8			2.4			19.2
		Net change in loss and loss adjustment expense reserves		—			15.3			(409.7	)		(394.4	)
		Net change in insurance and reinsurance premiums receivable		—			(10.5	)		247.5			237.0
		Net change in unearned insurance and reinsurance premiums		—			(14.6	)		(148.4	)		(163.0	)
		Net change in deferred acquisition costs		—			4.8			48.8			53.6
		Net change in funds held under reinsurance treaties		—			—			(99.2	)		(99.2	)
		Net change in other assets and liabilities		23.1			116.0			29.0			168.1

Net cash flows provided from (used for) operations				31.6			115.5			(337.2	)		(190.1	)

Cash flows from investing activities:
Net (increase) decrease in short-term investments				(24.0	)		(46.6	)		346.6			276.0
Sales of fixed maturity investments				—			1.4			8,543.2			8,544.6
Maturities of fixed maturity investments				—			—			210.6			210.6
Sales of common equity securities and other investments				—			1.0			57.9			58.9
Purchases of fixed maturity investments				—			(44.8	)		(8,921.9	)		(8,966.7	)
Purchases of common equity securities and other investments				(.1	)		(.1	)		(301.2	)		(301.4	)
Net change in unsettled investment purchases and sales				—			—			550.9			550.9
Purchases of consolidated subsidiaries, net of cash acquired				—			—			(.5	)		(.5	)
Net (acquisitions) dispositions of fixed assets				(.2	)		(.3	)		(12.3	)		(12.8	)

Net cash flows provided from (used for) investing activities				(24.3	)		(89.4	)		473.3			359.6

Cash flows from financing activities:
Repayments of debt				—			—			(77.3	)		(77.3	)
Intercompany dividends				—			15.0			(15.0	)		—
Cash dividends paid to common shareholders				(8.3	)		—			—			(8.3	)
Cash dividends paid to preferred shareholders				—			(1.5	)		(21.2	)		(22.7	)
Proceeds from issuance of Common Shares				1.2			—			—			1.2

Net cash provided from (used for) financing activities				(7.1	)		13.5			(113.5	)		(107.1	)

Net increase (decrease) in cash during period				.2			39.6			22.6			62.4
Cash balances at beginning of period				(.2	)		1.2			66.4			67.4

Cash balances at end of period			$	—		$	40.8		$	89.0		$	129.8

Note 12. Subsequent Events

On October 3, 2003, Folksamerica announced that it had acquired renewal rights to the property and casualty treaty reinsurance business of CNA Reinsurance ("CNA Re"), a division of CNA Financial Corporation. Under the terms of the transaction, which is effective as of October 1, 2003, Folksamerica will compensate CNA Re based upon the amount of premiums renewed by Folksamerica over the next two contract renewals. No reserves or liabilities are being transferred. In connection with this transaction, Folksamerica will establish an underwriting office in Chicago staffed with a number of CNA Re's reinsurance professionals.

On October 28, 2003, White Mountains reached an agreement to sell Peninsula to the Donegal Group for 107.5% of its GAAP book value. White Mountains expects this transaction to close during the fourth quarter of 2003 for estimated proceeds of approximately $24 million.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains "forward-looking statements". White Mountains intends statements which are not historical in nature, and are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct. White Mountains' actual results could be materially different from and worse than its expectations. See "Forward-Looking Statements" for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

White Mountains ended the third quarter of 2003 with a fully converted tangible book value per Common Share of $282.24, which represents an increase of 9% (including dividends) over the fully converted tangible book value per Common Share of $258.82 as of December 31, 2002.White Mountains' management believes that the growth in the Company's fully converted tangible book value per share represents the most relevant measure of the value created at the Company over time.A table showing the details of White Mountains' fully converted tangible book value per common and equivalent share can be found on page 53.

Review of Consolidated Results

White Mountains reported pre-tax income of $308.3 million for the nine months ended September 30, 2003, which represents a $248.5 million increase over the result for the comparable 2002 period of $59.8 million. This was primarily due to the strong underwriting performance at OneBeacon and Folksamerica, as the GAAP combined ratios for the first nine months of 2003 of these businesses have improved by 9 and 8 points, respectively, over the first nine months of 2002. Pre-tax income for the third quarter of 2003 was $38.2 million, versus $82.0 million in last year's third quarter. The following items impacted the results for the third quarter of 2003:

•: $100 million net reserve increase ($65 million after-tax) primarily for construction defect claims as part of the review of all claims recalled from Liberty Mutual by OneBeacon (See page 41 for a detailed discussion);
•: $30 million release of a liability ($20 million after-tax) for New York assigned risks at OneBeacon as future assignments have been mitigated by OneBeacon's successful LAD operation, AutoOne;
•: $34 million in net realized investment losses ($25 million after-tax), compared to net realized gains of $119 million ($89 million after-tax) in last year's third quarter;

•: $22 million in after-tax net unrealized losses, compared to after-tax net unrealized gains of $79 million in last year's third quarter;
•: $45 million in gains ($29 million after-tax) included in other revenue on the sale of several real estate properties at OneBeacon previously written-off under purchase accounting.

A tabular summary of White Mountains' consolidated financial results for the three and nine months ended September 30, 2003 and 2002 follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	Millions
Gross written premiums	$	999.9		$	1,035.3		$	2,827.5		$	3,320.3

Net written premiums	$	810.0		$	825.8		$	2,288.1		$	2,573.8

Earned insurance and reinsurance premiums	$	788.2		$	878.5		$	2,346.4		$	2,736.3
Net investment income		67.5			88.1			219.1			276.2
Net realized investment gains (losses)		(34.2	)		119.3			114.0			116.7
Other revenue (loss)		71.2			(4.4	)		118.6			62.3

Total revenues		892.7			1,081.5			2,798.1			3,191.5

Loss and LAE		600.5			637.5			1,634.5			2,010.5
Insurance and reinsurance acquisition expenses		149.5			227.8			456.9			622.1
General and administrative expenses		74.2			102.7			313.6			380.5
Accretion of fair value adjustment to loss and LAE reserves		10.1			14.2			38.5			65.6
Interest expense on debt		11.0			17.3			37.1			53.0
Interest expense—dividends and accretion on preferred stock subject to mandatory redemption		9.2			—			9.2			—

Total expenses		854.5			999.5			2,489.8			3,131.7

Pretax income		38.2			82.0			308.3			59.8
Tax provision		(14.4	)		(20.3	)		(105.2	)		(1.3	)
Accretion and dividends on mandatorily redeemable preferred stock		—			(10.3	)		(21.5	)		(30.4	)
Equity in earnings of unconsolidated insurance affiliates		13.6			3.2			42.3			7.8

Net income from continuing operations		37.4			54.6			223.9			35.9
Cumulative effect of changes in accounting principles		(89.8	)		—			(89.8	)		660.2
Excess of fair value of acquired net assets over cost		—			—			—			7.1

Net income (loss)		(52.4	)		54.6			134.1			703.2
Other comprehensive income (loss)		(22.8	)		78.2			45.1			186.0

Comprehensive net income (loss)	$	(75.2	)	$	132.8		$	179.2		$	889.2

White Mountains' total revenues decreased by 17% and 12% for the three and nine month periods ended September 30, 2003 compared to the same periods in 2002 as increases in earned reinsurance premiums at Folksamerica were more than offset by decreases in earned insurance premiums at OneBeacon as a result of the business transferred to Liberty Mutual under the Renewal Rights Agreement. Total revenues in both 2003 periods presented were also impacted by decreased net investment income due to the runoff of loss reserves from OneBeacon's non-core business as well as the reduced interest rate environment. Total revenues for the third quarter of 2003 were also negatively impacted by net realized investment losses of $34.2 million as a result of the sale of mortgage backed securities to reduce the duration of the bond portfolio, compared to net realized investment gains of $119.3 million in the third quarter of 2002. The decline in total revenues in both 2003 periods presented was partially offset by increases in other revenues primarily as a result of the previously mentioned $45 million in gains recorded during the third quarter of 2003 related to the sale of several real estate properties at OneBeacon previously written-off under purchase accounting.

Total expenses also decreased by 15% and 20% for the three and nine months ended September 30, 2003 as compared to the prior year as loss and LAE, as well as insurance acquisition and general and administrative expenses, continued to decrease at OneBeacon as the non-core business

runs-off through the Renewal Rights Agreement. In addition, interest expense on debt decreased in the 2003 periods as a result of the repayment of the $260.0 million Seller Note in November 2002 and the issuance of the $700.0 million Senior Notes in May 2003 at a rate of 5.9% interest, which replaced the Old Bank Facility that had an interest rate of 7.0% after giving effect to a series of interest rate swap agreements.

During the third quarter of 2003, White Mountains recorded an $89.8 million charge as a cumulative effect of change in accounting principles as a result of its adoption of SFAS No. 150. This represents the difference between the fair value of the Berkshire Preferred Stock, which is required by SFAS No. 150 to be carried as a liability at fair value, and its previous carrying value. This charge does not effect White Mountains' tangible book value per share calculation, as White Mountains adjusts its book value calculation by adding back the remaining accretion of the Berkshire Preferred Stock to continuously carry this instrument at its $300 million redemption value for tangible book value purposes. Also under SFAS No. 150, beginning in the third quarter of 2003, White Mountains is required to present all accretion and dividends on its mandatorily redeemable preferred stock as interest expense and has recorded $9.2 million of such interest for the three and nine months ended September 30, 2003.

Summary of Operations by Segment

White Mountains conducts its operations through three segments: (i) "OneBeacon" (consisting solely of the operations of OneBeacon), (ii) "Reinsurance" (consisting of Folksamerica, WMU, Fund American Re and White Mountains' investment in Montpelier) and (iii) "Other Operations" (consisting of the International American Group, Esurance and the operations of the Company and its intermediate subsidiary holding companies). White Mountains manages all of its investments through its wholly owned subsidiary, White Mountains Advisors LLC ("WM Advisors"), therefore, a discussion of White Mountains' consolidated investment operations is included after the discussion of operations by segment.

I. OneBeacon

OneBeacon's pre-tax income for the third quarter of 2003 was $27.9 million, which included $17.5 million in net realized investment losses, compared to pre-tax income of $99.4 million for the third quarter of 2002, which included $83.9 million in net realized investment gains. The GAAP combined ratio was 103% for the third quarter of 2003 compared to 108% for the third quarter of 2002. These third quarter 2003 results include an approximate net $100 million reserve increase primarily related to construction defect claims that was partially offset by an approximate $30 million release of the New York assigned risk liability. For the first nine months of 2003, OneBeacon's pre-tax income was $309.1 million with a GAAP combined ratio of 99%. For the comparable period of 2002, pre-tax income was $139.9 million with a GAAP combined ratio of 108%. Pre-tax income included net realized investment gains of $112.2 million in the first nine months of 2003, versus $98.5 million in the comparable period of 2002.

All of OneBeacon's ongoing businesses, its "core" operations—personal, commercial, and specialty—delivered combined ratios below 100% and its core premiums grew for the first time since the Acquisition. OneBeacon's run-off business, its "non-core" operations, continued to disappear as the quota share arrangement with Liberty Mutual expired on October 31, 2003 and OneBeacon did not exercise its option to take a 10% quota share for the next three years.

A tabular summary of White Mountains' financial results from its OneBeacon segment for the three and nine months ended September 30, 2003 and 2002 follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
	Millions
Gross written premiums	$	569.0		$	756.1	$	1,658.8	$	2,566.2

Net written premiums	$	559.7		$	635.0	$	1,539.3	$	2,038.2

Earned insurance and reinsurance premiums	$	550.7		$	688.8	$	1,658.5	$	2,241.4
Net investment income		50.2			73.2		173.3		235.6
Net realized investment gains (losses)		(17.5	)		83.9		112.2		98.5
Other revenue		15.0			—		16.4		.1

Total revenues		598.4			845.9		1,960.4		2,575.6

Loss and LAE		434.7			488.5		1,169.1		1,663.4
Insurance and reinsurance acquisition expenses		98.3			188.0		301.4		502.6
General and administrative expenses		37.5			70.0		180.8		269.7

Total expenses		570.5			746.5		1,651.3		2,435.7

Pretax income	$	27.9		$	99.4	$	309.1	$	139.9

OneBeacon's total revenues declined by 29% for the three months ended September 30, 2003 primarily due to a corresponding 20% decline in earned premiums. The decline in earned premiums was due primarily to the change in OneBeacon's participation from two-thirds to one-third and also a decline in renewals of policies subject to the Renewal Rights Agreement. Total revenues in the third quarter of 2003 were also negatively impacted by net realized investment losses of $17.5 million, compared to net realized investment gains of $83.9 million in the third quarter of 2002. Total revenues declined by 24% for the nine months ended September 30, 2003 as well. The decline in total revenues for the nine months was primarily due to a 26% decline in earned premiums. The decline in earned premiums was due to decreased business volume resulting from the Renewal Rights Agreement. Total revenues for the nine months ended 2003 were also impacted by a 26% decrease in net investment income. Expenses declined by 24% for the three months ended September 30, 2003, as all expense categories were down significantly, reflecting disciplined underwriting and expense management and also the release of $30.0 million of the New York assigned risk liability. Expenses declined by 32% for the nine months ended September 30, 2003 primarily due to the same reasons. Overall, these expense reductions resulted in a significant improvement in the GAAP combined ratios for both periods. The following tables provide GAAP ratios, net written premiums and earned insurance premiums for

OneBeacon's core underwriting units and in total for the three and nine months ended September 30, 2003 and 2002 (dollars in millions):

		Three Months Ended September 30, 2003										Nine Months Ended September 30, 2003
		GAAP Ratios(1):						Net Premiums				GAAP Ratios(1):						Net Premiums
		Loss		Expense		Combined		Written		Earned		Loss		Expense		Combined		Written		Earned
Personal		56	%	14	%	70	%	$	284.4	$	265.6	61	%	24	%	85	%	$	702.0	$	734.9
Commercial		61		30		91			95.7		105.8	63		33		96			328.1		320.9
Specialty		66		30		96			141.0		121.6	60		31		91			385.9		361.4

	Total Core	60	%	21	%	81	%	$	521.1	$	493.0	61	%	28	%	89	%	$	1,416.0	$	1,417.2

	Total(2)	79	%	24	%	103	%	$	559.7	$	550.7	70	%	29	%	99	%	$	1,539.3	$	1,658.5

		Three Months Ended September 30, 2002										Nine Months Ended September 30, 2002
		GAAP Ratios(1):						Net Premiums				GAAP Ratios(1):						Net Premiums
		Loss		Expense		Combined		Written		Earned		Loss		Expense		Combined		Written		Earned
Personal		69	%	28	%	97	%	$	273.6	$	265.6	75	%	26	%	101	%	$	877.5	$	757.7
Commercial		74		34		108			99.8		122.8	71		34		105			362.5		411.5
Specialty		63		35		98			136.4		106.5	61		32		93			342.0		306.0

	Total Core	69	%	31	%	100	%	$	509.8	$	494.9	71	%	29	%	100	%	$	1,582.0	$	1,475.2

	Total(2)	71	%	37	%	108	%	$	635.0	$	688.8	74	%	34	%	108	%	$	2,038.2	$	2,241.4

(1): A key measure of relative underwriting performance for an insurance company is the combined ratio. A GAAP combined ratio is calculated by adding (i) the ratio of incurred loss and LAE to earned premiums (the "loss ratio") and (ii) the ratio of acquisition and other expenses to earned premiums (the "expense ratio").
(2): Includes results from Non-core operations.

Core Operations

Core operations consist of personal and commercial lines sold through agents in the Northeast, and specialty businesses underwritten in various geographic areas throughout the United States. Core operations do not include business transferred to Liberty Mutual through the Renewal Rights Agreement and certain other operations in run-off. OneBeacon's GAAP combined ratio for core operations improved to 81% for the three months ended September 30, 2003, compared to 100% for the three months ended September 30, 2002. Improved loss and expense ratios, including a reduction of 6 points relating to the release of $30.0 million of the New York assigned risk liability, contributed to this improvement in the combined ratio. Net written premiums and earned premiums for core operations for the three months ended September 30, 2003 were relatively consistent with those in the comparable 2002 period. For the nine months ended September 30, 2003, OneBeacon's GAAP combined ratio for core operations improved to 89%, compared to 100% for the nine months ended September 30, 2002. Improved loss and expense ratios, including a reduction of 2 points relating to the release of $30.0 million of the New York assigned risk liability, contributed to this improvement in the combined ratio. Net written premiums and earned premiums for core operations were down 10% and 4% for the nine months ended September 30, 2003 as compared to the 2002 period. These decreases were primarily due to reduced premium volume as a result of re-underwriting the book, including decreasing certain commercial lines businesses and transferring OneBeacon's private passenger automobile business in New Jersey to a reciprocal carrier formed in the third quarter of 2002, which was offset in part by price increases and new business generated by OneBeacon Professional Partners ("OBPP").

Personal Lines. OneBeacon's personal lines principally include automobile, homeowners and Custom-Pac products (Custom-Pac products are combination policies offering home and automobile coverage with optional umbrella, boatowners and other coverages). OneBeacon's mix of personal lines products for automobile and homeowners, including Custom-Pac products, was 75% and 22%, respectively, of personal lines net written premium during the nine months ended September 30, 2003,

compared with 78% and 20% for the nine months ended September 30, 2002. OneBeacon writes the majority of its personal business in New York, Massachusetts and Maine.

Throughout its personal lines business, OneBeacon has focused on improving its underwriting and pricing. During the three and nine months ended September 30, 2003, OneBeacon continued to improve premium adequacy through rate increases approved by regulators, re-underwriting efforts, aggressive rate pursuit actions and continued improvement in insurance-to-value programs in its homeowners line. As a result, OneBeacon achieved average price increases of 11% and 17% in automobile and homeowners, respectively, in the nine months ended September 30, 2003, including the effects of rate and rate pursuit actions in the nine months ended September 30, 2003 and throughout 2002. OneBeacon's core personal lines written premium volume for the three months ended September 30, 2003 increased 4% as compared to the three months ended September 30, 2002 while written premium for the nine months ended September 30, 2003 decreased 20% from the comparable 2002 period. The increase in written premium for the quarter was due principally to $19.8 million of premium generated by Esurance during the three months ended September 30, 2003 relating to a revision in OneBeacon's quota share agreement with Folksamerica, which served to mitigate declines in written premium relating to New Jersey automobile policies and assignments from the NYAIP at AutoOne Insurance. The decrease in written premium for the nine months ended September 30, 2003 over 2002 was due principally to the transfer of OneBeacon's private passenger automobile business in New Jersey to New Jersey Skylands and also decreased assignments from the NYAIP at AutoOne Insurance. Excluding business transferred to New Jersey Skylands, decreased premium volume at AutoOne Insurance and premium generated by Esurance, OneBeacon's core personal lines net written premium volume for the three months ended September 30, 2003 was relatively consistent with that for the 2002 quarter while net written premiums for the nine months ended September 30, 2003 decreased 14% from written premium for the nine months ended September 30, 2002. The decrease was partially due to actions to reduce exposure to windstorms on total insured property values located in coastal areas, representing a 6% decrease over the prior year period. Written premiums also decreased due to the conversion of certain New York private passenger automobile policies from one year policy terms to six month policy terms. This change in policy terms began to have an impact on written premium for the three and nine months ended September 30, 2003; however, it did not have a material impact on earned premiums for the three or nine months ended September 30, 2003.

OneBeacon's core personal lines expenses for the three and nine months ended September 30, 2003 include the impact of a $30.0 million reduction in a liability for New York assigned risks, which reduced the core personal lines combined ratio by 11 points and 4 points for the three and nine months ended September 30, 2003, respectively. The release of this liability resulted from changes in the New York assigned risk market, including a depopulation of the assigned risk pool and favorable revisions to the structure of credit programs. Additionally, during the three and nine months ended September 30, 2003, AutoOne Insurance's prior year reserves developed favorably by $2.3 million and $17.1 million, respectively, representing reductions of 1 point and 2 points in the personal lines combined ratio.

Commercial Lines. OneBeacon's commercial lines products include, among others, multiple peril, commercial automobile and workers compensation. OneBeacon's mix of commercial lines products for multiple peril, commercial automobile and workers compensation was 56%, 25% and 9% of OneBeacon's commercial lines net written premium for the nine months ended September 30, 2003, compared with 51%, 26% and 15% for the nine months ended September 30, 2002.

Commercial lines results improved during the three and nine months ended September 30, 2003 due to the positive impact of underwriting and pricing initiatives. The level of improvement was mitigated by adverse development on prior year reserves of $11.1 million and $14.2 million for the three and nine months ended September 30, 2003, respectively, in connection with the run-off of old workers compensation business. This adverse prior year reserve development added 11 points and 4

points to the commercial lines combined ratio for the three and nine months ended September 30, 2003, respectively. Contributing to the improvements in commercial lines results were changes in business mix away from historically less profitable lines such as workers compensation. Additionally, OneBeacon continued to shift away from certain classes of risks within its business lines that have historically been less profitable, such as contractors, transportation and non-durable wholesalers, to more profitable industry segments, such as service providers, retailers and light manufacturer. OneBeacon also introduced a new multiple peril coverage for small businesses called OnePac. Premium written for the three and nine months ended September 30, 2003 decreased 4% and 9% from the three and nine months ended September 30, 2002, primarily due to the continued effects of actions taken in prior quarters to reduce the concentration of risks subject to terrorism, such as monitoring total insured values in 11 major cities, as well as continued efforts to re-underwrite the commercial book. Re-underwriting the commercial book has resulted in price increases of 12% for business written during the nine months ended September 30, 2003 as well as improved renewal retentions.

Specialty Lines. OneBeacon's specialty businesses focus on providing custom coverages to certain niche markets, including ocean marine (offered through International Marine Underwriters, "IMU"), agricultural ("Agri"), and rural and farm related markets (offered through National Farmers Union, "NFU"), professional liability (offered through OBPP) and other specialty products, such as tuition reimbursement. Each specialty business has its own operations and distribution channel that target specific customer groups.

Overall results for specialty businesses continue to be good. During the three and nine months ended September 30, 2003, OneBeacon wrote specialty lines premiums of $141.0 million and $385.9 million, representing 3% and 13% increases as compared to $136.4 million and $342.0 million written during the three and nine months ended September 30, 2002. Written premiums for the three and nine months ended September 30, 2003 included $29.3 million and $96.1 million from IMU representing increases of 13% and 16% with that for the comparable 2002 periods. Written premiums from Agri declined to $18.7 million and $64.4 million, representing decreases of 27% and 15% as compared to the three and nine months ended September 30, 2002, resulting from an exit from several states. Specialty lines written premium also included $36.2 million and $131.9 million from NFU representing a decrease of 3% and an increase of 4% in written premium for the three and nine months ended September 30, 2003 compared to the three and nine months ended September 30, 2002. Written premiums for the three and nine months ended September 30, 2003 included $17.4 million and $47.5 million from OBPP, which commenced operations in February 2002. OBPP's written premiums in the three and nine months ended September 30, 2003 were primarily for excess errors and omissions liability coverages for mid-size hospitals and managed care companies and excess directors and officers liability coverages for middle market public companies. OBPP focuses on providing small and middle market liability coverages with high attachment points and small limits of coverage. Written premiums from other specialty products were relatively flat with that for the comparable 2002 periods.

Non-core Operations

Non-core operations include the business subject to the reinsurance provisions of the Renewal Rights Agreement. Results for OneBeacon's non-core operations during the three and nine months ended September 30, 2003 were worse than the three and nine months ended September 30, 2002.

Written premiums for Non-core operations of $38.6 million and $123.3 million for the three and nine months ended September 30, 2003 decreased 69% and 73% compared to the comparable 2002 periods, as written premiums on business subject to the Renewal Rights Agreement decreased to $38.0 million and $118.1 million for the three and nine months ended September 30, 2003 from $117.7 million and $426.2 million for the comparable 2002 periods. These decreases were due primarily to the change in OneBeacon's participation from two-thirds to one-third and also a decline in renewals of policies subject to the Renewal Rights Agreement. As further described below, non-core results also

included prior accident year reserve development of $97.7 million in the third quarter of 2003, a total of $123.3 million for the nine months ended September 30, 2003, related primarily to construction defect claims which emerged from commercial multiple peril and general liability coverages written in the 1990s.

Liberty Mutual has control over a variety of factors which impact the underwriting performance of Renewal Rights Agreement business, such as pricing adequacy, actual renewal premium volume, claims management, catastrophe exposures and other considerations. Management believes Liberty Mutual has done an acceptable job in each of these areas except for the handling of pre-November 1, 2001 claims. Pursuant to the Renewal Rights Agreement, Liberty Mutual assumed control of OneBeacon's claims offices in the regions subject to the Renewal Rights Agreement and was responsible for servicing claims from the OneBeacon policies written prior to November 1, 2001, as well as policies which renewed in those regions since that date. Service agreements were put in place in connection with the Renewal Rights Agreement, through which Liberty Mutual became a third party administrator ("TPA") for those claims. Upon review of claims information during the second half of 2002, OneBeacon's management determined that average paid claims in offices where Liberty was acting as a TPA were higher than expected. As a result, management began a process to directly handle more of those claims related to policies written prior to the Renewal Rights Agreement. Effective July 11, 2003, the servicing agreement with Liberty Mutual was amended and OneBeacon took back substantially all remaining outstanding claims related to policies written prior to the Renewal Rights Agreement. Through September 30, 2003, approximately 31,000 claims have been taken back and approximately 11,000 claims have been closed.

During the second quarter of 2003, OneBeacon claims and actuarial personnel noticed an unusual spike in case reserves related to the policies taken back from Liberty Mutual. As a result, OneBeacon claims and actuarial personnel undertook a study to determine the cause of the increase. This study, which was completed in the third quarter of 2003, indicated that most of the increase in activity was due to differences in case reserving philosophies between OneBeacon's and Liberty's claims adjusters, such as the identification and coding of claims as construction defect claims. However, the study also indicated that some of the increase in activity related to an increase in the severity of construction defect claims stemming from the propensity to litigate construction defect claims and resulting court decisions and, therefore, an upward adjustment in reserves was necessary.

Construction defect is a liability allegation relating to defective work performed in the construction of structures such as apartments, condominiums, single family dwellings or other housing. Such claims seek recovery due to damage caused by alleged deficient construction techniques or workmanship. The reporting of construction defect claims can be quite delayed as the statute of limitations can be up to ten years. Court decisions have expanded insurers' exposure to construction defect claims as well. An example of this is the recent emergence of claims from parties claiming additional insured status on policies issued to other parties (e.g., general contractors seeking coverage on a sub-contractor's policy) thereby increasing the legal costs or severity of construction defect claims.

Although management had undertaken actions in 1999 and, to a greater extent, 2000, to mitigate future risks related to construction defect claims, there is uncertainty in reserving for these claims due to long reported tails and long paid loss tails. There is also additional uncertainty in reserving for these claims due to the potential for further unfavorable judicial rulings and regulatory actions. As latent construction defect exposures further emerge, management continually uses new information provided by reported and paid losses, such as the study referred to above, as well as industry information, to obtain better insight and to improve its judgment regarding construction defect losses.

The prior year reserve development in the nine months ended September 30, 2003 also included $12.0 million for a significant 1995 property claim from a pool in which OneBeacon had participated (the Industrial Risk Insurers pool) which had been in litigation and was settled through an arbitration decision during the second quarter of 2003.

II. Reinsurance

As described above, White Mountains' Reinsurance segment consists of Folksamerica, WMU, Fund American Re and White Mountains' investment in Montpelier. Pre-tax income for White Mountains' Reinsurance segment was $20.1 million for the third quarter of 2003, compared to $69.2 million for the third quarter of 2002. The lower amount was primarily due to $15.4 million in net realized investment losses in this quarter as a result of the sale of mortgage backed securities to reduce the duration of the bond portfolio, compared to $65.6 million in net realized investment gains in last year's third quarter. For the first nine months of 2003, pre-tax income was $127.1 million versus $119.5 million in the comparable prior year period. Pre-tax income included net realized investment gains of $10.0 million in the first nine months of 2003, versus $62.7 million in the comparable period of 2002. A tabular summary of White Mountains' financial results from its Reinsurance segment for the three and nine months ended September 30, 2003 and 2002 follows:

	Folksamerica			WMU			Fund American Re			Montpelier			Total Reinsurance
	Millions
Three months ended September 30, 2003
Gross written premiums	$	404.9		$	—		$	15.0		$	—		$	419.9

Net written premiums	$	228.0		$	—		$	13.3		$	—		$	241.3

Earned insurance and reinsurance premiums	$	213.6		$	—		$	15.6		$	—		$	229.2
Net investment income		12.9			—			.3			—			13.2
Net realized investment losses		(7.8	)		(.2	)		(1.0	)		(6.4	)		(15.4	)
Other revenue (loss)		(1.0	)		18.6			(.9	)		—			16.7

Total revenues		217.7			18.4			14.0			(6.4	)		243.7

Loss and LAE		149.1			—			9.7			—			158.8
Insurance and reinsurance acquisition expenses		41.6			—			4.3			—			45.9
General and administrative expenses		15.4			1.2			1.8			—			18.4
Interest expense		.5			—			—			—			.5

Total expenses		206.6			1.2			15.8			—			223.6

Pretax income(loss)	$	11.1		$	17.2		$	(1.8	)	$	(6.4	)	$	20.1

Nine months ended September 30, 2003
Gross written premiums	$	1,072.4		$	—		$	65.1		$	—		$	1,137.5

Net written premiums	$	664.1		$	—		$	59.8		$	—		$	723.9

Earned insurance and reinsurance premiums	$	614.4		$	—		$	50.1		$	—		$	664.5
Net investment income		38.8			.1			1.1			—			40.0
Net realized investment gains (losses)		6.3			(1.1	)		(.3	)		5.1			10.0
Other revenue (loss)		(1.4	)		48.8			4.8			—			52.2

Total revenues		658.1			47.8			55.7			5.1			766.7

Loss and LAE		411.9			—			35.0			—			446.9
Insurance and reinsurance acquisition expenses		129.8			—			11.4			—			141.2
General and administrative expenses		39.4			3.4			7.2			—			50.0
Interest expense		1.5			—			—			—			1.5

Total expenses		582.6			3.4			53.6			—			639.6

Pretax income	$	75.5		$	44.4		$	2.1		$	5.1		$	127.1

	Folksamerica		WMU			Fund American Re			Montpelier		Total Reinsurance
	Millions
Three months ended September 30, 2002
Gross written premiums	$	259.1	$	—		$	10.8		$	—	$	269.9

Net written premiums	$	171.3	$	—		$	11.6		$	—	$	182.9

Earned insurance and reinsurance premiums	$	163.0	$	—		$	19.1		$	—	$	182.1
Net investment income		13.2		—			.6			—		13.8
Net realized investment gains (losses)		32.0		(.3	)		1.7			32.2		65.6
Other revenue (loss)		1.4		8.2			(.1	)		—		9.5

Total revenues		209.6		7.9			21.3			32.2		271.0

Loss and LAE		123.6		—			18.0			—		141.6
Insurance and reinsurance acquisition expenses		34.6		—			4.1			—		38.7
General and administrative expenses		16.6		1.3			3.1			—		21.0
Interest expense		.5		—			—			—		.5

Total expenses		175.3		1.3			25.2			—		201.8

Pretax income (loss)	$	34.3	$	6.6		$	(3.9	)	$	32.2	$	69.2

Nine months ended September 30, 2002
Gross written premiums	$	689.4	$	—		$	37.4		$	—	$	726.8

Net written premiums	$	479.0	$	—		$	33.4		$	—	$	512.4

Earned insurance and reinsurance premiums	$	443.5	$	—		$	29.3		$	—	$	472.8
Net investment income		41.7		—			1.4			—		43.1
Net realized investment gains (losses)		25.1		(.3	)		1.7			36.2		62.7
Other revenue		10.8		23.7			3.9			—		38.4

Total revenues		521.1		23.4			36.3			36.2		617.0

Loss and LAE		304.1		—			25.4			—		329.5
Insurance and reinsurance acquisition expenses		108.9		—			7.8			—		116.7
General and administrative expenses		41.9		3.0			4.9			—		49.8
Interest expense		1.5		—			—			—		1.5

Total expenses		456.4		3.0			38.1			—		497.5

Pretax income (loss)	$	64.7	$	20.4		$	(1.8	)	$	36.2	$	119.5

Folksamerica

Folksamerica's GAAP combined ratio was 96% and 95% for the three and nine months ended September 30, 2003, compared to 107% and 103% for the three and nine months ended September 30, 2002. The improvement in Folksamerica's combined ratios from the 2002 to the 2003 periods resulted primarily from more favorable terms and conditions in the reinsurance marketplace, and also due to the effects on the 2002 combined ratios of the severe European floods recorded during the third quarter of 2002. Net written premiums increased 39% from the first nine months of 2002 to the first

nine months of 2003, while gross written premiums increased 56%. The following table provides GAAP combined ratios for Folksamerica for the three and nine months ended September 30, 2003 and 2002:

			Three Months Ended September 30,						Nine Months Ended September 30,
			2003			2002			2003			2002
GAAP Ratios:
	Loss			70	%		76	%		67	%		69	%
	Expense			26			31			28			34

		Total Combined		96	%		107	%		95	%		103	%

Dollars in millions
Net written premiums			$	228.0		$	171.3		$	664.1		$	479.0
Earned reinsurance premiums			$	213.6		$	163.0		$	614.4		$	443.5

The increases in Folksamerica's written and earned premiums in the 2003 periods continue to be generated through more adequate price levels on contracts and increased shares on renewed and new contracts resulting from the increased demand of reinsurance buyers for placing reinsurance with responsible, well-capitalized reinsurers. Also contributing to the increase in net written premiums was Folksamerica's relationship with WMU, which began in 2002 and has resulted in referrals of international reinsurance placements to Folksamerica. Additionally, under quota share agreements, Folksamerica cedes up to 75% of substantially all underwritten business referred to it by WMU and 75% of substantially all of its short-tailed, non-casualty excess of loss business, as well as 50% of its property proportional business, to Olympus. During the three and nine months ended September 30, 2003, Folksamerica ceded $151.9 million and $350.3 million in written premiums and $36.1 million and $83.1 million in losses and LAE to Olympus. White Mountains, through either Folksamerica or WMU, receives fee income on reinsurance placements referred to Olympus and is entitled to additional fees based on net underwriting profits on referred business. During the three and nine months ended September 30, 2003, White Mountains earned $28.9 million and $72.9 million of fee income from Olympus. The additional capacity provided by the quota share relationship with Olympus and the $400.0 million cash contribution Folksamerica received from OneBeacon in December 2001 enhanced Folksamerica's ability to provide significant reinsurance capacity, resulting in the increases described above.

Folksamerica's loss and LAE include income from the amortization of deferred gains on retroactive reinsurance provided by the Imagine Cover of $6.2 million and $5.6 million for the nine months ended September 30, 2003 and 2002. The reinsurance benefits for adverse development on prior years' reserves are deferred and recognized into income over the expected settlement period of the underlying claims. The amounts ceded and deferred under the retroactive portion of this contract totaled $5.0 million and $19.3 million for the nine months ended September 30, 2003 and 2002. There is $5.2 million of coverage remaining under this contract.

On October 3, 2003, Folksamerica announced that it had acquired the renewal rights to the property and casualty treaty business of CNA Re. See Note 12—Subsequent Events for further disclosure of the transaction.

WMU

WMU receives advisory fees on reinsurance placements referred to Olympus and is entitled to a profit commission on net profits on referred business. WMU placed $61.7 million and $146.7 million of written premiums with Olympus and recorded $7.4 million and $17.6 million of advisory fees during the three and nine months ended September 30, 2003, as compared to $4.9 million and $11.0 million for the comparable 2002 periods. WMU also recorded $11.2 million and $31.2 million of profit

commissions during the three and nine months ended September 30, 2003, as compared to $3.3 million and $12.7 million for the comparable 2002 periods. Revenues earned by WMU on business underwritten by Folksamerica has been eliminated from WMU's results provided above, as have the offsetting commission expenses been eliminated from Folksamerica's results. Such intercompany revenue at WMU totaled $4.2 million and $11.5 million for the three and nine months ended September 30, 2003 and $1.9 million and $5.7 million for the three and nine months ended September 30, 2002.

Fund American Re

Fund American Re reported a pretax loss of $1.8 million and pretax earnings of $2.1 million for the three and nine months ended September 30, 2003, versus pretax losses of $3.9 million and $1.8 million in the comparable 2002 periods. The improved results in 2003 were mainly due to income from a termination fee related to Fund American Re's management of the remaining business of Folksam International (the company from which Fund American Re purchased its international reinsurance business in 2001).

Montpelier

Through its holdings of common shares and warrants, White Mountains owned approximately 21% of Montpelier on a fully-converted basis as of September 30, 2003. Pretax amounts recorded by White Mountains relating to its investment in Montpelier as of September 30, 2003 and December 31, 2002 and for the three and nine months ended September 30, 2003 and 2002 follow:

	Three months ended September 30								Nine months ended September 30
	Common shares		Warrants			Total			Common shares		Warrants		Total
	Millions
Investment in Montpelier at beginning of period	$	251.2	$	69.5		$	320.7		$	213.8	$	58.0	$	271.8
Realized gain (loss) from Montpelier warrants		—		(6.4	)		(6.4	)		—		5.1		5.1
Equity in earnings from Montpelier common shares(1)		15.7		—			15.7			52.5		—		52.5
Equity in net unrealized investment gains from Montpelier's investment portfolio		.5		—			.5			1.1		—		1.1

Investment in Montpelier as of September 30, 2003	$	267.4	$	63.1		$	330.5		$	267.4	$	63.1	$	330.5

Fair Value of White Mountains' investment in Montpelier as of September 30, 2003	$	325.6	$	63.1		$	388.7		$	325.6	$	63.1	$	388.7

Investment in Montpelier at beginning of period	$	190.4	$	4.0		$	194.4		$	177.4	$	—	$	177.4
Realized gains from Montpelier warrants		—		32.3			32.3			—		36.3		36.3
Equity in earnings from Montpelier common shares(1)		5.7		—			5.7			16.7		—		16.7
Equity in net unrealized investment gains from Montpelier's investment portfolio		3.2		—			3.2			5.2		—		5.2

Investment in Montpelier as of September 30, 2002	$	199.3	$	36.3		$	235.6		$	199.3	$	36.3	$	235.6

Fair Value of White Mountains' investment in Montpelier as of December 31, 2002	$	311.0	$	58.0		$	369.0		$	311.0	$	58.0	$	369.0

(1): After-tax equity in earnings from Montpelier common shares were $10.2 million and $34.2 million for the three and nine months ended September 30, 2003, respectively, and $10.9 million and $3.7 million for the three and nine months ended September 30, 2002, respectively.

As of September 30, 2003, Montpelier's shareholders' equity totaled approximately $1.6 billion versus $1.3 billion as of December 31, 2002. During the three and nine months ended September 30, 2003, Montpelier reported net income of $91.0 million and $307.3 million, with comprehensive net income of $94.1 million and $313.8 million. Montpelier wrote net premiums of $147.7 million and $666.7 million and had total earned premiums of $162.9 million and $522.0 million for the three and nine months ended September 30, 2003, respectively. Montpelier's three and nine month 2003 GAAP

combined ratios were 49.2% and 48.4%. The consolidated financial statements of Montpelier for the quarter ended September 30, 2003 are included in this report as Exhibit 99.

A large portion of Montpelier's business is global specialty property reinsurance which has large aggregate exposures to natural and man-made disasters. As such, management expects that Montpelier's claim experience from this business will be the result of relatively few claims of high magnitude. The occurrence of claims from catastrophic events is likely to result in substantial volatility in, and could have a material adverse effect on, Montpelier's financial condition and results and their ability to write new business.

III. Other Operations

As previously discussed, "Other Operations" consists of the International American Group and Esurance (collectively, "Other Insurance Operations"), as well as the operations of the Company and the Company's intermediate subsidiary holding companies (collectively, "Holding Companies"). A

tabular summary of White Mountains' financial results from its Other Operations segment for the three and nine months ended September 30, 2003 and 2002 follows:

	Three months ended September 30, 2003									Nine months ended September 30, 2003
	Other Insurance Operations			Holding Companies			Total Other Operations			Other Insurance Operations			Holding Companies			Total Other Operations
	Millions
Gross written premiums	$	11.0		$	—		$	11.0		$	31.2		$	—		$	31.2

Net written premiums	$	9.1		$	—		$	9.1		$	25.0		$	—		$	25.0

Earned insurance and reinsurance premiums	$	8.3		$	—		$	8.3		$	23.4		$	—		$	23.4
Net investment income		1.0			3.1			4.1			3.0			2.8			5.8
Net realized investment gains (losses)		(.4	)		(.9	)		(1.3	)		1.0			(9.2	)		(8.2	)
Other revenue		1.5			38.0			39.5			9.2			40.8			50.0

Total revenues		10.4			40.2			50.6			36.6			34.4			71.0

Loss and LAE		7.0			—			7.0			18.5			—			18.5
Insurance and reinsurance acquisition exp.		5.3			—			5.3			14.3			—			14.3
General and administrative expenses		11.4			6.9			18.3			31.5			51.3			82.8
Accretion of loss and LAE reserves		—			10.1			10.1			—			38.5			38.5
Interest expense		—			10.5			10.5			—			35.6			35.6
Interest expense on shares subject to mandatory redemption		—			9.2			9.2			—			9.2			9.2

Total expenses		23.7			36.7			60.4			64.3			134.6			198.9

Pretax income (loss)	$	(13.3	)	$	3.5		$	(9.8	)	$	(27.7	)	$	(100.2	)	$	(127.9	)

	Three months ended September 30, 2002									Nine months ended September 30, 2002
	Other Insurance Operations			Holding Companies			Total Other Operations			Other Insurance Operations			Holding Companies			Total Other Operations
	Millions
Gross written premiums	$	9.3		$	—		$	9.3		$	27.3		$	—		$	27.3

Net written premiums	$	7.9		$	—		$	7.9		$	23.2		$	—		$	23.2

Earned insurance and reinsurance premiums	$	7.6		$	—		$	7.6		$	22.1		$	—		$	22.1
Net investment income (loss)		1.2			(.1	)		1.1			3.5			(6.0	)		(2.5	)
Net realized investment losses		—			(30.2	)		(30.2	)		(.6	)		(43.9	)		(44.5	)
Other revenue (loss)		3.4			(17.3	)		(13.9	)		8.3			15.5			23.8

Total revenues		12.2			(47.6	)		(35.4	)		33.3			(34.4	)		(1.1	)

Loss and LAE		7.4			—			7.4			17.6			—			17.6
Insurance and reinsurance acquisition exp.		1.1			—			1.1			2.8			—			2.8
General and administrative expenses		10.5			1.2			11.7			31.0			30.0			61.0
Accretion of loss and LAE reserves		—			14.2			14.2			—			65.6			65.6
Interest expense		—			16.8			16.8			—			51.5			51.5

Total expenses		19.0			32.2			51.2			51.4			147.1			198.5

Pretax loss	$	(6.8	)	$	(79.8	)	$	(86.6	)	$	(18.1	)	$	(181.5	)	$	(199.6	)

Other Insurance Operations

The International American Group contributed $1.6 million and $1.3 million of pretax losses for the three and nine months ended September 30, 2003, compared to $1.0 million and $.7 million in the comparable 2002 periods. Peninsula accounts for all of the premiums reported in the tables above. Subsequent to the end of the third quarter of 2003, White Mountains entered into an agreement to sell Peninsula and expects to close on the sale prior to the end of 2003. The operations of American Centennial and British Insurance Company were not significant for the three and nine months ended September 30, 2003 or for the three and nine months ended September 30, 2002, as those companies are in run-off.

For the three and nine months ended September 30, 2003, Esurance reported $11.4 million and $26.4 million of pretax losses, compared to $5.8 million and $17.4 million in the comparable 2002 periods. Substantially all of the business generated by Esurance was directly written or assumed by subsidiaries of White Mountains. Premium and loss and LAE are included in the underwriting unit that ultimately retains the risk under the policy written through Esurance. Commission revenues earned by Esurance on business retained by other White Mountains insurance subsidiaries has been eliminated from Esurance's segment results provided above, as have the offsetting commission expenses been eliminated from the insurance subsidiaries' results. Such intercompany commission revenue at Esurance totaled $7.1 million and $16.6 million for the three and nine months ended September 30, 2003. In addition, interest on an intercompany loan from Folksamerica to Esurance has also been eliminated from the results of both companies.

Holding Companies

White Mountains' capital raising and capital allocation activities are principally conducted through the Company and its intermediate holding companies. In this regard, the results of its holding companies primarily relate to financing activities and purchase accounting adjustments relating to the Acquisition, gains and losses recognized from the purchase and sale of certain of the Company's subsidiaries and other assets and general and administrative expenses incurred at the holding company level.

White Mountains' other operations segment reported a pre-tax loss of $9.8 million for the third quarter of 2003, compared to a pre-tax loss of $86.6 million for the third quarter of 2002. The loss in the third quarter of 2003 was net of $37 million in gains that were included as other revenue in this segment related to the sale of several real estate properties at OneBeacon previously written-off under purchase accounting. The loss in the third quarter of 2002 included $30.3 million in realized investment losses related to White Mountains' interest rate swap agreements. For the first nine months of 2003, the segment reported a pre-tax loss of $127.9 million versus a pre-tax loss of $199.6 million in the first nine months of 2002. Other revenue recorded for the nine months ended September 30, 2002 consisted primarily of $25.3 million in interest receivable recorded on amounts due resulting from Internal Revenue Service examinations which were finalized during the period, offset by $17.0 million in losses recorded during the third quarter of 2002 related to indemnification agreements in connection with a prior year sale of a subsidiary. The decrease in interest expense from 2002 to 2003 resulted primarily from the absence of the $260.0 million Seller Note, which was fully repaid by White Mountains in November 2002, as well as a reduced level of bank debt outstanding as a result of issuing the Senior Notes to repay the Old Bank Facility. Through the issuance of the Senior Notes, White Mountains reduced the interest rate on a majority of its outstanding debt to 5.9% from approximately 7.0% on the Old Bank Facility (after giving effect to interest rate swaps). During the three and nine months ended September 30, 2003, White Mountains recorded $10.5 million and $15.2 million of interest expense on the Senior Notes. Interest expense on the Old Bank Facility was $0 and $20.3 million for the three and nine months ended September 30, 2003, versus $13.2 million and $41.0 million for the three and nine months ended September 30, 2002.

General and administrative expenses at the holding companies consist primarily of share-based compensation expenses of holding company employees, including performance shares, Options and Restricted Shares. At the May 2003 Board of Directors meeting, the performance shares previously issued to the Chairman of the Company, John J. Byrne, and other non-management directors were terminated early in light of the proposed independence standards for directors. In the second quarter of 2003, White Mountains paid $13.1 million in cash or by deferral into certain non-qualified compensation plans of the Company and recognized $10.5 million of performance share expense related to the early termination of these performance shares, primarily due to the accelerated recognition of expense for performance periods originally scheduled to end on December 31, 2003, 2004 and 2005.

Summary of Investment Operations

Overview

White Mountains manages all of its consolidated investments through its wholly-owned subsidiary, WM Advisors. White Mountains' investment philosophy is to invest its assets with a view towards maximizing its after-tax total return over extended periods of time. Under this approach, each dollar of after-tax investment income and realized and unrealized gains and losses is valued equally. White Mountains' overall fixed maturity investment strategy is to purchase securities that are attractively priced in relation to perceived credit risks. White Mountains generally manages the interest rate risk associated with holding fixed maturity investments by actively monitoring and maintaining the average duration of the portfolio with the goal of achieving an adequate after-tax total return without subjecting the portfolio to an unreasonable level of interest rate risk. White Mountains' investment portfolio mix as of September 30, 2003 was focused on capital preservation and consisted in large part of high-quality, fixed maturity investments and short-term investments.

Results

White Mountains was pleased with its overall investment results during the three and nine months ended September 30, 2003. Although down fractionally during the third quarter of 2003, White Mountains' fixed maturity portfolios achieved positive returns for the nine months ended September 30, 2003 while generally avoiding credit problems and its investments in common equity securities generated gains for the three and nine months ended September 30, 2003 in line with those generally experienced in the U.S. markets.White Mountains' total net investment returns for the three and nine months ended September 30, 2003 and 2002 are shown below:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
	Dollars in Millions
Net investment income, pre-tax	$	67.5		$	88.1	$	219.1	$	276.2
Net realized investment gains (losses), pre-tax	$	(34.2	)	$	119.3	$	114.0	$	116.7
Change in net unrealized investment gains, after-tax	$	(22.4	)	$	79.2	$	44.0	$	189.0

White Mountains' net investment income is comprised primarily of interest income associated with its substantial portfolio of fixed maturity investments and dividend income from its equity investments. The decreases in investment income in the 2003 periods presented from the 2002 periods presented were due primarily to lower interest rates throughout the financial markets and lower average net invested assets in OneBeacon's investment portfolio as it gradually shrunk with the run-off of OneBeacon's non-core book.

White Mountains' realized investment gains and losses result principally from sales of fixed maturity investments. The investment losses realized in the third quarter of 2003 reflect sales of mortgage backed securities to reduce the duration of the bond portfolio. Also included in net realized investment gains (losses) are amounts recognized under SFAS No. 133 related to changes in the fair value of White Mountains' investment in Montpelier warrants (loss of $6.4 million and gain of $5.1 million for the three and nine months ended September 30, 2003 versus gains of $32.3 million and $36.3 million in both periods during 2002) and its interest rate swap agreements (loss of $0 and $4.2 million for the three and nine months ended September 30, 2003 versus losses of $30.3 million and $46.3 million during the three and nine months ended September 30, 2002). After-tax unrealized investment losses were $22.4 million in the third quarter of 2003, compared to after-tax unrealized investment gains of $79.2 million in the third quarter of 2002. For the first nine months of 2003 after-tax unrealized investment gains were $44.0 million, compared to $189.0 million in the first nine months of 2002.

White Mountains' fixed maturity portfolio avoided the significant credit problems experienced throughout the public markets in recent years. During the past several months the bond market has been relatively volatile. After hitting 45 year lows in June, the 10 year treasury had a significant sell off in July, a sizable rally in September, and another sell off in October. White Mountains continues to keep the duration of White Mountains' fixed maturity investments, including short-term investments, relatively short at about 3 years. White Mountains has also continued to gradually accumulate value equities despite the rally in the stock market.

Impairment

Temporary losses on investment securities are recorded as unrealized losses. Temporary losses do not impact net income and earnings per common share but serve to reduce comprehensive net income, shareholders' equity and tangible book value. Unrealized losses subsequently identified as other-than-temporary impairments are recorded as realized losses. Other-than-temporary impairments previously recorded as unrealized losses do not impact comprehensive net income, shareholders' equity and tangible book value but serve to reduce net income and earnings per common share.

White Mountains' methodology of assessing other-than-temporary impairments is based on security-specific facts and circumstances as of the balance sheet date. As a result, subsequent adverse changes in an issuers' credit quality or subsequent weakening of market conditions that differ from expectations could result in additional other-than-temporary impairments. In addition, the sale of a fixed maturity security with a previously recorded unrealized loss would result in a realized loss. Either of these situations would adversely impact net income and earnings per common share but would not impact comprehensive net income, shareholders' equity or tangible book value.

The following table presents an analysis of the continuous periods during which White Mountains has held investment positions which were carried at an unrealized loss as of September 30, 2003 (excluding short-term investments):

		September 30, 2003
		0-6 Months			6-12 Months			> 12 Months			Total
		Dollars in millions
Fixed maturity investments:
	Number of positions		35			7			3			45
	Market value	$	642.0		$	85.2		$	.5		$	727.7
	Amortized cost	$	646.3		$	85.8		$	.6		$	732.7
	Unrealized loss	$	(4.3	)	$	(.6	)	$	(.1	)	$	(5.0	)

Common equity securities:
	Number of positions		5			1			—			6
	Market value	$	34.7		$	32.6		$	—		$	67.3
	Cost	$	36.8		$	34.1		$	—		$	70.9
	Unrealized loss	$	(2.1	)	$	(1.5	)	$	—		$	(3.6	)

Other investments:
	Number of positions		5			4			1			10
	Market value	$	13.5		$	2.6		$	.1		$	16.2
	Cost	$	14.0		$	2.9		$	.1		$	17.0
	Unrealized loss	$	(.5	)	$	(.3	)	$	—		$	(.8	)

Total:
	Number of positions		45			12			4			61
	Market value	$	690.2		$	120.4		$	.6		$	811.2
	Amortized cost	$	697.1		$	122.8		$	.7		$	820.6
	Unrealized loss	$	(6.9	)	$	(2.4	)	$	(.1	)	$	(9.4	)

% of total gross unrealized losses			72.7	%		26.7	%		0.6	%		100	%

White Mountains did not record any material impairment charges in the third quarter of 2003. For the nine months ended September 30, 2003, White Mountains experienced $17.5 million in pretax other-than-temporary impairment charges that were recorded as realized investment losses in the income statement. Of this charge, $8.1 million was related to White Mountains' investment in the common stock of Octel Corp ("Octel"). White Mountains recorded the other-than-temporary impairment on Octel primarily due to the fact that Octel's unrealized loss position was greater than 20% of White Mountains' cost over the previous six-month period and also that certain factors have been reported by Octel which affect the likelihood that White Mountains will recover the original cost of its investment. These factors include disruptions related to political unrest in Venezuela, which is a significant geographic region in which Octel operates and the announcement that Octel will take restructuring charges in 2003. White Mountains did not experience any material impairment charges relating to any other individual investment security during the 2003 periods presented.

White Mountains believes that the gross unrealized losses relating to its fixed maturity investments at September 30, 2003 resulted primarily from increases in market interest rates from the dates that certain investments within that portfolio were acquired as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, these decreases in value are viewed as being temporary because White Mountains has the intent and ability to retain such investments for a period of time sufficient to allow for any anticipated recovery in market value. White Mountains also believes that the gross unrealized losses recorded on its common equity securities and its other investments at September 30, 2003 resulted primarily from decreases in quoted market values from the dates that

certain investments securities within that portfolio were acquired as opposed to fundamental changes in the issuer's financial performance and near-term financial prospects. Therefore, these decreases are also viewed as being temporary. However, due to the inherent risk involved in investing in the equity markets, it is possible that the decrease in market value of these investments may ultimately prove to be other than temporary. As of September 30, 2003, White Mountains' investment portfolio did not include any investment securities with an after-tax unrealized loss of more than $3.0 million.

Fully Converted Tangible Book Value Per Share

Set forth below is a reconciliation of White Mountains' fully converted tangible book value per common and equivalent share, supporting the references to fully converted tangible book value per share on page 33:

		September 30, 2003			June 30, 2003			December 31, 2002
Book value per share numerators:			(millions)
Common shareholders' equity		$	2,794.6		$	2,869.3		$	2,407.9
	Proceeds from assumed exercise of outstanding Warrants		300.0			300.0			300.0
	Benefits to be received from share obligations under employee benefit plans		7.5			7.5			8.8
	Remaining adjustment of subsidiary preferred stock to face value		(41.2	)		(132.7	)		(139.1	)

Book value per share numerator			3,060.9			3,044.1			2,577.6
	Assumed conversion of convertible preference shares to Common Shares		—			—			219.0
	Goodwill		(17.8	)		(15.7	)		—

Fully converted tangible book value per common and equivalent share numerator		$	3,043.1		$	3,028.4		$	2,796.6

Book value per share denominators:			(thousands)
Common Shares outstanding			9,002.4			9,002.4			8,351.4
	Common Shares issuable upon exercise of outstanding Warrants		1,724.2			1,724.2			1,714.3
	Share obligations under employee benefit plans		55.4			55.4			61.9

Book value per share denominator			10,782.0			10,782.0			10,127.6
	Assumed conversion of convertible preference shares to Common Shares		—			—			678.0

Fully converted tangible book value per common and equivalent share denominator			10,782.0			10,782.0			10,805.6

Book value per share		$	283.90		$	282.33		$	254.52
Fully converted tangible book value per common and equivalent share			282.24			280.88			258.82

Book value per share is derived by dividing the Company's total GAAP shareholders' equity as of a given date by the number of Common Shares outstanding as of that date, including the dilutive effects of outstanding Options and Warrants, as well as the unamortized accretion of preferred stock. Fully converted tangible book value per share is derived by expanding the book value per share calculation to include (i) the effects of assumed conversion of all convertible securities and (ii) any remaining unamortized goodwill or deferred credits as of the applicable date.

LIQUIDITY AND CAPITAL RESOURCES

Operating cash and short-term investments

The primary sources of cash inflows for the Company and certain of its intermediate holding companies are investment income, sales of investment securities and dividends and tax sharing payments received from the operating subsidiaries. Under the insurance laws of the states and jurisdictions under which White Mountains' insurance subsidiaries are domiciled, an insurer is restricted with respect to the timing or the amount of dividends it may pay without prior approval by regulatory authorities. Accordingly, there can be no assurance regarding the amount of such dividends that may be paid by such subsidiaries in the future. In 2003, OneBeacon's first tier insurance subsidiaries have the ability to pay dividends of approximately $254 million without approval of regulatory authorities, of which approximately $57 million as of September 30, 2003 was still available for the Company to declare without approval of regulatory authorities.

White Mountains' consolidated sources of cash consist primarily of premium collections, net investment income, financing activities and proceeds from sales and maturities of investments. White Mountains' consolidated uses of cash are primarily claim payments, operating expenses, financing costs and the purchase of investments.

As a result of the Renewal Rights Agreement, OneBeacon will run-off the claims on business transferred to Liberty Mutual. Therefore, OneBeacon will need to periodically liquidate invested assets to fund the payment of these claims and will manage its short-term liquidity needs accordingly.

As of September 30, 2003, White Mountains reported $1.1 billion in accounts payable on unsettled investment purchases and $1.0 billion in accounts receivable on unsettled investment sales, substantially all of which are related to agreements to purchase or sell "TBA" mortgage-backed securities. A TBA trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future settlement date upon identification of the specific pools of mortgage loans that will collateralize the securities, which are unknown at the time of the trade. Mortgage pools (including fixed rate or variable rate mortgages) guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac are subsequently allocated to the TBA transactions. The period between the TBA contract date and the security settlement date can be as long as 180 days, though it typically is between 45 and 60 days.

Both internal and external forces influence White Mountains' financial condition, results of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to White Mountains and the settlement of the liability for that loss. Management believes that White Mountains' cash balances, cash flows from operations, routine sales of investments and the liquidity provided by the New Bank Facility are adequate to meet expected cash requirements for the foreseeable future.

Financing

The following table summarizes White Mountains' capital structure as of September 30, 2003 and December 31, 2002:

		September 30, 2003			December 31, 2002
		Millions
Senior Notes, carrying value		$	698.0		$	—
New Bank Facility			—			—
Old Bank Facility			—			746.4
Other debt			44.5			46.8

	Total debt	$	742.5		$	793.2

Preferred stock subject to mandatory redemption			278.8		$	—
Mandatorily redeemable preferred stock of subsidiaries			—			180.9
Convertible preference shares			—			219.0
Common shareholders' equity			2,794.6			2,407.9

	Total capitalization	$	3,815.9		$	3,601.0

Debt to total capitalization			19	%		22	%

Management believes that White Mountains' strong financial position provides it with the flexibility and capacity to obtain funds externally as needed through debt or equity financing on both a short-term and long-term basis. White Mountains has recently enhanced its access to the capital markets by filing an effective shelf registration with the SEC in July 2003 for offerings of up to $2.0 billion in debt and/or equity securities.

Contractual Obligations and Commitments

Below is a schedule of White Mountains' material contractual obligations and commitments as of September 30, 2003:

	Due in One Year or Less		Due in Two Years		Due in Three Years		Due in Four Years		Due After Four Years		Total
	Millions
Debt	$	—	$	25.0	$	—	$	19.5	$	700.0	$	744.5
Mandatorily redeemable preferred stock		—		—		—		—		320.0		320.0

Total contractual obligations(1)	$	—	$	25.0	$	—	$	19.5	$	1,020.0	$	1,064.5

(1): Does not reflect contractual obligations and commitments under operating leases.

In May 2003, White Mountains reduced its cost of capital and significantly reduced its near-term obligations by fully prepaying its $739.9 million amortizing Old Bank Facility principally through the net proceeds from the issuance of $700.0 million face value of 10-year, fixed-rate Senior Notes, which were issued by Fund American through a public offering. The Senior Notes bear a fixed interest rate of 5.9%, while the interest rate on $700.0 million of the previous Old Bank Facility was 7.0%, after giving effect to a series of interest rate swap agreements. Fund American unwound these swap agreements immediately following the Old Bank Facility prepayment by paying consideration of $56.4 million in cash.

Company are permitted borrowers. Under the New Credit Facility, the Company guarantees all obligations of Fund American, and Fund American guarantees all borrowings of the Company subject to certain limitations imposed by the terms of the Berkshire Preferred Stock. As of September 30, 2003, both Fund American and the Company had yet to draw any funds under the New Bank Facility.

In October 2002, White Mountains sold $200.0 million of its equity securities in a private transaction. Investment funds managed by Franklin Mutual Advisers, LLC purchased 677,966 convertible preference shares of the Company at a price of $200.0 million ($295.00 per share). Upon shareholder approval at the Company's Annual Meeting held on May 19, 2003, the convertible preference shares were repurchased and cancelled in consideration of the issuance of 677,966 Common Shares. Because the redemption value of the convertible preference shares was in excess of the cash received upon their issuance, they were required to be marked-to-market until the date they were converted to shareholders' equity, resulting in a $68.5 million charge to retained earnings ($49.5 million of which was recorded during the nine months ended September 30, 2003), with an offsetting increase to paid-in surplus.

At December 31, 2002, contractual obligations and commitments under operating leases were $162.9 million. There are no provisions within White Mountains' leasing agreements that would trigger acceleration of future lease payments. White Mountains does not finance its operations through the securitization of its trade receivables, through special purpose entities or through synthetic leases. Further, White Mountains has not entered into any arrangement requiring it to guarantee payment of third party debt or to fund losses of an unconsolidated special purpose entity.

Detailed information concerning White Mountains' liquidity and capital resource activities during the three and nine months ended September 30, 2003 and 2002 follows:

For the nine months ended September 30, 2003

On May 19, 2003, Fund American issued the Senior Notes for net proceeds of $693.4 million. Using proceeds from the Senior Notes, Fund American repaid the entire $614.9 million of term loans outstanding under the Old Bank Facility. In addition, on May 27, 2003, using the remaining $78.5 million in proceeds from the Senior Notes and cash on hand, Fund American repaid the entire $125.0 million of revolving loans outstanding under the Old Bank Facility. In connection with the repayment of the Old Bank Facility, on May 20, 2003, Fund American paid an aggregate $56.4 million to unwind all of its existing interest rate swap agreements.

For the nine months ended September 30, 2003, White Mountains made scheduled principal amortization payments of $6.5 million on the Old Bank Facility prior to the repayment and paid a total of $22.5 million in interest under the Old Bank Facility, including $10.6 million paid under the interest rate swap agreements.

For the nine months ended September 30, 2003, White Mountains declared and paid a total of $22.7 million in dividends to holders of preferred stock with a face value of $320.0 million.

In March 2003, the Company declared and paid an annual dividend of $8.3 million to its common shareholders.

During the nine months ended September 30, 2003, OneBeacon declared and paid a total of $202.6 million in cash dividends to Fund American, its immediate parent company. Also during the nine months ended September 30, 2003, WMU paid a total of $30.0 million of dividends to its immediate parent, WM Investment Management (Bermuda) Ltd, and WM Advisors paid a total of $10.0 million in dividends to Fund American.

During the nine months ended September 30, 2003, the Company issued a total of 6,316 Common Shares to its employees through the exercise of Options during the period and, as a result, the Company received cash proceeds of $.8 million in connection with these Option exercises.

During the first quarter of 2003, White Mountains made payments with respect to 39,500 performance shares (relating to the 2000-2002 performance period) at a 200% payout level, amounting to $25.7 million, to its participants in cash or by deferral into certain non-qualified compensation plans of the Company or its subsidiaries. In the second quarter of 2003, White Mountains made payments with respect to an additional 33,075 performance shares, amounting to $13.1 million in cash or by deferral into certain non-qualified compensation plans of the Company. The payments on these additional performance shares in the second quarter represented accelerated payments to certain non-employee directors of the Company for performance periods originally scheduled to end on December 31, 2003, 2004 and 2005.

For the nine months ended September 30, 2002

For the nine months ended September 30, 2002, White Mountains made scheduled principal amortization payments totaling $77.3 million on the Old Bank Facility. During the first nine months of 2002, White Mountains paid a total of $41.9 million in interest under the Old Bank Facility including $13.2 million paid under related interest rate swap agreements.

During the nine months ended September 30, 2002 White Mountains declared and paid a total of $22.7 million in dividends to holders of preferred stock with a face value of $320.0 million.

In March 2002, the Company declared and paid an annual dividend of $8.3 million to its common shareholders.

During the nine months ended September 30, 2002, OneBeacon declared and paid a total of $87.5 million in cash dividends to Fund American.

During the nine months ended September 30, 2002, the Company issued a total of 21,300 Common Shares to its employees in satisfaction of obligations under White Mountains' Long-Term Incentive Plan, consisting of 11,700 performance shares and Options to acquire 9,600 Common Shares. The Company received proceeds of $1.2 million as a result of the exercise of Options during the period.

RELATED PARTY TRANSACTIONS

Mr. Howard Clark, a director of the Company, is Vice Chairman of Lehman Brothers Inc. ("Lehman"). Lehman has, from time to time, provided various services to White Mountains including investment banking services, brokerage services, underwriting of debt and equity securities and financial consulting services. Lehman was lead underwriter for $700.0 million of Senior Notes, was the arranger, the administrative agent and a lender under the Old Bank Facility that the Company prepaid in 2003 and is a lender under the New Bank Facility. See Note 6.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the Company's 2002 Annual Report on Form 10-K/A for a complete discussion regarding White Mountains' critical accounting policies and estimates.

FORWARD-LOOKING STATEMENTS

The information contained in this report release may contain "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 report 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 "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains':

•: future growth in tangible book value per share or return on equity;
•: business strategy;
•: financial and operating targets or plans;
•: incurred losses and the adequacy of its loss and LAE reserves;
•: projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;
•: expansion and growth of its business and operations; and
•: 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 with its expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including:

•: the continued availability of capital and financing;
•: general economic, market or business conditions;
•: business opportunities (or lack thereof) that may be presented to it and pursued;
•: competitive forces, including the conduct of other property and casualty insurers and reinsurers;
•: changes in domestic or foreign laws or regulations applicable to White Mountains, its competitors or its clients;
•: an economic downturn or other economic conditions adversely affecting its financial position;

•: loss reserves established subsequently proving to have been inadequate; and
•: other factors, most of which are beyond White Mountains' control.

Consequently, all of the forward-looking statements made in this report 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 update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company's 2002 Annual Report on Form 10-K/A, and in particular Item 7A.—"Quantitative and Qualitative Disclosures About Market Risk". As of September 30, 2003, other than what is described below, there have been no material changes in the market risks described in the Company's most recently filed Annual Report on Form 10-K/A.

Interest Rate Risk

Indebtedness. During the second quarter of 2003, White Mountains refinanced its senior debt by issuing fixed-rate Senior Notes and repaying its variable-rate Old Bank Facility, which had been substantially fixed through interest rate swap agreements, in its entirety. As a result of this refinancing, White Mountains no longer has any variable interest rate debt outstanding that would expose the Company to significant interest rate risk.

Item 4. Controls and Procedures

The Principal Executive Officer ("PEO") and the Principal Financial Officer ("PFO") of White Mountains have evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-14 of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the PEO and PFO have concluded that White Mountains' disclosure controls and procedures are adequate and effective.

There have been no significant changes in White Mountains' internal controls, or in factors that could significantly affect internal controls, subsequent to their most recent evaluation of such controls.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

On January 30, 2001, an action was filed in Los Angeles on behalf of Sierra National Life Insurance Holdings, Inc., a dissolved corporation in which White Mountains holds an interest, against Credit Lyonnais, S.A. and other parties who were the successful bidders for the assets of Executive Life Insurance Company ("ELIC"), a California insurer, in the 1991 sale of those assets conducted by the California Commissioner of Insurance. Sierra alleges that defendants' acquisition violated both federal and state law and that, but for defendants' wrongful acts, it would have been chosen to purchase ELIC's assets. According to press reports, Credit Lyonnais and certain of the other defendants have been indicted by a Federal grand jury in connection with their acquisition of ELIC, although the indictments remain under seal, and are in negotiations with the U.S. Attorney regarding settlement of those charges. The case is currently in active discovery but no trial date has yet been set.

Refer to the Company's 2002 Annual Report on Form 10-K/A, and in particular Item 3—"Legal Proceedings" for a brief description of non-routine legal proceedings. Damages sought by the claimants do not exceed 10% of the Company's current assets.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote by Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


10	—	$300,000,000 Credit Agreement, dated as of September 24, 2003, among The Company and Fund American, as the borrowers, the several lenders from time to time parties hereto, Bank One, NA, as Syndication Agent, and Fleet National Bank, as Administrative Agent.
11	—	Statement Re Computation of Per Share Earnings*
31.1	—	Principal Executive Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934, as Amended.
31.2	—	Principal Financial Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934, as Amended.
32.1	—	Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	—	Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	—	Consolidated financial statements of Montpelier Re Holdings Ltd. for the quarter ended September 30, 2003.

*

Not included as an exhibit as the information is contained elsewhere within this report. See Note 7 of the Notes to Consolidated Financial Statements.

(b): Reports on Form 8-K

On August 7, 2003 the Company filed a Form 8-K (Item 12) which served to furnish information regarding its press release announcing its results for the three and six month periods ended June 30, 2003.

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: November 4, 2003

By:

/s/ J. BRIAN PALMER

J. Brian Palmer
Chief Accounting Officer



                                                                      Exhibit 10

================================================================================


                                  $300,000,000

                               CREDIT AGREEMENT,

                        dated as of September __, 2003,

                                     among

                     WHITE MOUNTAINS INSURANCE GROUP, LTD.,

                                      and

                         FUND AMERICAN COMPANIES, INC.,

                               as the Borrowers,

                              The Several Lenders
                       from Time to Time Parties Hereto,

                                 BANK ONE, NA,
                             as Syndication Agent,

                                      and

                              FLEET NATIONAL BANK,
                            as Administrative Agent

================================================================================


           FLEET SECURITIES, INC. and BANC ONE CAPITAL MARKETS, INC.,
                as Joint Lead Arrangers and Joint Book Runners,



                               TABLE OF CONTENTS



                                                                                                          Page
                                                                                                          ----
                                                                                                         
SECTION 1   DEFINITIONS......................................................................................1
     1.1   Defined Terms.....................................................................................1
     1.2   Other Definitional Provisions....................................................................18

SECTION 2   AMOUNT AND TERMS OF COMMITMENTS.................................................................19
     2.1   Revolving Credit Commitments.....................................................................19
     2.2   Procedure for Revolving Credit Borrowings........................................................19
     2.3   Swing Line Commitment............................................................................20
     2.4   Procedure for Swing Line Borrowing; Refunding of Swing Line Loans................................20
     2.5   Repayment of Loans; Evidence of Debt.............................................................21
     2.6   Facility Fee, Utilization Fee, etc...............................................................22
     2.7   Termination or Reduction of Revolving Credit Commitments.........................................23
     2.8   Optional Prepayments.............................................................................23
     2.9   Conversion and Continuation Options..............................................................24
     2.10  Maximum Number of Eurodollar Loans...............................................................24
     2.11  Interest Rates and Payment Dates.................................................................24
     2.12  Computation of Interest and Fees.................................................................25
     2.13  Inability to Determine Interest Rate.............................................................25
     2.14  Pro Rata Treatment and Payments..................................................................26
     2.15  Requirements of Law..............................................................................27
     2.16  Taxes............................................................................................29
     2.17  Indemnity........................................................................................30
     2.18  Illegality.......................................................................................31
     2.19  Change of Lending Office.........................................................................31
     2.20  Replacement of Lenders under Certain Circumstances...............................................31
     2.21  Guaranty of Payment and Performance..............................................................32

SECTION 3   LETTERS OF CREDIT...............................................................................35
     3.1   L/C Commitment...................................................................................35
     3.2   Procedure for Issuance of Letter of Credit.......................................................36
     3.3   Fees and Other Charges...........................................................................36
     3.4   L/C Participations...............................................................................36
     3.5   Reimbursement Obligation of the Borrowers........................................................37
     3.6   Obligations Absolute.............................................................................38
     3.7   Letter of Credit Payments........................................................................38
     3.8   Applications.....................................................................................39

SECTION 4   REPRESENTATIONS AND WARRANTIES..................................................................39
     4.1   Financial Condition..............................................................................39
     4.2   No Change........................................................................................39
     4.3   Corporate Existence; Compliance with Law.........................................................39
     4.4   Corporate Power; Authorization; Enforceable Obligations..........................................40


                                        i



                                                                                                         
     4.5   No Legal Bar.....................................................................................40
     4.6   No Material Litigation...........................................................................40
     4.7   Ownership of Property; Liens.....................................................................41
     4.8   Intellectual Property............................................................................41
     4.9   Taxes............................................................................................41
     4.10  Federal Regulations..............................................................................41
     4.11  ERISA............................................................................................41
     4.12  Investment Company Act; Other Regulations........................................................42
     4.13  Corporate Existence; Compliance with Laws........................................................42
     4.14  Accuracy of Information, etc.....................................................................42
     4.15  Insurance Regulatory Matters.....................................................................42
     4.16  Indebtedness and Liens...........................................................................42

SECTION 5   CONDITIONS PRECEDENT............................................................................43
     5.1   Conditions to Closing............................................................................43
     5.2   Conditions to Closing and Each Extension of Credit...............................................44

SECTION 6   AFFIRMATIVE COVENANTS...........................................................................44
     6.1   Financial Statements.............................................................................44
     6.2   Certificates; Other Information..................................................................46
     6.3   Payment of Obligations...........................................................................46
     6.4   Conduct of Business and Maintenance of Existence, etc............................................47
     6.5   Maintenance of Property; Insurance...............................................................47
     6.6   Inspection of Property; Books and Records; Discussions...........................................47
     6.7   Notices..........................................................................................48

SECTION 7   NEGATIVE COVENANTS..............................................................................49
     7.1   Financial Condition Covenants....................................................................49
     7.2   Limitation on Indebtedness and Issuance of Preferred Stock.......................................49
     7.3   Limitation on Liens..............................................................................50
     7.4   Limitation on Changes in Fiscal Periods..........................................................51
     7.5   Limitation on Lines of Business..................................................................51
     7.6   Certain Limitations..............................................................................51

SECTION 8   EVENTS OF DEFAULT...............................................................................51

SECTION 9   THE ADMINISTRATIVE AGENT........................................................................54
     9.1   Appointment......................................................................................54
     9.2   Delegation of Duties.............................................................................54
     9.3   Exculpatory Provisions...........................................................................54
     9.4   Reliance by Administrative Agent.................................................................55
     9.5   Notice of Default................................................................................55
     9.6   Non-Reliance on Administrative Agent and Other Lenders...........................................55
     9.7   Indemnification..................................................................................56
     9.8   Administrative Agent in Its Individual Capacity..................................................56
     9.9   Successor Administrative Agent...................................................................57
     9.10  Authorization to Release Liens and Guarantees....................................................57


                                       ii



                                                                                                         
     9.11  The Joint Lead Arrangers and the Syndication Agent...............................................57

SECTION 10  MISCELLANEOUS...................................................................................57
     10.1  Amendments and Waivers...........................................................................57
     10.2  Notices..........................................................................................59
     10.3  No Waiver; Cumulative Remedies...................................................................60
     10.4  Survival of Representations and Warranties.......................................................60
     10.5  Payment of Expenses..............................................................................60
     10.6  Successors and Assigns; Participations and Assignments...........................................62
     10.7  Adjustments; Set-off.............................................................................64
     10.8  Counterparts.....................................................................................65
     10.9  Severability.....................................................................................65
     10.10 Integration......................................................................................65
     10.11 GOVERNING LAW....................................................................................65
     10.12 Submission To Jurisdiction; Waivers..............................................................65
     10.13 Acknowledgments..................................................................................66
     10.14 Confidentiality..................................................................................66
     10.15 Release of Guarantee Obligations.................................................................67
     10.16 Accounting Changes...............................................................................67
     10.17 WAIVERS OF JURY TRIAL............................................................................68


                                       iii


SCHEDULES:


            
1              Commitment Schedule
4.4            Consents, Authorizations, Filings and Notices


EXHIBITS:


            
A              Form of Compliance Certificate
B              Form of Borrowing Request
C-1            Form of Revolving Credit Note
C-2            Form of Swing Line Note
D              Form of Exemption Certificate
E              Form of Closing Certificate
F              Form of Legal Opinion of Robert Seelig, Esq.
G              Form of Legal Opinion of Conyers Dill & Pearman
H              Assignment and Acceptance


                                       iv


     CREDIT AGREEMENT, dated as of September __, 2003, among (i) WHITE MOUNTAINS
INSURANCE GROUP, LTD. ("White Mountains"), a company existing under the laws of
Bermuda, (ii) FUND AMERICAN COMPANIES, INC., a Delaware corporation ("Fund
American", together with White Mountains, the "Borrowers"), (iii) the several
banks and other financial institutions or entities from time to time parties to
this Agreement (the "Lenders"), (iv) BANK ONE, NA, as syndication agent (the
"Syndication Agent") and (v) FLEET NATIONAL BANK, as administrative agent (in
such capacity, the "Administrative Agent").

SECTION 1 DEFINITIONS

          1.1 DEFINED TERMS. As used in this Agreement, the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.

               "ADMINISTRATIVE AGENT": as defined in the preamble hereto.

               "AFFILIATE": as to any Person, any other Person that, directly or
     indirectly, is in control of, is controlled by, or is under common control
     with, such Person. For purposes of this definition, "control" of a Person
     means the power, directly or indirectly, either to (a) vote 10% or more of
     the securities having ordinary voting power for the election of directors
     (or persons performing similar functions) of such Person or (b) direct or
     cause the direction of the management and policies of such Person, whether
     by contract or otherwise.

               "AGREEMENT": this Credit Agreement, as amended, supplemented or
     otherwise modified from time to time.

               "ANNUAL STATEMENT": the annual statutory financial statement of
     any Insurance Subsidiary required to be filed with the Department of its
     jurisdiction of incorporation or organization, which statement shall be in
     the form required by such Insurance Subsidiary's jurisdiction of
     incorporation or organization or, if no specific form is so required, in
     the form of financial statements permitted by such Department to be used
     for filing annual statutory financial statements and shall contain the type
     of information permitted or required by such Department to be disclosed
     therein, together with all exhibits or schedules filed therewith.

               "APPLICABLE MARGIN": the rate per annum set forth below which
     corresponds with the higher of (i) the most current senior unsecured debt
     rating issued by S&P and by Moody's (in the event of a rating split between
     S&P and Moody's, the higher rating shall apply, PROVIDED THAT if the S&P
     and Moody's ratings are split by two or more levels, the rating level that
     is one level above the lower rating shall apply) with respect to White
     Mountains and (ii) the most current senior unsecured debt rating issued by
     S&P and by Moody's (in the event of a rating split between S&P and Moody's,
     the higher rating shall apply, PROVIDED THAT if the S&P and Moody's ratings
     are split by two or more levels, the rating level that is one level above
     the lower rating shall apply) with respect to Fund American.



                                                                               2



  LEVEL        RATING                                    APPLICABLE MARGIN
  ----------   ---------------------------------------   -----------------
                                                   
  I            GREATER THAN OR EQUAL TO A-/A3            0.500%
  II           GREATER THAN OR EQUAL TO BBB+/Baa1        0.600%
  III          GREATER THAN OR EQUAL TO BBB/Baa2         0.675%
  IV           GREATER THAN OR EQUAL TO BBB-/Baa3        0.875%
  V            LESS THAN BBB-/Baa3                       1.000%


               Changes in the Applicable Margin shall become effective on the
     date on which S&P and/or Moody's changes such rating. In the event that
     only one of the Borrowers is rated by a rating agency, the Applicable
     Margin shall be tested only with respect to such Borrower. In the event
     that, at any time, neither of the Borrowers is rated by a rating agency,
     the Applicable Margin shall be as for Level V.

               "APPLICATION": an application, in such form as the Issuing Lender
     may specify from time to time, requesting the Issuing Lender to issue a
     Letter of Credit.

               "ASSIGNEE": as defined in Section 10.6(c).

               "ASSIGNOR": as defined in Section 10.6(c).

               "AVAILABLE REVOLVING CREDIT COMMITMENT": with respect to any
     Lender at any time, an amount equal to the excess, if any, of (a) such
     Lender's Revolving Credit Commitment then in effect OVER (b) such Lender's
     Revolving Extensions of Credit then outstanding.

               "BASE RATE": for any day, a rate of interest per annum (rounded
     upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a)
     the variable annual rate of interest so designated from time to time by
     Fleet National Bank as its "prime rate", such rate being a reference rate
     and not necessarily representing the lowest or best rate being charged to
     any customer, and (b) one-half of one percent (1/2%) above the Federal
     Funds Effective Rate. Changes in the Base Rate resulting from any changes
     in Fleet National Bank's "PRIME RATE" shall take place immediately without
     notice or demand of any kind.

               "BASE RATE LOANS": Loans for which the applicable rate of
     interest is based upon the Base Rate.

               "BENEFITTED LENDER": as defined in Section 10.7.

               "BERKSHIRE HATHAWAY": Berkshire Hathaway Inc., or an affiliate.

               "BERKSHIRE PREFERRED STOCK": the $300,000,000 aggregate
     liquidation preference amount of non-voting preferred stock issued by Fund
     American to Berkshire Hathaway pursuant to the Certificate of Designation,
     as amended, supplemented or otherwise modified from time to time.

               "BOARD": the Board of Governors of the Federal Reserve System of
     the United States (or any successor).



                                                                               3

               "BORROWERS": as defined in the preamble hereto.

               "BORROWING DATE": any Business Day specified by a Borrower as a
     date on which such Borrower requests the relevant Lenders to make Loans
     hereunder.

               "BORROWING REQUEST": as defined in Section 2.2 hereto.

               "BUSINESS DAY": means (i) with respect to any borrowing, payment
     or rate selection of Eurodollar Loans, a day (other than a Saturday or
     Sunday) on which banks generally are open in New York City for the conduct
     of substantially all of their commercial lending activities, interbank wire
     transfers can be made on the Fedwire system and dealings in Dollars are
     carried on in the London interbank market and (ii) for all other purposes,
     a day (other than a Saturday or Sunday) on which banks generally are open
     in New York for the conduct of substantially all of the commercial lending
     activities, and interbank wire transfers can be made on the Fedwire system.

               "CAPITAL LEASE OBLIGATIONS": with respect to any Person, the
     obligations of such Person to pay rent or other amounts under any lease of
     (or other arrangement conveying the right to use) real or personal
     property, or a combination thereof, which obligations are required to be
     classified and accounted for as capital leases on a balance sheet of such
     Person under GAAP; and, for the purposes of this Agreement, the amount of
     such obligations at any time shall be the capitalized amount thereof at
     such time determined in accordance with GAAP.

               "CAPITAL AND SURPLUS": as to any Insurance Subsidiary, as of any
     date, the total amount shown on line 35, page 3, column 1 of the Annual
     Statement of such Insurance Subsidiary, or an amount determined in a
     consistent manner for any date other than one as of which an Annual
     Statement is prepared (or any successor line, page or column that contains
     the same information).

               "CAPITAL STOCK": any and all shares, interests, participations or
     other equivalents (however designated) of capital stock or share capital of
     a corporation, any and all equivalent ownership interests in a Person
     (other than a corporation) and any and all warrants, rights or options to
     purchase any of the foregoing.

               "CERTIFICATE OF DESIGNATION": That certain Certificate of
     Designation of Series A Preferred Stock of TACK Acquisition Corp. (n/k/a
     Fund American), dated May 31, 2001.

               "CHANGE OF CONTROL": means (a) the acquisition of ownership,
     directly or indirectly, beneficially or of record, by any Person or group
     (within the meaning of the Securities Exchange Act of 1934 and the rules of
     the Securities and Exchange Commission thereunder as in effect on the date
     hereof), other than (i) Berkshire Hathaway, (ii) Franklin Mutual or (iii)
     John J. Byrne or any Related Person with respect to John J. Byrne (together
     with, in the case of clauses (i), (ii) and (iii), their Affiliates) of
     Capital Stock representing more than 30% of the aggregate ordinary voting
     power represented by the issued and outstanding Capital Stock of White
     Mountains, (b) the occupation, within a period of two years, of a majority
     of the seats (other than vacant



                                                                               4

     seats) on the board of directors of White Mountains by Persons who were
     neither (i) nominated by the board of directors of White Mountains nor (ii)
     appointed by directors so nominated or (c) neither Fund American nor, if
     applicable, its successors shall be a Subsidiary of White Mountains. For
     the avoidance of doubt, none of the Capital Stock held by the entities
     listed in clauses (a)(i), (a)(ii) and (a)(iii), nor the Capital Stock held
     by any of their Affiliates, shall be included when determining whether any
     Person or group has met the 30% threshold set forth in clause (a).

               "CLOSING DATE": September __, 2003.

               "CODE": the Internal Revenue Code of 1986, as amended from time
     to time.

               "COMMITMENT": with respect to any Lender, the Revolving Credit
     Commitment of such Lender.

               "COMMONLY CONTROLLED ENTITY": an entity, whether or not
     incorporated, that is under common control with the Borrowers within the
     meaning of Section 4001 (a) (14) of ERISA or that is treated as a single
     employer with the Borrowers under Section 414 of the Code.

               "COMPLIANCE CERTIFICATE": a certificate duly executed by a
     Responsible Officer of White Mountains substantially in the form of Exhibit
     A.

               "CONDITIONAL COMMON EQUITY": convertible preferred stock which
     will convert to common equity upon shareholder approval (provided that such
     shareholder approval is obtained within the period required by the terms
     thereof).

               "CONFIDENTIAL INFORMATION MEMORANDUM": the Confidential
     Information Memorandum furnished to the Lenders and dated August 2003.

               "CONSOLIDATED CAPITALIZATION": as at any date, the sum of (a)
     Consolidated Net Worth plus (b) Total Consolidated Debt plus (c) the
     amounts in respect of Trust Preferred Securities, Mandatory Convertible
     Securities, Mandatory Redeemable Securities and any other preferred stock
     that would, in conformity with GAAP, be reflected on a consolidated balance
     sheet of White Mountains and its consolidated Subsidiaries prepared as of
     such date and are not already included in (a) or (b) above.

               "CONSOLIDATED NET INCOME": for any period, the consolidated net
     income (or loss) of White Mountains and its consolidated Subsidiaries for
     such period, determined on a consolidated basis in accordance with GAAP;
     PROVIDED, that in calculating Consolidated Net Income for any period, there
     shall be excluded the income (or deficit) of any Person accrued prior to
     the date it becomes a Subsidiary of White Mountains or is merged into or
     consolidated with White Mountains or any of its Subsidiaries.

               "CONSOLIDATED NET WORTH": as at any date, the sum of all amounts
     that would, in conformity with GAAP, but excluding the effects of SFAS 115,
     be included on



                                                                               5

     a consolidated balance sheet of White Mountains and its consolidated
     Subsidiaries under stockholders' equity at such date, plus minority
     interests in Subsidiaries, as determined in accordance with GAAP.
     Consolidated Net Worth shall in any event include the amount of the
     Berkshire Preferred Stock so long as it is outstanding (such amount being
     the amount that would be reflected on a consolidated balance sheet of White
     Mountains and its consolidated Subsidiaries in accordance with GAAP).

               "CONTRACTUAL OBLIGATION": as to any Person, any provision of any
     security issued by such Person or of any agreement, instrument or other
     undertaking to which such Person is a party or by which it or any of its
     Property is bound.

               "DEBT": indebtedness for borrowed money.

               "DEFAULT": any of the events specified in Section 8, whether or
     not any requirement for the giving of notice, the lapse of time, or both,
     has been satisfied.

               "DEFAULTING LENDER": any Lender that defaults in its obligation
     to make any Loan hereunder, so long as such default is continuing.

               "DEMAND REQUIREMENT": as defined in Section 2.21(b) hereto.

               "DEPARTMENT": with respect to any Insurance Subsidiary, the
     insurance commissioner or other Governmental Authority of such Insurance
     Subsidiary's jurisdiction of domicile with which such Insurance Subsidiary
     is required to file its Annual Statement.

               "DOLLARS" and "$": lawful currency of the United States of
     America.

               "ERISA": the Employee Retirement Income Security Act of 1974, as
     amended from time to time.

               "EUROCURRENCY RESERVE REQUIREMENTS": for any day, the aggregate
     (without duplication) of the maximum rates (expressed as a decimal
     fraction) of reserve requirements in effect on such day (including, without
     limitation, basic, supplemental, marginal and emergency reserves) under any
     regulations of the Board or other Governmental Authority having
     jurisdiction with respect thereto dealing with reserve requirements
     prescribed for eurocurrency funding (currently referred to as Eurocurrency
     Liabilities" in Regulation D of the Board) maintained by a member bank of
     the Federal Reserve System.

               "EURODOLLAR RATE": with respect to each day during each Interest
     Period, the rate per annum determined on the basis of the rate for deposits
     in Dollars for a period equal to such Interest Period commencing on the
     first day of such Interest Period appearing on Page 3750 of the Telerate
     screen as of 11:00 A.M., London time, two Business Days prior to the
     beginning of such Interest Period. In the event that such rate does not
     appear on Page 3750 of the Telerate screen (or otherwise on such screen),
     the "EURODOLLAR RATE" for purposes of this definition shall be determined
     by reference to such



                                                                               6

     other comparable publicly available service for displaying eurodollar rates
     as may be selected by the Administrative Agent.

               "EURODOLLAR LOANS": Loans for which the applicable rate of
     interest is based upon the Eurodollar Rate.

               "EVENT OF DEFAULT": any of the events specified in Section 8,
     PROVIDED that any requirement for the giving of notice, the lapse of time,
     or both, has been satisfied.

               "FACILITY FEE RATE": the rate per annum set forth below which
     corresponds with the higher of (i) the most current senior unsecured debt
     rating issued by S&P and by Moody's (in the event of a rating split between
     S&P and Moody's, the higher rating shall apply, PROVIDED THAT if the S&P
     and Moody's ratings are split by two or more levels, the rating level that
     is one level above the lower rating shall apply) with respect to White
     Mountains and (ii) the most current senior unsecured debt rating issued by
     S&P and by Moody's (in the event of a rating split between S&P and Moody's,
     the higher rating shall apply, PROVIDED THAT if the S&P and Moody's ratings
     are split by two or more levels, the rating level that is one level above
     the lower rating shall apply) with respect to Fund American.



  LEVEL        RATING                                    FACILITY FEE
  ----------   ---------------------------------------   ----------------
                                                   
  I            GREATER THAN OR EQUAL TO A-/A3            0.125%
  II           GREATER THAN OR EQUAL TO BBB+/Baa1        0.150%
  III          GREATER THAN OR EQUAL TO BBB/Baa2         0.200%
  IV           GREATER THAN OR EQUAL TO BBB-/Baa3        0.250%
  V            LESS THAN BBB-/Baa3                       0.375%


               Changes in the Facility Fee Rate shall become effective on the
     date on which S&P and/or Moody's changes such rating. In the event that
     only one of the Borrowers is rated by a rating agency, the Facility Fee
     Rate shall be tested only with respect to such Borrower. In the event that,
     at any time, neither of the Borrowers is rated by a rating agency, the
     Facility Fee Rate shall be as for Level V.

               "FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average
     of the rates on overnight federal funds transactions with members of the
     Federal Reserve System arranged by federal funds brokers, as published on
     the next succeeding Business Day by the Federal Reserve Bank of New York,
     or, if such rate is not so published for any day which is a Business Day,
     the average of the quotations for the day of such transactions received by
     the Administrative Agent from three federal funds brokers of recognized
     standing selected by it.

               "FOLKSAMERICA": Folksamerica Reinsurance Company, a New York
     corporation.

               "FRANKLIN MUTUAL": any investment fund managed by Franklin Mutual
     Advisers LLC (or any successor thereto) or any of its Affiliates.



                                                                               7

               "FUND AMERICAN": as defined in the preamble hereto.

               "FUND AMERICAN GUARANTY": as defined in Section 2.21(b).

               "FUND AMERICAN GUARANTY LIMITATIONS": as defined in Section 4.4.

               "FUNDAMENTAL CHANGE": any of (a) White Mountains consolidating or
     amalgamating with or merging into any other Person, (b) White Mountains
     failing to preserve, renew and keep, in full force and effect, its
     corporate existence, (c) White Mountains, directly or indirectly through
     one or more of its Subsidiaries, conveying or transferring the properties
     and assets of White Mountains and its Subsidiaries (taken as a whole for
     White Mountains and its Subsidiaries) substantially as an entirety (other
     than to White Mountains or one or more of its Subsidiaries), or (d) White
     Mountains liquidating, winding up or dissolving itself, other than, in the
     case of clauses (a) through (d), any such transaction or transactions the
     sole purpose of which is to change the domicile of White Mountains (in any
     such redomiciliation (x) the surviving, amalgamated or transferee entity
     shall expressly assume, by an agreement reasonably satisfactory to the
     Administrative Agent, the obligations of White Mountains to be performed or
     observed hereunder and deliver to the Administrative Agent such corporate
     authority documents and legal opinions as the Administrative Agent shall
     reasonably request, (y) the surviving, amalgamated or transferee entity
     shall succeed to, and be substituted for, and may exercise every right and
     power of, White Mountains under this Agreement with the same effect as if
     such surviving, amalgamated or transferee entity had been named as White
     Mountains herein and (z) the surviving, amalgamated or transferee entity
     shall be organized under the laws of the United States of America, any
     state thereof, the District of Columbia or Bermuda).

               "FUNDING OFFICE": the office specified from time to time by the
     Administrative Agent as its funding office by notice to the Borrowers and
     the Lenders.

               "GAAP": generally accepted accounting principles in the United
     States of America as in effect from time to time, except that for purposes
     of Section 7.1, GAAP shall be determined on the basis of such principles in
     effect on the date hereof.

               "GOVERNMENTAL AUTHORITY": any nation or government, any state or
     other political subdivision thereof and any entity exercising executive,
     legislative, judicial, regulatory or administrative functions of or
     pertaining to government, and any corporation or other entity owned or
     controlled, through stock or capital ownership or otherwise, by any of the
     foregoing, including any board of insurance, insurance department or
     insurance commissioner.

               "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
     PERSON"), any obligation of (a) the guaranteeing person or (b) another
     Person (including, without limitation, any bank under any letter of credit)
     to induce the creation of which the guaranteeing person has issued a
     reimbursement, counterindemnity or similar obligation, in either case
     guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
     or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person
     (the "PRIMARY



                                                                               8

     OBLIGOR") in any manner, whether directly or indirectly, including, without
     limitation, any obligation of the guaranteeing person, whether or not
     contingent, (i) to purchase any such primary obligation or any Property
     constituting direct or indirect security therefor, (ii) to advance or
     supply funds (1) for the purchase or payment of any such primary obligation
     or (2) to maintain working capital or equity capital of the primary obligor
     or otherwise to maintain the net worth or solvency of the primary obligor,
     (iii) to purchase Property, securities or services primarily for the
     purpose of assuring the owner of any such primary obligation of the ability
     of the primary obligor to make payment of such primary obligation or (iv)
     otherwise to assure or hold harmless the owner of any such primary
     obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
     term Guarantee Obligation shall not include endorsements of instruments for
     deposit or collection in the ordinary course of business. The amount of any
     Guarantee Obligation of any guaranteeing person shall be deemed to be the
     lower of (a) an amount equal to the stated or determinable amount of the
     primary obligation in respect of which such Guarantee Obligation is made
     and (b) the maximum amount for which such guaranteeing person may be liable
     pursuant to the terms of the instrument embodying such Guarantee
     Obligation, unless such primary obligation and the maximum amount for which
     such guaranteeing person may be liable are not stated or determinable, in
     which case the amount of such Guarantee Obligation shall be such
     guaranteeing person's maximum reasonably anticipated liability in respect
     thereof as determined by White Mountains in good faith.

               "GUARANTOR": as defined in Section 2.21 hereto.

               "GUARANTY": as defined in Section 2.21 hereto.

               "HEDGE AGREEMENTS": all interest rate swaps, caps or collar
     agreements or similar arrangements entered into by the Borrowers or their
     Subsidiaries providing for protection against fluctuations in interest
     rates or currency exchange rates or otherwise providing for the exchange of
     nominal interest obligations, either generally or under specific
     contingencies.

               "INDEBTEDNESS": of any Person at any date, without duplication,
     (a) all indebtedness of such Person for borrowed money, (b) all obligations
     of such Person for the deferred purchase price of Property or services
     (other than trade payables incurred in the ordinary course of such Person's
     business), (c) all obligations of such Person evidenced by notes, bonds,
     debentures or other similar instruments, (d) all indebtedness created or
     arising under any conditional sale or other title retention agreement with
     respect to Property acquired by such Person (even though the rights and
     remedies of the seller or lender under such agreement in the event of
     default are limited to repossession or sale of such Property), (e) all
     Capital Lease Obligations of such Person, (f) all obligations of such
     Person, contingent or otherwise, as an account party or applicant under
     acceptance, letter of credit or similar facilities, (g) all obligations of
     such Person, contingent or otherwise, to purchase, redeem, retire or
     otherwise acquire for value any Capital Stock of such Person, (h) all
     Guarantee Obligations of such Person in respect of obligations of the kind
     referred to in clauses (a) through (g) above, (i) all obligations of the
     kind referred to in clauses (a) through (h) above secured by (or for which
     the holder



                                                                               9

     of such obligation has an existing right, contingent or otherwise, to be
     secured by) any Lien on Property (including, without limitation, accounts
     and contract rights) owned by such Person, whether or not such Person has
     assumed or become liable for the payment of such obligation and (j) for the
     purposes of Section 8(e) only, all obligations of such Person in respect of
     Hedge Agreements entered into in the ordinary course of business and not
     for speculative purposes. For the avoidance of doubt, Indebtedness shall
     include Surplus Debentures and shall in any event exclude the Berkshire
     Preferred Stock so long as it is outstanding.

               "INDEMNIFIED LIABILITIES": as defined in Section 10.5.

               "INDEMNITEE": as defined in Section 10.5.

               "INSOLVENCY": with respect to any Multiemployer Plan, the
     condition that such Plan is insolvent within the meaning of Section 4245 of
     ERISA.

               "INSOLVENT": pertaining to a condition of Insolvency.

               "INSURANCE REGULATIONS": any law, regulation, rule, directive or
     order applicable to an insurance company.

               "INSURANCE REGULATOR": any Person charged with the
     administration, oversight or enforcement of any Insurance Regulation.

               "INSURANCE SUBSIDIARY": any Subsidiary which is required to be
     licensed by any Department as an insurer or reinsurer and each direct or
     indirect Subsidiary of such Subsidiary.

               "INTELLECTUAL PROPERTY": the collective reference to all rights,
     priorities and privileges relating to intellectual property, whether
     arising under United States, multinational or foreign laws or otherwise,
     including, without limitation, copyrights, copyright licenses, patents,
     patent licenses, trademarks, trademark licenses, technology, know-how and
     processes, and all rights to sue at law or in equity for any infringement
     or other impairment thereof, including the right to receive all proceeds
     and damages therefrom.

               "INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the first
     day of each January, April, July and October to occur while such Loan is
     outstanding and the final maturity date of such Loan, (b) as to any
     Eurodollar Loan having an Interest Period of three months or shorter, the
     last day of such Interest Period, (c) as to any Eurodollar Loan having an
     Interest Period longer than three months, each day that is three months, or
     a whole multiple thereof, after the first day of such Interest Period and
     the last day of such Interest Period and (d) as to any Loan, the date of
     any repayment or prepayment made in respect thereof.

               "INTEREST PERIOD": as to any Eurodollar Loan, (a) initially, the
     period commencing on the borrowing or conversion date, as the case may be,
     with respect to such Eurodollar Loan and ending one, two, three or six
     months (or, unless unavailable to



                                                                              10

     any Lender, twelve months) thereafter, as selected by the relevant Borrower
     in its notice of borrowing or notice of conversion, as the case may be,
     given with respect thereto; and (b) thereafter, each period commencing on
     the last day of the next preceding Interest Period applicable to such
     Eurodollar Loan and ending one, two, three or six months (or, unless
     unavailable to any Lender, twelve months) thereafter, as selected by the
     relevant Borrower by irrevocable notice to the Administrative Agent not
     less than three Business Days prior to the last day of the then current
     Interest Period with respect thereto; PROVIDED that, all of the foregoing
     provisions relating to Interest Periods are subject to the following:

                 (i) if any Interest Period would otherwise end on a day that is
          not a Business Day, such Interest Period shall be extended to the next
          succeeding Business Day unless the result of such extension would be
          to carry such Interest Period into another calendar month in which
          event such Interest Period shall end on the immediately preceding
          Business Day;

                 (ii) any Interest Period in respect of the Loans that would
          otherwise extend beyond the Revolving Credit Termination Date shall
          end on the Revolving Credit Termination Date, and

                 (iii) any Interest Period that begins on the last Business Day
          of a calendar month (or on a day for which there is no numerically
          corresponding day in the calendar month at the end of such Interest
          Period) shall end on the last Business Day of the calendar month at
          the end of such Interest Period.

               "ISSUING LENDER": Fleet National Bank and any other Revolving
     Credit Lender from time to time designated by the Borrower as an Issuing
     Lender, with the consent of such Revolving Credit Lender and the
     Administrative Agent.

               "JOINT LEAD ARRANGERS": Fleet Securities, Inc. and Bank One
     Capital Markets, Inc.

               "L/C COMMITMENT": $50,000,000, as the same may be reduced from
     time to time pursuant to Section 2.7.

               "L/C FEE PAYMENT DATE": the first day of each January, April,
     July and October and the last day of the Revolving Credit Commitment
     Period.

               "L/C OBLIGATIONS": at any time, an amount equal to the sum of (a)
     the aggregate then undrawn and unexpired amount of the then outstanding
     Letters of Credit and (b) the aggregate amount of drawings under Letters of
     Credit that have not then been reimbursed pursuant to Section 3.5.

               "L/C PARTICIPANTS": with respect to any Letter of Credit, the
     collective reference to all the Lenders other than the Issuing Lender that
     issued such Letter of Credit.

               "LENDERS": as defined in the preamble hereto.



                                                                              11

               "LETTERS OF CREDIT": as defined in Section 3.1(a).

               "LICENSE": any license, certificate of authority, permit or other
     authorization which is required to be obtained from any Governmental
     Authority in connection with the operation, ownership or transaction of
     insurance or reinsurance business.

               "LIEN": any mortgage, pledge, security interest, encumbrance,
     charge or security interest of any kind.

               "LOAN": any loan made by any Lender pursuant to this Agreement,
     including any Swing Line Loan made by the Swing Line Lender.

               "LOAN DOCUMENTS": this Agreement, the Applications and the Notes.

               "MAJORITY LENDERS": the holders of more than 50% of the Total
     Revolving Extensions of Credit (or, if no such Revolving Extensions of
     Credit are outstanding, prior to any termination of the Revolving Credit
     Commitments, the holders of more than 50% of the Total Revolving Credit
     Commitments). The Total Revolving Credit Commitments in effect (or, when
     applicable, Total Revolving Extensions of Credit outstanding) of any
     Defaulting Lender shall be excluded for purposes of any vote of Majority
     Lenders.

               "MANDATORY CONVERTIBLE SECURITIES": equity securities or
     subordinated debt securities (which debt securities, if issued by a
     Borrower, will include subordination to the obligations of such Borrower
     hereunder), issued by White Mountains or one of its Subsidiaries which (i)
     are not (w) Mandatory Redeemable Securities or (x) Conditional Common
     Equity and (ii) provide, pursuant to the terms thereof, that the issuer of
     such securities (or an affiliate of such issuer) may cause (without the
     payment of additional cash consideration by the issuer thereof) the
     conversion of such securities to equity securities of White Mountains or
     one of its Subsidiaries upon the occurrence of a certain date or of certain
     events.

               "MANDATORY REDEEMABLE SECURITIES": debt or equity securities
     (other than Conditional Common Equity, so long as such Conditional Common
     Equity may not be required, by the holder thereof, to be repurchased or
     redeemed during the period provided for shareholder approval of conversion
     pursuant to the terms of such Conditional Common Equity) issued by White
     Mountains or one of its Subsidiaries which provide, pursuant to the terms
     thereof, that such securities must be repurchased or redeemed, or the
     holder of such securities may require the issuer of such securities to
     repurchase or redeem such securities, upon the occurrence of a certain date
     or of certain events.

               "MATERIAL ADVERSE EFFECT": a material adverse effect on (i) the
     business, assets, property or financial condition of the Borrowers and
     their Subsidiaries taken as a whole, or (ii) the validity or enforceability
     of this Agreement or any of the other Loan Documents or the rights and
     remedies of the Administrative Agent and the Lenders hereunder or
     thereunder.



                                                                              12

               "MATERIAL INSURANCE SUBSIDIARY": OneBeacon, Folksamerica and any
     new Insurance Subsidiary acquired or formed after the Closing Date having
     Capital and Surplus of $250,000,000 or more.

               "MOODY'S": Moody's Investors Service, Inc. (or any successor
     thereto).

               "MULTIEMPLOYER PLAN": a Plan that is a multiemployer plan as
     defined in Section 4001(a)(3) of ERISA.

               "NAIC": the National Association of Insurance Commissioners or
     any successor thereto, or in the absence of the National Association of
     Insurance Commissioners or such successor, any other association, agency or
     other organization performing advisory, coordination or other like
     functions among insurance departments, insurance commissioners and similar
     Governmental Authorities of the various states of the United States towards
     the promotion of uniformity in the practices of such Governmental
     Authorities.

               "NON-EXCLUDED TAXES": as defined in Section 2.16(a).

               "NON-U.S. LENDER": as defined in Section 2.16(d).

               "NOTE": any promissory note evidencing any Loan.

               "ONEBEACON": OneBeacon Insurance Company, a Pennsylvania
     corporation.

               "ONEBEACON INSURANCE GROUP": OneBeacon Insurance Group LLC, a
     Delaware limited liability company and, for purposes of Section 6.1(b), the
     grouping of Subsidiaries of OneBeacon Insurance Group identified by NAIC
     Group Code 1129 (or any successor grouping equivalent thereto).

               "OTHER TAXES": any and all present or future stamp or documentary
     taxes or any other excise or property taxes, charges or similar levies
     arising from any payment made hereunder or from the execution, delivery or
     enforcement of, or otherwise with respect to, this Agreement or any other
     Loan Document.

               "PARTICIPANT": as defined in Section 10.6(b).

               "PAYMENT OFFICE": the office specified from time to time by the
     Administrative Agent as its payment office by notice to the Borrowers and
     the Lenders.

               "PBGC": the Pension Benefit Guaranty Corporation established
     pursuant to Subtitle A of Title IV of ERISA (or any successor).

               "PERMITTED LIENS": (i) any Lien upon Property to secure any part
     of the cost of development, construction, alteration, repair or improvement
     of such Property, or Debt incurred to finance such cost; (ii) any
     extension, renewal or replacement, in whole or in part, of any Lien
     referred to in the foregoing clause (i); (iii) any Lien relating to a



                                                                              13

     sale and leaseback transaction; (iv) any Lien in favor of a Borrower or any
     Subsidiary granted by a Borrower or any Subsidiary in order to secure any
     intercompany obligations; (v) mechanic's, materialmen's, carriers' or other
     like Liens arising in the ordinary course of business (including
     construction of facilities) in respect of obligations which are not due or
     which are being contested in good faith: (vi) any Lien arising in
     connection with any legal proceeding which is being contested; (vii) Liens
     for taxes not yet subject to penalties for non-payment or which are being
     contested in good faith by appropriate proceedings; (viii) minor survey
     exceptions, minor encumbrances, easements or reservations of, or rights of
     others for, licenses, rights-of-way, sewers, electric lines, telegraph and
     telephone lines and other similar purposes, or zoning or other restrictions
     as to the use of real property or Liens incidental to the conduct of the
     business of such Person or to the ownership of its properties which were
     not incurred in connection with Debt and which do not in the aggregate
     materially adversely affect the value of said properties or materially
     impair their use in the operation of the business of such Person; (ix)
     pledges or deposits under workers' compensation laws, unemployment
     insurance laws or similar social security legislation; (x) any deposit to
     secure performance of letters of credit, bids, leases, statutory
     obligations, surety and appeal bonds, performance bonds or other
     obligations of a like nature in the ordinary course of business; (xi) any
     interest or title of a lessor under any lease entered into in the ordinary
     course of business; (xii) Liens on assets of any Subsidiary which is
     required to be licensed as an insurer or reinsurer (or any Subsidiary of
     such Subsidiary) securing (a) Debt of any such Subsidiary to any other such
     Subsidiary, (b) short-term Debt incurred to provide short-term liquidity to
     facilitate claims payments in the event of catastrophe, (c) Debt incurred
     in the ordinary course of its business or in securing insurance-related
     obligations (that do not constitute Debt) and letters of credit issued for
     the account of any such Subsidiary in the ordinary course of its business
     or in securing insurance-related obligations (that do not constitute Debt)
     or (d) insurance-related obligations (that do not constitute Debt); and
     (xiii) Liens securing the obligations hereunder.

               "PERSON": an individual, partnership, corporation, limited
     liability company, business trust, joint stock company, trust,
     unincorporated association, joint venture, Governmental Authority or other
     entity of whatever nature.

               "PLAN": at a particular time, any employee pension benefit plan
     that is subject to the provisions of Title IV of ERISA or Section 412 of
     the Code or Section 302 of ERISA, and in respect of which either of the
     Borrowers or a Commonly Controlled Entity is (or, if such plan were
     terminated at such time, would under Section 4069 of ERISA be deemed to be)
     an "employer" as defined in Section 3(5) of ERISA.

               "PRINCIPAL BUSINESS": means (a) a business of the type engaged in
     by the Borrowers and their Subsidiaries on the date of the Agreement, (b)
     any other insurance, insurance services or insurance related business and
     (c) any business reasonably incident to any of the foregoing.

               "PROPERTY": any property of any kind whatsoever, whether real,
     personal or mixed and whether tangible or intangible.



                                                                              14

               "QUALIFIED MANDATORY REDEEMABLE SECURITIES": Mandatory Redeemable
     Securities that, pursuant to the terms thereof, must be redeemed or
     repurchased, or may be required to be redeemed or repurchased at the option
     of the holder of such securities (other than upon the occurrence of one or
     more events or conditions other than the occurrence of a certain date), not
     sooner than the Revolving Credit Termination Date.

               "QUARTERLY STATEMENT": the quarterly statutory financial
     statement of any Insurance Subsidiary required to be filed with the
     Department of its jurisdiction of incorporation, which statement shall be
     in the form required by such Insurance Subsidiary's jurisdiction of
     incorporation or, if no specific form is so required, in the form of
     financial statements permitted by such Department to be used for filing
     quarterly statutory financial statements and shall contain the type of
     information permitted or required by such Department to be disclosed
     therein, together with all exhibits or schedules filed therewith.

               "REFUNDED SWING LINE LOANS": as defined in Section 2.4.

               "REFUNDING DATE": as defined in Section 2.4.

               "REGISTER": as defined in Section 10.6(d).

               "REGULATION U": Regulation U of the Board as in effect from time
     to time.

               "REIMBURSEMENT OBLIGATION": the obligation of the Borrowers to
     reimburse an Issuing Lender pursuant to Section 3.5 for amounts drawn under
     Letters of Credit issued by such Issuing Lender for the account of the
     Borrowers.

               "RELATED FUND": with respect to any Lender that is a fund that
     invests in commercial loans, any other fund that invests in commercial
     loans and is managed or advised by the same investment advisor as such
     Lender or by an Affiliate of such investment advisor.

               "RELATED PERSONS": means, with respect to any Person:

               (1) any Affiliate of such Person;

               (2) the spouse, former spouse, lineal descendants, heirs,
     executors, administrators, testamentary trustees, legatees or beneficiaries
     of any such Person;

               (3) a trust, the beneficiaries of which, or a corporation or
     partnership or limited liability company, the stockholders, general or
     limited partners or members of which, include only such Person or his or
     her spouse, former spouse, lineal descendants or heirs; and

               (4) any investment fund or investment entity that is a subsidiary
     of or managed by such Person or a Related Person of such Person.



                                                                              15

               "REORGANIZATION": with respect to any Multiemployer Plan, the
     condition that such plan is in reorganization within the meaning of Section
     4241 of ERISA.

               "REPORTABLE EVENT": any of the events set forth in Section
     4043(c) of ERISA, other than those events as to which the thirty day notice
     period is waived.

               "REQUIREMENT OF LAW": as to any Person, the Certificate of
     Incorporation and By-Laws or other organizational or governing documents of
     such Person (excluding, in the case of Section 2.15(a)(i), any of the
     foregoing relating to the Administrative Agent or any Lender), and any law,
     treaty, rule or regulation or determination of an arbitrator or a court or
     other Governmental Authority, in each case applicable to or binding upon
     such Person or any of its Property or to which such Person or any of its
     Property is subject.

               "RESPONSIBLE OFFICER": as to any Borrower or Insurance Subsidiary
     the chief executive officer, president, chief financial officer, treasurer,
     chief accounting officer, any vice president or any managing director of
     such Borrower or any Insurance Subsidiary, as the context requires.

               "REVOLVING CREDIT COMMITMENT": as to any Lender, the obligation
     of such Lender, if any, to make Revolving Credit Loans and participate in
     Swing Line Loans and Letters of Credit, in an aggregate principal or face
     amount not to exceed the amount set forth under the heading "Revolving
     Credit Commitment" opposite such Lender's name on Schedule 1 to this
     Agreement, or, as the case may be, in the Assignment and Acceptance
     pursuant to which such Lender became a party hereto, as the same may be
     changed from time to time pursuant to the terms hereof. The aggregate
     amount of the Total Revolving Credit Commitments on the date of this
     Agreement is $300,000,000, subject to decreases pursuant to Section 2.7.

               "REVOLVING CREDIT COMMITMENT PERIOD": the period from and
     including the Closing Date to the Revolving Credit Termination Date.

               "REVOLVING CREDIT LOANS": as defined in Section 2.1.

               "REVOLVING CREDIT PERCENTAGE": as to any Lender at any time, the
     percentage which such Lender's Revolving Credit Commitment then constitutes
     of the Total Revolving Credit Commitments (or, at any time after the
     Revolving Credit Commitments shall have expired or terminated, the
     percentage which the aggregate amount of such Lender's Revolving Extensions
     of Credit then outstanding constitutes of the amount of the Total Revolving
     Extensions of Credit then outstanding).

               "REVOLVING CREDIT TERMINATION DATE": September __, 2006.

               "REVOLVING EXTENSIONS OF CREDIT": as to any Lender at any time,
     an amount equal to the sum of (a) the aggregate principal amount of all
     Revolving Credit Loans made by such Lender then outstanding, (b) the
     principal amount equal to such Lender's Revolving Credit Percentage of the
     L/C Obligations then outstanding and (c) the principal amount equal to such
     Lender's Revolving Credit Percentage of the aggregate principal amount of
     Swing Line Loans then outstanding.



                                                                              16

               "S&P": Standard & Poor's Rating Services (or any successor
     thereto).

               "SAP": with respect to any Insurance Subsidiary, the statutory
     accounting practices prescribed or permitted by the Department in the
     jurisdiction of such Insurance Subsidiary for the preparation of annual
     statements and other financial reports by insurance companies of the same
     type as such Insurance Subsidiary, which are applicable to the
     circumstances as of the date of determination.

               "SEC": the Securities and Exchange Commission (or successors
     thereto or an analogous Governmental Authority).

               "SFAS": Statements of Financial Accounting Standards adopted by
     the Financial Accounting Standards Board.

               "SINGLE EMPLOYER PLAN": any Plan that is covered by Title IV of
     ERISA, but which is not a Multiemployer Plan.

               "SUBSIDIARY": of a Person means (a) any corporation more than 50%
     of the outstanding securities having ordinary voting power of which shall
     at the time be owned or controlled, directly or indirectly, by such Person
     or by one or more of its Subsidiaries or by such Person and one or more of
     its Subsidiaries, or (b) any partnership, limited liability company,
     association, joint venture or similar business organization more than 50%
     of the ownership interests having ordinary voting power of which shall at
     the time be so owned or controlled. Unless otherwise expressly provided,
     all references herein to a "Subsidiary" shall mean a Subsidiary of White
     Mountains.

               "SURPLUS DEBENTURES": as to any Insurance Subsidiary, debt
     securities of such Insurance Subsidiary the proceeds of which are permitted
     to be included, in whole or in part, as Capital and Surplus of such
     Insurance Subsidiary as approved and permitted by the applicable
     Department.

               "SWING LINE COMMITMENT": the obligation of the Swing Line Lender
     to make Swing Line Loans pursuant to Section 2.4 in an aggregate principal
     amount at any one time outstanding not to exceed $10,000,000.

               "SWING LINE LENDER": Fleet National Bank, in its capacity as the
     Lender of Swing Line Loans.

               "SWING LINE LOANS": as defined in Section 2.3.

               "SWING LINE PARTICIPATION AMOUNT": as defined in Section 2.4(c).

               "SYNDICATION AGENT": as defined in the preamble hereto.

               "TOTAL CONSOLIDATED DEBT": at any date, the sum, without
     duplication, of (a) all amounts that would, in conformity with GAAP, be
     reflected and classified as debt on a consolidated balance sheet of White
     Mountains and its consolidated Subsidaries prepared as of such date, (b)
     Indebtedness represented by (i) Trust Preferred Securities or



                                                                              17

     Qualified Mandatory Redeemable Securities but only to the extent that such
     securities (other than Mandatory Convertible Securities) exceed 15% of
     Consolidated Capitalization or (ii) Mandatory Redeemable Securities other
     than Qualified Mandatory Redeemable Securities and (c) Indebtedness
     represented by Mandatory Convertible Securities but only to the extent that
     such Mandatory Convertible Securities plus Trust Preferred Securities and
     Qualified Mandatory Redeemable Securities exceed 25% of Consolidated
     Capitalization, provided, that in the event that the notes related to the
     Mandatory Convertible Securities remain outstanding following the exercise
     of forward purchase contracts related to such Mandatory Convertible
     Securities, then such outstanding notes will be included in Total
     Consolidated Debt thereafter. Total Consolidated Debt shall not, in any
     event, include (a) Hedge Agreements entered into in the ordinary course of
     business for non-speculative purposes, (b) Indebtedness of the type
     described in Sections 7.2(b) and (c), (c) Conditional Common Equity (d) any
     amounts in respect of Berskshire Preferred Stock, or (e) any other amounts
     in respect of Trust Preferred Securities, Mandatory Redeemable Securities
     or Mandatory Convertible Securities.

               "TOTAL REVOLVING CREDIT COMMITMENTS": at any time, the aggregate
     amount of the Revolving Credit Commitments then in effect.

               "TOTAL REVOLVING EXTENSIONS OF CREDIT": at any time, the
     aggregate amount of the Revolving Extensions of Credit of the Lenders
     outstanding at such time.

               "TRANSFEREE": as defined in Section 10.14.

               "TRUST PREFERRED SECURITIES": preferred securities issued by a
     special purpose entity, the proceeds of which are used to purchase
     subordinated debt securities of White Mountains or one of its Subsidiaries
     having terms that substantially mirror those of such preferred securities
     issued by the special purpose entity such that the debt securities
     constitute credit support for obligations in respect of such preferred
     securities and such preferred securities are reflected on a consolidated
     balance sheet of White Mountains and its consolidated Subsidiaries in
     accordance with GAAP.

               "TYPE": as to any Loan, its nature as a Base Rate Loan or a
     Eurodollar Loan.

               "UCC": as defined in Section 3.6.

               "UCP": as defined in Section 3.6.

               "UTILIZATION FEE RATE": the rate per annum set forth below which
     corresponds with the higher of (i) the most current senior unsecured debt
     rating issued by S&P and by Moody's (in the event of a rating split between
     S&P and Moody's, the higher rating shall apply, PROVIDED THAT if the S&P
     and Moody's ratings are split by two or more levels, the rating level that
     is one level above the lower rating shall apply) with respect to White
     Mountains and (ii) the most current senior unsecured debt rating issued by
     S&P and by Moody's (in the event of a rating split between S&P and Moody's,
     the higher rating shall apply, PROVIDED THAT if the S&P and Moody's ratings
     are split by two



                                                                              18

     or more levels, the rating level that is one level above the lower rating
     shall apply) with respect to Fund American.



          LEVEL        RATING                                    UTILIZATION FEE
          ----------   ---------------------------------------   ---------------
                                                           
          I            GREATER THAN OR EQUAL TO A-/A3            0.125%
          II           GREATER THAN OR EQUAL TO BBB+/Baa1        0.125%
          III          GREATER THAN OR EQUAL TO BBB/Baa2         0.250%
          IV           GREATER THAN OR EQUAL TO BBB-/Baa3        0.250%
          V            LESS THAN BBB-/Baa3                       0.250%


               Changes in the Utilization Fee Rate shall become effective on the
     date on which S&P and/or Moody's changes such rating. In the event that
     only one of the Borrowers is rated by a rating agency, the Utilization Fee
     Rate shall be tested only with respect to such Borrower. In the event that,
     at any time, neither of the Borrowers is rated by a rating agency, the
     Utilization Fee Rate shall be as for Level V.

               "WHITE MOUNTAINS": as defined in the preamble hereto.

               "WHITE MOUNTAINS GUARANTY": as defined in Section 2.21(a).

               "WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person all
     of the Capital Stock of which (other than directors' qualifying shares
     required by law) is owned by such Person directly and/or through other
     Wholly Owned Subsidiaries.

          1.2 OTHER DEFINITIONAL PROVISIONS. Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in
the other Loan Documents or any certificate or other document made or delivered
pursuant hereto or thereto.

          (a) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrowers or their Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP or SAP,
as the case may be.

          (b) References herein to particular pages, columns, lines or sections
of any Person's Annual Statement shall be deemed, where appropriate, to be
references to the corresponding page, column, line or section of such Person's
Quarterly Statement, or if no such corresponding page, column, line or section
exists or if any report form changes, then to the corresponding item referenced
thereby.

          (c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.

          (d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.



                                                                              19

          (e) The word "or" is not exclusive and the words "include", "includes"
or "including" shall be deemed to be followed by the phrase "without
limitation".

          (f) References to "preferred stock" includes Capital Stock designated
as preferred stock, preference shares, preferred shares or any similar term.

SECTION 2 AMOUNT AND TERMS OF COMMITMENTS

          2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, the Lenders severally agree to make revolving credit loans
("REVOLVING CREDIT LOANS") to each Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any one
time outstanding for each Lender which, when added to such Lender's Revolving
Credit Percentage of the sum of (i) the L/C Obligations then outstanding and
(ii) the aggregate principal amount of the Swing Line Loans then outstanding,
does not exceed the amount of such Lender's Revolving Credit Commitment. During
the Revolving Credit Commitment Period each Borrower may use the Revolving
Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole
or in part, and reborrowing, all in accordance with the terms and conditions
hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or
Base Rate Loans, as determined by the applicable Borrower and notified to the
Administrative Agent in accordance with Sections 2.2 and 2.9, provided that no
Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is
one month prior to the Revolving Credit Termination Date.

          (b) Each Borrower shall repay all outstanding Revolving Credit Loans
made to such Borrower on the Revolving Credit Termination Date.

          2.2. PROCEDURE FOR REVOLVING CREDIT BORROWING. A Borrower may borrow
under the Revolving Credit Commitments on any Business Day during the Revolving
Credit Commitment Period, provided that such Borrowers shall give the
Administrative Agent a borrowing request in the form of Exhibit B hereto
(hereinafter, a "Borrowing Request") (which Borrowing Request must be received
by the Administrative Agent prior to 11:00 A.M., New York City time, (a) three
Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Loans, or (b) one Business Day prior to the requested Borrowing Date, in the
case of Base Rate Loans), and must specify (i) the amount and Type of Revolving
Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the
case of Eurodollar Loans, the length of the initial Interest Period therefor.
Each borrowing of Revolving Credit Loans under the Revolving Credit Commitments
shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or
a whole multiple thereof (or, if the then aggregate Available Revolving Credit
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof; provided, that the Swing Line Lender may request, on behalf of any
Borrower, borrowings of Base Rate Loans under the Revolving Credit Commitments
in other amounts pursuant to Section 2.4. Upon receipt of any such notice from a
Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make its Revolving Credit Percentage of the amount of each
borrowing of Revolving Credit Loans available to the Administrative Agent for
the account of such Borrower at the Funding Office prior to 12:00 Noon, New York
City time, on the



                                                                              20

Borrowing Date requested by such Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to such
Borrower by the Administrative Agent in like funds as received by the
Administrative Agent.

          2.3 SWING LINE COMMITMENT. (a) Subject to the terms and conditions
hereof, the Swing Line Lender agrees that, during the Revolving Credit
Commitment Period, it will make available to the Borrowers in the form of swing
line loans ("SWING LINE LOANS") a portion of the credit otherwise available to
the Borrowers under the Revolving Credit Commitments; PROVIDED that (i) the
aggregate principal amount of Swing Line Loans outstanding at any time shall not
exceed the Swing Line Commitment then in effect (notwithstanding that the Swing
Line Loans outstanding at any time, when aggregated with the Swing Line Lender's
other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line
Commitment then in effect or such Swing Line Lender's Revolving Credit
Commitment then in effect) and (ii) the Borrowers shall not request, and the
Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to
the making of such Swing Line Loan, the aggregate amount of the Available
Revolving Credit Commitments would be less than zero. During the Revolving
Credit Commitment Period, the Borrowers may use the Swing Line Commitment by
borrowing, repaying and reborrowing, all in accordance with the terms and
conditions hereof. Swing Line Loans shall be Base Rate Loans only.

          (b) The Borrowers shall repay all outstanding Swing Line Loans on the
Revolving Credit Termination Date. Each payment in respect of Swing Line Loans
shall be made to the Swing Line Lender.

          2.4 PROCEDURE FOR SWING LINE BORROWING; REFUNDING OF SWING LINE LOANS.
(a) A Borrower may borrow under the Swing Line Commitment on any Business Day
during the Revolving Credit Commitment Period, PROVIDED, such Borrower shall
give the Swing Line Lender irrevocable telephonic notice confirmed promptly in
writing (which telephonic notice must be received by the Swing Line Lender not
later than 1:00 P.M., New York City time, on the proposed Borrowing Date),
specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date.
Each borrowing under the Swing Line Commitment shall be in an amount equal to
$500,000 or a whole multiple of $100,000 in excess thereof. Not later than 3:00
P.M., New York City time, on the Borrowing Date specified in the borrowing
notice in respect of any Swing Line Loan, the Swing Line Lender shall make
available to the Administrative Agent at the Funding Office an amount in
immediately available funds equal to the amount of such Swing Line Loan. The
Administrative Agent shall make the proceeds of such Swing Line Loan available
to such Borrower on such Borrowing Date in like funds as received by the
Administrative Agent.

          (b) The Swing Line Lender, at any time and from time to time in its
sole and absolute discretion may, on behalf of a Borrower (which hereby
irrevocably directs the Swing Line Lender to act on its behalf), on one Business
Day's notice given by the Swing Line Lender no later than 12:00 Noon, New York
City time, request each Lender to make, and each Lender hereby agrees to make, a
Revolving Credit Loan, in an amount equal to such Lender's Revolving Credit
Percentage of the aggregate amount of the Swing Line Loans (the "REFUNDED SWING
LINE LOANS") outstanding on the date of such notice, to repay the Swing Line
Lender. Each Lender shall make the amount of such Revolving Credit Loan
available to the Administrative Agent at



                                                                              21

the Funding Office in immediately available funds, not later than 10:00 A.M.,
New York City time, one Business Day after the date of such notice. The proceeds
of such Revolving Credit Loans shall be made immediately available by the
Administrative Agent to the Swing Line Lender for application by the Swing Line
Lender to the repayment of the Refunded Swing Line Loans. Upon the written
request of any Lender, the Administrative Agent will, within three Business Days
of such request, inform such Lender of the aggregate amount of Swing Line Loans
outstanding on the date of such request.

          (c) If prior to the time a Revolving Credit Loan would have otherwise
been made pursuant to Section 2.4(b), one of the events described in Section
8(f) shall have occurred and be continuing with respect to the Borrowers, or if
for any other reason, as determined by the Swing Line Lender in its sole
discretion, Revolving Credit Loans may not be made as contemplated by Section
2.4(b), each Lender shall, on the date such Revolving Credit Loan was to have
been made pursuant to the notice referred to in Section 2.4(b) (the "REFUNDING
DATE"), purchase for cash an undivided participating interest in the then
outstanding Swing Line Loans by paying to the Swing Line Lender an amount (the
"SWING LINE PARTICIPATION AMOUNT") equal to (i) such Lender's Revolving Credit
Percentage TIMES (ii) the sum of the aggregate principal amount of Swing Line
Loans then outstanding which were to have been repaid with such Revolving Credit
Loans.

          (d) Whenever, at any time after the Swing Line Lender has received
from any Lender such Lender's Swing Line Participation Amount, the Swing Line
Lender receives any payment on account of the Swing Line Loans, the Swing Line
Lender will distribute to such Lender its Swing Line Participation Amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such
Lender's PRO RATA portion of such payment if such payment is not sufficient to
pay the principal of and interest on all Swing Line Loans then due); PROVIDED,
HOWEVER, that in the event that such payment received by the Swing Line Lender
is required to be returned, such Lender will return to the Swing Line Lender any
portion thereof previously distributed to it by the Swing Line Lender.

          (e) Each Lender's obligation to make the Loans referred to in Section
2.4(b) and to purchase participating interests pursuant to Section 2.4(c) shall
be absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right which such Lender or the Borrowers may have against the Swing
Line Lender, the Borrowers or any other Person for any reason whatsoever; (ii)
the occurrence or continuance of a Default or an Event of Default or the failure
to satisfy any of the other conditions specified in Section 5; (iii) any adverse
change in the condition (financial or otherwise) of the Borrowers; (iv) any
breach of this Agreement or any other Loan Document by the Borrowers or any
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.

          2.5 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Each of the Borrowers
hereby unconditionally promise to pay to the Administrative Agent for the
account of the appropriate Lender (i) the then unpaid principal amount on the
Revolving Credit Termination Date (or on such earlier date on which the Loans
become due and payable pursuant to Section 8) of each Revolving Credit Loan of
such Lender made to such Borrower and (ii) the then unpaid principal



                                                                              22

amount on the Revolving Credit Termination Date (or on such earlier date on
which the Loans become due and payable pursuant to Section 8) of each Swing Line
Loan of such Swing Line Lender made to such Borrower. Each of the Borrowers
hereby further agrees to pay interest to the Administrative Agent for the
account of the appropriate Lender on the unpaid principal amount of the Loans
made to it from time to time outstanding from the date hereof until payment in
full thereof at the rates per annum, and on the dates, set forth in Section
2.11.

          (b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of each Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.

          (c) The Administrative Agent, on behalf of each Borrower, shall
maintain the Register pursuant to Section 10.6(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan to such
Borrower made hereunder and any Note evidencing such Loan, the Type of such Loan
and each Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from such Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from or for the account of such Borrower and each
Lender's share thereof.

          (d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.5(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of each Borrower therein recorded; PROVIDED, HOWEVER, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of any Borrower to repay (with applicable interest) the Loans made to
it by such Lender in accordance with the terms of this Agreement.

          (e) Each of the Borrowers agrees that, upon the request to the
Administrative Agent by any Lender, it will execute and deliver to such Lender a
promissory note of such Borrower evidencing any Revolving Credit Loans or Swing
Line Loans, as the case may be, made by such Lender to such Borrower,
substantially in the forms of EXHIBIT C-1 or C-2, respectively, with appropriate
insertions as to date and principal amount.

          2.6 FACILITY FEE, UTILIZATION FEE, ETC. (a) Fund American agrees to
pay to the Administrative Agent for the account of each Lender a facility fee
for the period from and including the Closing Date to the last day of the
Revolving Credit Commitment Period, computed at the Facility Fee Rate on the
average daily amount of the Revolving Credit Commitment of such Lender during
the period for which payment is made, payable quarterly in arrears on the first
Business Day of each January, April, July and October and on the Revolving
Credit Termination Date, commencing on the first of such dates to occur after
the Closing Date.

          (b) If during any quarter the average daily balance of the aggregate
amount of outstanding Loans plus outstanding L/C Obligations is greater than
fifty percent (50%) of the Total Revolving Credit Commitment then Fund American
agrees to pay to the Administrative Agent, quarterly, in arrears, for the
account of each Lender, a utilization fee for such quarter from and including
the first day of such quarter to the last day of such quarter, computed at the



                                                                              23

Utilization Fee Rate on the average daily amount of each Lender's Revolving
Credit Percentage of outstanding Loans plus outstanding L/C Obligations. The
utilization fee, if applicable, will be added to the Applicable Margin, such
that payments of the Utilization Fee will be due at the same times as interest
payments relating to the same borrowings.

          (c) The Borrowers agree to pay to the Syndication Agent the fees in
the amounts and on the dates from time to time agreed to in writing by the
Borrowers and the Syndication Agent.

          (d) The Borrowers agree to pay to the Joint Lead Arrangers the fees in
the amounts and on the dates from time to time agreed to in writing by the
Borrowers and the Joint Lead Arrangers.

          (e) The Borrowers agree to pay to the Administrative Agent the fees in
the amounts and on the dates from time to time agreed to in writing by the
Borrowers and the Administrative Agent.

          2.7 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. White
Mountains shall have the right, upon not less than three Business Days' notice
to the Administrative Agent, to terminate the Revolving Credit Commitments or,
from time to time, to reduce the aggregate amount of the Revolving Credit
Commitments; PROVIDED that no such termination or reduction of Revolving Credit
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans and Swing Line Loans made on the
effective date thereof, the Total Revolving Extensions of Credit would exceed
the Total Revolving Credit Commitments; PROVIDED, FURTHER, that a notice of
termination of the Revolving Credit Commitments delivered by White Mountains may
state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by White Mountains (by
notice to the Administrative Agent on or prior to the specified effective date)
if such condition is not satisfied. Any such reduction shall be in an amount
equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently
the Revolving Credit Commitments then in effect.

          2.8 OPTIONAL PREPAYMENTS. (a) A Borrower may at any time and from time
to time prepay the Loans made to such Borrower, in whole or in part, without
premium or penalty, upon notice delivered to the Administrative Agent at least
three Business Days prior thereto in the case of Eurodollar Loans and at least
one Business Day prior thereto in the case of Base Rate Loans, which notice
shall specify the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans or Base Rate Loans; provided, that (i) if a Eurodollar Loan is
prepaid on any day other than the last day of the Interest Period applicable
thereto, such Borrower shall also pay any amounts owing pursuant to Section 2.17
and (ii) no prior notice is required for the prepayment of Swing Line Loans;
PROVIDED, FURTHER, that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Revolving Credit Commitments as
contemplated by Section 2.7, then such notice of prepayment may be revoked if
such notice of termination is revoked in accordance with Section 2.7. Upon
receipt of any such notice the Administrative Agent shall promptly notify the
Lenders thereof. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein, together with
(except in the case of Base Rate Loans) accrued interest to such



                                                                              24

date on the amount prepaid. Partial prepayments of Loans shall be in an
aggregate principal amount of $1,000,000 or a whole multiple thereof. Partial
prepayments of Swing Line Loans shall be in an aggregate principal amount of
$100,000 or a whole multiple thereof.

          2.9 CONVERSION AND CONTINUATION OPTIONS. (a) A Borrower may elect from
time to time to convert Eurodollar Loans made to such Borrower to Base Rate
Loans by giving the Administrative Agent at least two Business Days' prior
irrevocable notice of such election, provided that any such conversion of
Eurodollar Loans may be made only on the last day of an Interest Period with
respect thereto. A Borrower may elect from time to time to convert Base Rate
Loans made to such Borrower to Eurodollar Loans by giving the Administrative
Agent at least three Business Days' prior irrevocable notice of such election
(which notice shall specify the length of the initial Interest Period therefor),
PROVIDED that no Base Rate Loan may be converted into a Eurodollar Loan (i) when
any Event of Default has occurred and is continuing and the Administrative Agent
or the Majority Lenders have determined in its or their sole discretion not to
permit such conversions or (ii) after the date that is one month prior to the
Revolving Credit Termination Date. Upon receipt of any such notice the
Administrative Agent shall promptly notify the Lenders thereof.

          (b) A Borrower may elect to continue any Eurodollar Loan made to such
Borrower as such upon the expiration of the then current Interest Period with
respect thereto by giving irrevocable notice to the Administrative Agent, in
accordance with the applicable provisions of the term "Interest Period" set
forth in Section 1.1, of the length of the next Interest Period to be applicable
to such Loans, PROVIDED that no Eurodollar Loan may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent or the Majority Lenders have, determined in its or their sole discretion
not to permit such continuations or (ii) after the date that is one month prior
to the Revolving Credit Termination Date, and PROVIDED, FURTHER, that if such
Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso, such Loans shall be converted automatically to Base Rate Loans on the
last day of such then expiring Interest Period. Upon receipt of any such notice
the Administrative Agent shall promptly notify the Lenders thereof.

          2.10 MAXIMUM NUMBER OF EURODOLLAR LOANS. Notwithstanding anything to
the contrary in this Agreement, all borrowings, conversions, continuations and
optional prepayments of Eurodollar Loans and all selections of Interest Periods
shall be in such amounts and be made pursuant to such elections so that no more
than seven Eurodollar Loans shall be outstanding at any one time.

          2.11 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.

          (b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Base Rate.

          (c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or



                                                                              25

otherwise), such overdue amount shall bear interest at a rate per annum that is
equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section PLUS 2%
or (y) in the case of Reimbursement Obligations, the rate applicable to Base
Rate Loans PLUS 2%, and (ii) if all or a portion of any interest payable on any
Loan or Reimbursement Obligation or any facility fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum equal to the rate then applicable to Base Rate Loans PLUS 2%, in each
case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (after as well as before
judgment).

          (d) Interest shall be payable in arrears on each Interest Payment
Date, PROVIDED that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.

          2.12 COMPUTATION OF INTEREST AND FEES. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
365-day (or 366-day, as the case may be) year for the actual days elapsed,
except that, with respect to Eurodollar Loans, the interest thereon shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrowers and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Base Rate shall become effective
as of the opening of business on the day on which such change becomes effective.
The Administrative Agent shall as soon as practicable notify the Borrowers and
the Lenders of the effective date and the amount of each such change in interest
rate.

          (b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrowers and the Lenders in the absence of manifest error.

          2.13 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Interest Period:

          (a) the Administrative Agent shall have determined (which
     determination shall be conclusive and binding upon the Borrowers) that, by
     reason of circumstances affecting the relevant market, adequate and
     reasonable means do not exist for ascertaining the Eurodollar Rate for such
     Interest Period, or

          (b) the Administrative Agent shall have received notice from the
     Majority Lenders that the Eurodollar Rate determined or to be determined
     for such Interest Period will not adequately and fairly reflect the cost to
     such Lenders (as conclusively certified by such Lenders) of making or
     maintaining their affected Loans during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Base Rate Loans, (y) any Loans that
were to have been converted on the first day of such Interest Period to



                                                                              26

Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding
Eurodollar Loans shall be converted, on the last day of the then current
Interest Period with respect thereto, to Base Rate Loans. Until such notice has
been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrowers have the right to convert
Loans to Eurodollar Loans.

          2.14 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the
Borrowers from the Lenders hereunder, each payment by the Borrowers on account
of any facility fee or Letter of Credit fee, and any reduction of the Revolving
Credit Commitments of the Lenders, shall be made pro rata according to the
respective Revolving Credit Percentages of the relevant Lenders. Each payment in
respect of utilization fees payable hereunder shall be applied to the amounts of
such obligations owing to the Lenders PRO RATA according to the respective
amounts then due and owing to the Lenders.

          (b) Each payment (including each prepayment) by the Borrowers on
account of principal of and interest on the Revolving Credit Loans of the
Borrowers shall be made PRO RATA according to the respective outstanding
principal amounts of the Revolving Credit Loans of the Borrowers then held by
the Lenders. Each payment in respect of Reimbursement Obligations in respect of
any Letter of Credit shall be made to the relevant Issuing Lender.

          (c) The application of any payment of Loans shall be made, FIRST, to
Base Rate Loans and, SECOND, to Eurodollar Loans. Each payment of the Loans
shall be accompanied by accrued interest to the date of such payment on the
amount paid.

          (d) All payments (including prepayments) to be made by the Borrowers
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the relevant Lenders, at the Payment Office, in Dollars and in
immediately available funds. Any payment made by the Borrowers after 12:00 Noon,
New York City time, on any Business Day shall be deemed to have been made on the
next following Business Day. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.

          (e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing by a Borrower that such Lender will
not make the amount that would constitute its share of such borrowing available
to the Administrative Agent, the Administrative Agent may assume that such
Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
such Borrower a corresponding amount. If such amount is not made available



                                                                              27

to the Administrative Agent by the required time on the Borrowing Date therefor,
such Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted to
any Lender with respect to any amounts owing under this paragraph shall be
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days after such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to Base Rate Loans, on demand, from such Borrower.

          (f) Unless the Administrative Agent shall have been notified in
writing by a Borrower prior to the date of any payment due to be made by such
Borrower hereunder that such Borrower will not make such payment to the
Administrative Agent, the Administrative Agent may assume that such Borrower is
making such payment, and the Administrative Agent may, but shall not be required
to, in reliance upon such assumption, make available to the Lenders their
respective pro rata shares of a corresponding amount. If such payment is not
made to the Administrative Agent by such Borrower within three Business Days
after such due date, the Administrative Agent shall be entitled to recover, on
demand, from each Lender to which any amount which was made available pursuant
to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein
shall be deemed to limit the rights of the Administrative Agent or any Lender
against such Borrower.

          2.15 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:

               (i) shall subject any Lender to any tax of any kind whatsoever
     with respect to this Agreement, any Letter of Credit, any Application or
     any Eurodollar Loan made by it, or change the basis of taxation of payments
     to such Lender in respect thereof (except for Non-Excluded Taxes covered by
     Section 2.16 and changes in the rate of tax on the overall net income of
     such Lender);

               (ii) shall impose, modify or hold applicable any reserve, special
     deposit, compulsory loan or similar requirement against assets held by,
     deposits or other liabilities in or for the account of, advances, loans or
     other extensions of credit by, or any other acquisition of funds by, any
     office of such Lender that is not otherwise included in the determination
     of the Eurodollar Rate hereunder; or

               (iii) shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans to a Borrower or issuing or
participating in Letters of Credit issued at the request of a Borrower, or to
reduce any amount receivable hereunder in respect thereof, then, in



                                                                              28

any such case, such Borrower shall promptly pay such Lender, upon its demand,
any additional amounts necessary to compensate such Lender for such increased
cost or reduced amount receivable. If any Lender becomes entitled to claim any
additional amounts pursuant to this Section, it shall promptly notify the
relevant Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.

          (b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the relevant Borrower (with a copy to the
Administrative Agent) of a written request therefor, such Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such corporation for such reduction.

          (c) In addition to, and without duplication of, amounts which may
become payable from time to time pursuant to paragraphs (a) and (b) of this
Section 2.15, each Borrower agrees to pay to each Lender which requests
compensation under this paragraph (c) by notice to such Borrower, on the last
day of each Interest Period with respect to any Eurodollar Loan made by such
Lender to such Borrower, at any time when such Lender shall be required to
maintain reserves against "Eurocurrency liabilities" under Regulation D of the
Board of Governors of the Federal Reserve System (or, at any time when such
Lender may be required by the Board of Governors of the Federal Reserve System
or by any other Governmental Authority, whether within the United States or in
another relevant jurisdiction, to maintain reserves against any other category
of liabilities which includes deposits by reference to which the Eurodollar Rate
is determined as provided in this Agreement or against any category of
extensions of credit or other assets of such Lender which includes any such
Eurodollar Loans), an additional amount (determined by such Lender's calculation
or, if an accurate calculation is impracticable, reasonable estimate using such
reasonable means of allocation as such Lender shall determine) equal to the
actual costs, if any, incurred by such Lender during such Interest Period as a
result of the applicability of the foregoing reserves to such Eurodollar Loans.

          (d) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to a Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. No
Lender shall be entitled to compensation under this Section 2.15 from a Borrower
for any costs incurred or reductions suffered more than 180 days prior to the
date that such Lender notifies such Borrower of the circumstances giving rise to
such increased costs or reductions and of such Lender's intention to claim
compensation therefor; provided that if a change of law giving rise to such
increased costs or reductions is retroactive, then the 180-day period referred
to above shall be extended to include the period of retroactive effect thereof.
The obligations of the Borrowers pursuant to this Section shall survive the



                                                                              29

termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.

          2.16 TAXES. (a) Except as required by law, all payments made by the
Borrowers under this Agreement shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes and franchise and
doing business taxes (imposed in lieu of net income taxes) imposed on the
Administrative Agent or any Lender as a result of a present or former connection
between the Administrative Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Administrative Agent's or such Lender's having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any other Loan Document). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED
TAXES") or any Other Taxes are required to be withheld from any amounts payable
to the Administrative Agent or any Lender hereunder, the amounts so payable to
the Administrative Agent or such Lender shall be increased to the extent
necessary to yield to the Administrative Agent or such Lender (after payment of
all Non-Excluded Taxes and Other Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement;
PROVIDED, HOWEVER, that no Borrower shall be required to increase any such
amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that
are attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section or (ii) that are withholding taxes imposed
on amounts payable to such Lender at the time such Lender becomes a party to
this Agreement or designates a new lending office, except to the extent that
such Lender (or its assignor, if any) was entitled, at the time of designation
of a new lending office or assignment, to receive additional amounts from the
relevant Borrower with respect to such Non-Excluded Taxes pursuant to Section
2.16(a).

          (b) In addition, the Borrowers shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

          (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by
either of the Borrowers, as soon as practicable thereafter the relevant Borrower
shall send to the Administrative Agent for its own account or for the account of
the relevant Lender, as the case may be, a certified copy of an official receipt
received by such Borrower showing payment thereof (or other evidence of such
payment reasonably satisfactory to the Administrative Agent). If the relevant
Borrower fails, to pay any Non-Excluded Taxes or Other Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, such Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this Section 2.16
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.

          (d) Each Lender (or Transferee) that is not (i) a citizen or resident
of the United States of America, (ii) a corporation, partnership or other entity
created or organized in or under



                                                                              30

the laws of the United States of America (or any jurisdiction thereof), or (iii)
an estate or trust that is subject to U.S. federal income taxation regardless of
the source of its income (a "NON-U.S. LENDER") shall deliver to the Borrowers
and the Administrative Agent (or, in the case of a Participant, to the Lender
from which the related participation shall have been purchased) two copies of
either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI (or other
applicable form), or, in the case of a Non-U.S. Lender claiming exemption from
U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with
respect to payments of "portfolio interest", a statement substantially in the
form of EXHIBIT D and a Form W-8BEN (or other applicable form), or any
subsequent versions thereof or successors thereto properly completed and duly
executed by such Non-U.S. Lender claiming complete exemption from, or a reduced
rate of, U.S. federal withholding tax on all payments by the Borrowers under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of any Participant, on or before the date such Participant
purchases the related participation). In addition, each Non-U.S. Lender shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall, as
soon as reasonably practicable, notify the Borrowers at any time it determines
that it is no longer in a position to provide any previously delivered
certificate to the Borrowers (or any other form of certification adopted by the
U.S. taxing authorities for such purpose). Notwithstanding any other provision
of this paragraph, a Non-U.S. Lender shall not be required to deliver any form
pursuant to this paragraph that such Non-U.S. Lender is not legally able to
deliver.

          (e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which a Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to such Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by such Borrower, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrowers as will permit such payments to be made without withholding or at a
reduced rate, PROVIDED that such Lender is legally entitled to complete, execute
and deliver such documentation.

          2.17 INDEMNITY. Each Borrower agrees to indemnify each Lender for, and
to hold each Lender harmless from, any loss or expense that such Lender sustains
or incurs as a consequence of (a) default by such Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after such Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by such Borrower in making any prepayment after such
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making by such Borrower of a prepayment or conversion of
Eurodollar Loans on a day that is not the last day of an Interest Period with
respect thereto; PROVIDED that any request for indemnification made by a Lender
pursuant to this Section 2.17 shall be made within six months of the incurrence
of the loss or expense requested to be indemnified. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
that would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the



                                                                              31

applicable rate of interest for such Loans provided for herein (excluding,
however, the Applicable Margin included therein, if any) over (ii) the amount of
interest (as reasonably determined by such Lender) that would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. A certificate as
to any amounts payable pursuant to this Section submitted to a Borrower by any
Lender shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.

          2.18 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan to a
Borrower occurs on a day which is not the last day of the then current Interest
Period with respect thereto, such Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to Section 2.17.

          2.19 CHANGE OF LENDING OFFICE. Each Lender agrees that, upon the
occurrence of any event that it knows to give rise to the operation of Section
2.15, 2.16(a) or 2.18 with respect to such Lender, it will use all commercially
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event, or to
assign its rights and obligations hereunder with respect to such Loans to
another of its offices, branches or affiliates with the object of avoiding the
consequences of such event, or to assign its rights and obligations hereunder
with respect to such Loans to another of its offices, branches or affiliates,
with the object of avoiding the consequences of such event; PROVIDED, that such
designation is made on terms that, in the reasonable sole judgment of such
Lender, cause such Lender and its lending office(s) to suffer no economic, legal
or regulatory disadvantage, and provided, further, that nothing in this Section
shall affect or postpone any of the obligations of the Borrowers or the rights
of any Lender pursuant to Section 2.15, 2.16(a) or 2.18.

          2.20 REPLACEMENT OF LENDERS UNDER CERTAIN CIRCUMSTANCES. The Borrowers
shall be permitted to replace any Lender (a) that requests reimbursement for
amounts owing pursuant to Section 2.15, (b) with respect to which any Borrower
is required to pay any amounts under Section 2.16 or (c) that defaults in its
obligation to make Loans hereunder, with a replacement financial institution or
other entity; PROVIDED that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) prior to any such replacement,
such Lender shall have taken no action under Section 2.19 so as to eliminate the
continued need for payment of amounts owing pursuant to Section 2.15 or 2.16,
(iv) the replacement financial institution or other entity shall purchase, at
par, all Loans and other amounts owing to such replaced Lender on or prior to
the date of replacement, (v) each Borrower shall be liable to such replaced
Lender under Section 2.17 (as though Section 2.17 were applicable) if any
Eurodollar Loan to such Borrower owing to such



                                                                              32

replaced Lender shall be purchased other than on the last day of the Interest
Period relating thereto, (vi) the replacement financial institution or other
entity, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender and replacement Lender shall be
obligated to make such replacement in accordance with the provisions of Section
10.6 (including, without limitation, obtaining the consents provided for
therein) (provided that the Borrowers shall be obligated to pay the registration
and processing fee referred to therein), (viii) the Borrowers shall pay all
additional amounts (if any) required pursuant to Section 2.15 or 2.16, as the
case may be, in respect of any period prior to the date on which such
replacement shall be consummated, and (ix) any such replacement shall not be
deemed to be a waiver of any rights that the Borrowers, the Administrative Agent
or any other Lender shall have against the replaced Lender.

          2.21 GUARANTY OF PAYMENT AND PERFORMANCE.

          (a) GUARANTY BY WHITE MOUNTAINS OF FUND AMERICAN'S OBLIGATIONS. White
Mountains (being referred to herein in its capacity as guarantor as a
"GUARANTOR") hereby guarantees (such guaranty being hereinafter referred to as
the "WHITE MOUNTAINS GUARANTY") to the Lenders and the Administrative Agent the
full and punctual payment when due (whether at stated maturity, by required
pre-payment, by acceleration or otherwise) of all of the obligations of Fund
American hereunder and under the other Loan Documents (including the principal
of the Loans advanced to Fund American, all Reimbursement Obligations of Fund
American in respect of Letters of Credit, and all interest, fees, expenses,
indemnities and other amounts payable by Fund American hereunder), including all
such which would become due but for the operation of the automatic stay pursuant
to Section 362(a) of the Federal Bankruptcy Code and the operation of Section
502(b) of the Federal Bankruptcy Code. The White Mountains Guaranty is an
absolute, unconditional and continuing guaranty of the full and punctual payment
and performance of all such obligations of Fund American hereunder and under the
other Loan Documents, and not of their collectibility only and is in no way
conditioned upon any requirement that the Administrative Agent or any Lender
first attempt to collect any of Fund American's obligations from Fund American
or resort to any other means of obtaining payment. Should an Event of Default
occur with respect to the payment or performance of any such obligations of Fund
American, the obligations of White Mountains under the White Mountains Guaranty
with respect to such obligations in default shall, upon demand by the
Administrative Agent, become immediately due and payable to the Administrative
Agent, for the benefit of the Lenders and the Administrative Agent, without
demand or notice of any nature, all of which are expressly waived by White
Mountains. Payments by White Mountains in respect of the White Mountains
Guaranty may be required by the Administrative Agent on any number of occasions.
All payments by White Mountains in respect of the White Mountains Guaranty shall
be made to the Administrative Agent, in the manner and at the place of payment
specified hereunder, for the account of the Lenders and the Administrative
Agent.

          (b) GUARANTY BY FUND AMERICAN OF WHITE MOUNTAINS' OBLIGATIONS. Fund
American (being referred to herein in its capacity as guarantor as a "GUARANTOR"
and together with White Mountains, in its capacity as a guarantor, as the
"GUARANTORS") hereby guarantees (such guaranty being hereinafter referred to as
the "FUND AMERICAN GUARANTY" and together with the White Mountains Guaranty as
the "GUARANTEES" and individually as a "GUARANTY") to the Lenders and the
Administrative Agent the full and punctual payment when due (whether at stated



                                                                              33

maturity, by required pre-payment, by acceleration or otherwise) of all of the
principal of the Loans advanced to White Mountains, all Reimbursement
Obligations of White Mountains in respect of Letters of Credit and all interest
payable by White Mountains hereunder, including all such which would become due
but for the operation of the automatic stay pursuant to Section 362(a) of the
Federal Bankruptcy Code and the operation of Section 502(b) of the Federal
Bankruptcy Code. The Fund American Guaranty is an absolute, unconditional and
continuing guaranty of the full and punctual payment and performance of all of
White Mountains' obligations, PROVIDED THAT, unless (a) White Mountains is the
subject of a voluntary or involuntary proceeding under federal or state
bankruptcy, insolvency or similar law or (b) demand first being made on White
Mountains is not otherwise required by the terms of the Certificate of
Designation, Fund American's obligations in respect of the Fund American
Guaranty are conditioned on demand having been made on White Mountains for the
payment of White Mountains' obligations (the "Demand Requirement"). Payments by
Fund American in respect of the Fund American Guaranty may be required by the
Administrative Agent on any number of occasions. All payments by Fund American
in respect of the Fund American Guaranty shall be made to the Administrative
Agent, in the manner and at the place of payment specified hereunder, for the
account of the Lenders and the Administrative Agent.

          (c) AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. Each of the Guarantors
further agrees, as the principal obligor and not as a guarantor only, to pay to
the Administrative Agent, on demand, all costs and expenses (including court
costs and legal expenses) incurred or expended by the Administrative Agent or
any Lender in connection with its Guaranty and the enforcement thereof, together
with interest on amounts recoverable under this Section 2.21(c) from the time
when such amounts become due until payment, whether before or after judgment, at
the rate of interest for overdue principal set forth in this Agreement, PROVIDED
THAT if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount.

          (d) WAIVERS BY GUARANTORS; LENDERS' FREEDOM TO ACT. Subject to the
Demand Requirement, to the fullest extent permitted by applicable law, each of
the Guarantors agrees that the obligations that it has guaranteed hereunder will
be paid and performed strictly in accordance with their respective terms,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Administrative
Agent or any Lender with respect thereto. Subject to the Demand Requirement, to
the fullest extent permitted by applicable law, each of the Guarantors waives
promptness, diligences, presentment, demand, protest, notice of acceptance,
notice of any obligations incurred and all other notices of any kind, all
defenses which may be available by virtue of any valuation, stay, moratorium law
or other similar law now or hereafter in effect, any right to require the
marshalling of assets of either of the Borrowers or any other entity or other
person primarily or secondarily liable with respect to any of the obligations,
and all suretyship defenses generally. Without limiting the generality of the
foregoing, but subject to the Demand Requirement, each of the Guarantors agrees
to the provisions of any instrument evidencing or otherwise executed in
connection with any obligation and agrees, to the fullest extent permitted by
applicable law, that its obligations in respect of its Guaranty shall not be
released or discharged, in whole or in part, or otherwise affected by (i) the
failure of the Administrative Agent or any Lender to assert any claim or demand
or to enforce any right or remedy against the Company or any other entity or
other person primarily or secondarily liable with respect to any of the
obligations; (ii) any extensions, compromise,



                                                                              34

refinancing, consolidation or renewals of any obligation; (iii) any change in
the time, place or manner of payment of any of the obligations or any
rescissions, waivers, compromise, refinancing, consolidation or other amendments
or modifications of any of the terms or provisions of this Agreement or the
other Loan Documents or any other agreement evidencing or otherwise executed in
connection with any of the obligations, (iv) the addition, substitution or
release of any entity or other person primarily or secondarily liable for any
obligation; (v) the adequacy of any rights which the Administrative Agent or any
Lender may have against any means of obtaining repayment of any of the
obligations; or (vi) any other act or omission which might in any manner or to
any extent vary the risk of either of the Guarantors or otherwise operate as a
release or discharge of either of the Guarantors, all of which may be done
without notice to either of the Guarantors. Subject to the Demand Requirement,
to the fullest extent permitted by law, each of the Guarantors hereby expressly
waives any and all rights or defenses arising by reason of (A) any "one action"
or "anti-deficiency" law which would otherwise prevent the Administrative Agent
or any Lender from bringing any action, including any claim for a deficiency, or
exercising any other right or remedy (including any right of set-off), against
either of the Guarantors before or after the Administrative Agent's or such
Lender's commencement or completion of any foreclosure action, whether
judicially, by exercise of power of sale or otherwise, or (B) any other law
which in any other way would otherwise require any election of remedies by the
Administrative Agent or any Lender.

          (e) UNENFORCEABILITY OF OBLIGATIONS AGAINST THE BORROWERS. If for any
reason either of the Borrowers has no legal existence or is under no legal
obligation to discharge any of its obligations under this Agreement or under the
other Loan Documents guaranteed by a Guarantor, or if any of such obligations
have become irrecoverable from either of the Borrowers by reason of such
Borrower's bankruptcy or reorganization or by other operation of law or for any
other reason, the Guarantees shall, to the fullest extent permitted by
applicable law, nevertheless be binding on each of the Guarantors to the same
extent as if the affected Guarantor at all times had been the principal obligor
on all such obligations subject to the Demand Requirement. In the event that
acceleration of the time for payment of any of the guaranteed obligations of the
Borrowers under this Agreement or the other Loan Documents is stayed upon the
insolvency, bankruptcy or reorganization of either the Borrowers, or for any
other reason, all such obligations otherwise subject to acceleration under the
terms of this Agreement and the other Loan Documents or any other agreement
evidencing or otherwise executed in connection with any such obligation shall,
subject to the Demand Requirement, be immediately due and payable by the
applicable Guarantor

          (f) SUBROGATION. Until the final payment and performance in full of
all of the obligations of the Borrowers under this Agreement and the other Loan
Documents, neither of the Guarantors shall exercise any rights against the
Borrowers arising as a result of payment by such Guarantor in respect of its
Guaranty, by way of subrogation, reimbursement, restitution, contribution or
otherwise, and will not prove any claim in competition with the Administrative
Agent or any Lender in respect of any payment hereunder in any bankruptcy,
insolvency or reorganization case or proceedings of any nature and such
Guarantor will not claim any setoff, recoupment or counterclaim against the
applicable Borrower in respect of any liability of such Guarantor to the
applicable Borrower.



                                                                              35

          (g)   PROVISIONS SUPPLEMENTAL. The provisions of this Section 2.21
shall be supplemental to and not in derogation of any other rights and remedies
of the Lenders and the Administrative Agent under this Agreement, the other Loan
Documents and any separate agreement which the Administrative Agent may at any
time and from time to time enter into with either of the Guarantors for the
benefit of the Lenders and the Administrative Agent.

          (h)   FURTHER ASSURANCES. Each of the Guarantors agrees that it will
from time to time, at the request of the Administrative Agent, do all such
things and execute all such documents as the Administrative Agent may reasonably
request to give full effect to the Guarantee of such Guarantor and to preserve
the rights and powers of the Lenders and the Administrative Agent in respect of
such Guarantee. Each of the Guarantors acknowledges and confirms that it has
established its own adequate means of obtaining from the applicable Borrower on
a continuing basis all information desired by such Guarantor concerning the
financial condition of the applicable Borrower and that such Guarantor will look
to the applicable Borrower and not to the Administrative Agent or any Lender in
order for such Guarantor to keep adequately informed of changes in the
applicable Borrower's financial condition.

          (i) SUCCESSORS AND ASSIGNS. The Guarantee of each Guarantor shall be
binding upon such Guarantor, its successors and assigns, and shall inure to the
benefit of the Administrative Agent and the Lenders and their respective ,
permitted transferees and permitted assigns. Without limiting the generality of
the foregoing sentence, each Lender may, to the extent permitted by Section
10.6, assign or otherwise transfer this Agreement, the other Loan Documents or
any other agreement or note held by it evidencing or otherwise executed in
connection with the guaranteed obligations, or sell participations in any
interest therein, to any other entity or other person, and such other entity or
other person shall, to the extent provided by Section 10.6, thereupon become
vested, to the extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof granted to
such Lender herein, all in accordance with Section 10.6 of this Agreement.

SECTION 3 LETTERS OF CREDIT

          3.1 L/C COMMITMENT. (a) Subject to the terms and conditions hereof,
each Issuing Lender, in reliance on the agreements of the other Lenders set
forth in Section 3.4(a), agrees to issue letters of credit ("LETTERS OF CREDIT")
for the account of either of the Borrowers on any Business Day during the
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; PROVIDED, that the Issuing Lender shall not issue
any Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the
Available Revolving Credit Commitments would be less than zero. Each Letter of
Credit shall (i) be denominated in Dollars and (ii) expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the date
which is five Business Days prior to the Revolving Credit Termination Date,
provided that any Letter of Credit with a one-year term may provide for the
renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (y) above).



                                                                              36

          (b) No Issuing Lender shall at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.

          3.2 PROCEDURE FOR ISSUANCE OF LETTER OF CREDIT. Each Borrower may from
time to time request that an Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender (with a copy to the Administrative Agent) at
its address for notices specified herein an Application therefor, completed to
the satisfaction of such Issuing Lender, and such other certificates, documents
and other papers and information as such Issuing Lender may request. Upon
receipt of any Application, such Issuing Lender will process such Application
and the certificates, documents and other papers and information delivered to it
in connection therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby by issuing the original of
such Letter of Credit to the beneficiary thereof or as otherwise may be agreed
to by such Issuing Lender and the relevant Borrower (but in no event shall any
Issuing Lender be required to issue any Letter of Credit earlier than three
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto).
Promptly after issuance by an Issuing Lender of a Letter of Credit, such Issuing
Lender shall furnish a copy of such Letter of Credit to the requesting Borrower.
Each Issuing Lender shall, within three days of such issuance, give notice to
the Administrative Agent of the issuance of each Letter of Credit issued by such
Issuing Lender (including the amount thereof). Upon the written request of any
Lender, the Administrative Agent will, within three Business Days of such
request, inform such Lender of the aggregate drawable amount of all outstanding
Letters of Credit issued to the Borrowers on the date of such request.

          3.3 FEES AND OTHER CHARGES. (a) Each Borrower will pay to the
Administrative Agent, for the account of the Lenders, a fee on the aggregate
drawable amount of all outstanding Letters of Credit issued for its account at a
per annum rate equal to the Applicable Margin then in effect with respect to
Eurodollar Loans, to be shared ratably among the Lenders in accordance with
their respective Revolving Credit Percentages and payable quarterly in arrears
on each L/C Fee Payment Date after the issuance date. In addition, each Borrower
shall pay to the relevant Issuing Lender for its own account a fronting fee on
the aggregate drawable amount of all outstanding Letters of Credit issued by
such Issuing Lender for such Borrower's account at a rate to be agreed upon by
such Borrower and such Issuing Lender, payable quarterly in arrears on each L/C
Fee Payment Date after the date of issuance of such Letter of Credit.

          (b) In addition to the foregoing fees, each Borrower shall pay or
reimburse each Issuing Lender for such normal and customary costs and expenses
as are incurred or charged by such Issuing Lender in issuing, negotiating,
effecting payment under, amending or otherwise administering any Letter of
Credit issued for the account of such Borrower.

          3.4 L/C PARTICIPATIONS. (a) Each Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce each Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from each Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk, an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in each Issuing Lender's obligations
and rights under



                                                                              37

each Letter of Credit issued by such Issuing Lender hereunder and the amount of
each draft paid by such Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with each Issuing Lender that, if a draft
is paid under any Letter of Credit issued by such Issuing Lender for which such
Issuing Lender is not reimbursed in full by the Borrowers in accordance with the
terms of this Agreement, such L/C Participant shall pay to such Issuing Lender
upon demand at the Issuing Lender's address for notices specified herein an
amount equal to such L/C Participant's Revolving Credit Percentage of the amount
of such draft, or any part thereof, that is not so reimbursed.

          If any amount required to be paid by any L/C Participant to an Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
payment made by such Issuing Lender under any Letter of Credit is paid to such
Issuing Lender within three Business Days after the date such payment is due,
such L/C Participant shall pay to such Issuing Lender on demand an amount equal
to the product of (i) such amount, times (ii) the daily average Federal Funds
Effective Rate during the period from and including the date such payment is
required to the date on which such payment is immediately available to such
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 365 (or, in
the case of a leap year, 366).

          (b) If any such amount required to be paid by any L/C Participant
pursuant to Section 3.4(a) is not made available to such Issuing Lender by such
L/C Participant within three Business Days after the date such payment is due,
such Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to Base Rate Loans. A certificate of such Issuing
Lender submitted to any L/C Participant with respect to any such amounts owing
under this Section shall be conclusive in the absence of manifest error.

          (c) Whenever, at any time after an Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its PRO
RATA share of such payment in accordance with Section 3.4(a), such Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrowers or otherwise, including proceeds of collateral applied
thereto by the Issuing Lender), or any payment of interest on account thereof,
such Issuing Lender will distribute to such L/C Participant its PRO RATA share
thereof; PROVIDED, HOWEVER, that in the event that any such payment received by
such Issuing Lender shall be required to be returned by such Issuing Lender,
such L/C Participant shall return to such Issuing Lender the portion thereof
previously distributed by such Issuing Lender to it.

          3.5 REIMBURSEMENT OBLIGATION OF THE BORROWERS. Each of the Borrowers
agree to reimburse each Issuing Lender, on the next Business Day after each date
on which such Issuing Lender notifies such Borrower of the date and amount of a
draft presented under any Letter of Credit issued for the account of such
Borrower and paid by the Issuing Lender, for the amount of (a) such draft so
paid and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment (the amounts described in the
foregoing clauses (a) and (b) in respect of any drawing, collectively, the
"PAYMENT AMOUNT"). Each such payment shall be made to such Issuing Lender at its
address for notices specified herein in lawful money of the United States of
America and in immediately available funds. Interest shall be payable on each
Payment Amount from the date of the applicable drawing until payment in full at
the rate



                                                                              38

set forth in (i) until the second Business Day following the date of the
applicable drawing, Section 2.11(b) and (ii) thereafter, Section 2.11(c). Each
drawing under any Letter of Credit issued for the account of a Borrower shall
(unless an event of the type described in clause (i) or (ii) of Section 8(f)
shall have occurred and be continuing with respect to the Borrowers, in which
case the procedures specified in Section 3.4 for funding by L/C Participants
shall apply) constitute a request by such Borrower to the Administrative Agent
for a borrowing pursuant to Section 2.2 of Base Rate Loans or, at the option of
the Administrative Agent and the Swing Line Lender in their sole discretion, a
borrowing pursuant to Section 2.4 of Swing Line Loans, in the amount of such
drawing. The Borrowing Date with respect to such borrowing shall be the first
date on which a borrowing of Revolving Credit Loans (or, if applicable, Swing
Line Loans) could be made, pursuant to Section 2.2 (or, if applicable, Section
2.4), if the Administrative Agent had received a notice of such borrowing at the
time the Administrative Agent receives notice from the relevant Issuing Lender
of such drawing under such Letter of Credit.

          3.6 OBLIGATIONS ABSOLUTE. Each Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that such
Borrower may have or have had against any Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. Each Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and its
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among such Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of such Borrower against any
beneficiary of such Letter of Credit or any such transferee. No Issuing Lender
shall be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or omissions found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such Issuing Lender.
Each Borrower agrees that any action taken or omitted by an Issuing Lender under
or in connection with any Letter of Credit issued by it for the account of such
Borrower or the related drafts or documents, if done in the absence of gross
negligence or willful misconduct and in accordance with the standards of care
specified in the Uniform Commercial Code in effect in the State of New York (the
"UCC") or, if applicable to such Letter of Credit, the Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce most recently at the time of issuance of any Letter of Credit (the
"UCP"), shall be binding on such Borrower and shall not result in any liability
of such Issuing Lender to such Borrower.

          3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for
payment under any Letter of Credit, the relevant Issuing Lender shall promptly
notify the Borrowers of the date and amount thereof. The responsibility of the
relevant Issuing Lender to the Borrowers in connection with any draft presented
for payment under any Letter of Credit, in addition to any payment obligation
expressly provided for in such Letter of Credit issued by the Issuing Lender,
shall be limited to determining that the documents (including each draft)
delivered under such Letter of Credit in connection with such presentment appear
on their face to be in conformity with such Letter of Credit.



                                                                              39

          3.8 APPLICATIONS. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.

SECTION 4 REPRESENTATIONS AND WARRANTIES

          To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrowers hereby jointly and severally represent and warrant to the
Administrative Agent and each Lender that:

          4.1 FINANCIAL CONDITION. The audited consolidated balance sheet of
White Mountains and its consolidated Subsidiaries, as at December 31, 2002 and
the related consolidated statements of income and of cash flows for the fiscal
year ended on such date, reported on by and accompanied by unqualified reports
from PricewaterhouseCoopers LLP, present fairly in all material respects the
consolidated financial condition of White Mountains and its consolidated
Subsidiaries, as at such date, and the consolidated results of their operations
and their consolidated cash flows for such fiscal year then ended in accordance
with GAAP applied consistently throughout the periods involved (except as
approved by the aforementioned firm of accountants and disclosed therein). The
unaudited consolidated balance sheet of White Mountains and its consolidated
Subsidiaries, as of and for the fiscal quarters ended March 31, 2003 and June
30, 2003, and the related unaudited consolidated statements of income and cash
flows for such fiscal quarters ended on such dates, present fairly in all
material respects the consolidated financial condition of White Mountains and
its consolidated Subsidiaries as at such dates, and the consolidated results of
their operations and their consolidated cash flows for the fiscal quarters then
ended in accordance with GAAP applied consistently throughout the periods
involved (except (x) as approved by the aforementioned firms of accountants and
disclosed therein or (y) for normal year-end audit adjustments and the absence
of footnotes).

          4.2 NO CHANGE. Up to and including the Closing Date, since December
31, 2002 there has been no development or event that has had or could reasonably
be expected to have a Material Adverse Effect.

          4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrowers
and their Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, except to the
extent that the failure of the Subsidiaries (other than Fund American) to be so
organized, validly existing and in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, (b) has the corporate
or other power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, , except to the extent that the
failure to have such power, authority and legal right could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect, (c) is duly
qualified as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of Property or the conduct
of its business requires such qualification, except to the extent failure to so
qualify or be in good standing could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect, and (d) is in compliance with all
Requirements of Law, including, without limitation, with respect to
environmental laws, except to the extent that



                                                                              40

the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Guaranty by Fund American
pursuant to Section 2.21 hereof of the outstanding principal amount of any Loans
that have been advanced to White Mountains plus all Reimbursement Obligations of
White Mountains in respect of Letters of Credit that have been issued for the
account of White Mountains plus all accrued interest payable thereon by White
Mountains hereunder is not prohibited by Section 4 of the Certificate of
Designation.

          4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of
the Borrowers has the corporate or other power and authority, and the legal
right, to make, deliver and perform the Loan Documents to which it is a party
and to borrow hereunder. Each of the Borrowers has taken all necessary corporate
or other action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party and to authorize the borrowings on the terms
and conditions of this Agreement. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the other Loan Documents, except consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect and except
to the extent failure to obtain any consents, authorizations, filings, and
notices could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each Loan Document has been duly executed and delivered on
behalf of each Borrower that is a party thereto. This Agreement constitutes, and
each other Loan Document upon execution will constitute, a legal, valid and
binding obligation of each Borrower that is a party thereto, enforceable against
each such Borrower in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law) and except that, pursuant to the terms of the Berkshire
Preferred Stock, the Fund American Guaranty is subject to limitations on the
amount that may be guaranteed by Fund American hereunder (the "FUND AMERICAN
GUARANTY LIMITATIONS")

          4.5 NO LEGAL BAR. Subject to compliance with the Fund American
Guaranty Limitations, the execution, delivery and performance of this Agreement
and the other Loan Documents, the issuance of Letters of Credit, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or any Contractual Obligation of the Borrowers or any of their
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation, except to the extent such
violation or Lien could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.

          4.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrowers, threatened by or against the Borrowers or any of
their Subsidiaries or against any of their respective properties or revenues (a)
with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby, or (b) that could reasonably be expected to have
a Material Adverse Effect.



                                                                              41

          4.7 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrowers and their
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3, except to the extent such defects in title could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect.

          4.8 INTELLECTUAL PROPERTY. Each of the Borrowers and each of their
Subsidiaries owns, or is licensed to use, all Intellectual Property material to
the conduct of its business as currently conducted. No material claim has been
asserted and is pending by any Person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor do the Borrowers know of any valid basis for any such claim, other
than claims that could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect. The use of Intellectual Property by the Borrowers and
their Subsidiaries does not infringe on the rights of any Person in any material
respect, except for infringements that could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect.

          4.9 TAXES. Each of the Borrowers and their Subsidiaries has filed or
caused to be filed all material Federal, state and other tax returns that are
required to be filed (taking into account any applicable extensions) and has
paid all taxes shown to be due and payable on said returns or on any assessments
made against it or any of its Property and all other material taxes, fees or
other charges imposed on it or any of its Property by any Governmental Authority
(other than (i) any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with SAP or GAAP, as applicable, have been provided on
the books of the Borrowers or their Subsidiaries, as the case may be, and (ii)
any amount the failure of which to pay could not reasonably be expected to
result in a Material Adverse Effect.; and, to the knowledge of the Borrowers, no
tax Lien has been filed, and no claim is being asserted, with respect to any
such tax, fee or other charge.

          4.10 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrowers will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1 referred to in Regulation U.

          4.11 ERISA. Except as could not reasonably be expected to result in a
Material Adverse Effect, neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by an amount which, could reasonably be expected to result in a
Material



                                                                              42

Adverse Effect. Neither the Borrowers nor any Commonly Controlled Entity has had
a complete or partial withdrawal from any Multiemployer Plan that has resulted
or could reasonably be expected to result in a material liability to the
Borrowers under ERISA. Except as could not reasonably be expected to result in a
Material Adverse Effect, no such Multiemployer Plan is in Reorganization or
Insolvent.

          4.12 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither of the
Borrowers is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither of the Borrowers is subject to
regulation under any Requirement of Law (other than Regulation X of the Board
and the Certificate of Designation) which limits its ability to incur
Indebtedness hereunder.

          4.13 USE OF PROCEEDS. 4.13 The proceeds of the Loans and the Letters
of Credit shall not be used for purposes other than working capital and general
corporate purposes of the Borrowers, including, without limitation, (a)
investments in or acquisitions of businesses or entities, provided that the
aggregate principal amount of Loans outstanding at any time that are used to
finance investments or acquisitions, other than investments in or acquisitions
of businesses or entities engaged in a Principal Business, shall not exceed
$50,000,000, (b) refinancings of outstanding indebtedness, if any, under Fund
American's existing credit facility in connection with that certain Amended and
Restated Credit Agreement dated as of October 30, 2002 among Fund American, Fund
American Enterprises Holdings, Inc., the lenders party thereto and Lehman
Commercial Paper Inc., as Administrative Agent (and any existing letters of
credit under such facility may become Letters of Credit hereunder) and (c)
payment of fees and expenses in connection with this Agreement.

          4.14 ACCURACY OF INFORMATION, ETC. No statement or information
contained in the Confidential Information Memorandum or any other document,
certificate or statement furnished to the Administrative Agent or the Lenders or
any of them, by or on behalf of either of the Borrowers for use in connection
with the transactions contemplated by this Agreement or the other Loan
Documents, taken as a whole contained as of the date such statement,
information, document or certificate was so furnished (or, in the case of the
Confidential Information Memorandum, as of the date of this Agreement), any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements contained therein not misleading. The
projections and pro forma financial information contained in the materials
referenced above are based upon good faith estimates and assumptions believed by
management of the Borrowers to be reasonable at the time made, it being
recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount.

          4.15 INSURANCE REGULATORY MATTERS. No License of any Insurance
Subsidiary, the loss of which could reasonably be expected to have a Material
Adverse Effect, is the subject of a proceeding for suspension or revocation. To
the knowledge of the Borrowers, there is no sustainable basis for such
suspension or revocation, and no such suspension or revocation has been
threatened by any Governmental Authority.



                                                                              43

          4.16. INDEBTEDNESS AND LIENS. As of the Closing Date, (i) no
Subsidiary (other than Fund American) of either of the Borrowers had outstanding
any Indebtedness of such Subsidiary that was created, incurred or assumed after
June 30, 2003, except Indebtedness that would have been permitted by Section 7.2
(without giving effect to the Indebtedness permitted by Section 7.2(a)) if
created, incurred or assumed by such Subsidiary on the Closing Date and (ii)
there does not exist (a) any Lien that was created, incurred or assumed after
June 30, 2003, upon any stock or indebtedness of any Subsidiary to secure any
Debt of the Borrowers or any of their Subsidiaries or any other person (other
than the obligations hereunder) or (b) any Lien that was created, incurred or
assumed after June 30, 2003, upon any other Property, to secure any Debt of the
Borrowers or any of their Subsidiaries or any other person (other than the
obligations hereunder), except, in the case of (a) or (b), Liens that would have
been permitted by Section 7.3 hereof (without giving effect to the Liens that
would have been permitted by Section 7.3(a)(x)) if so created, incurred or
assumed on the Closing Date.

SECTION 5 CONDITIONS PRECEDENT

          5.1 CONDITIONS TO CLOSING. The occurrence of the Closing Date is
subject to the satisfaction (or waiver) on such date of the following conditions
precedent:

          (a) The Administrative Agent (or its counsel) shall have received from
each party to this Agreement (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the Administrative
Agent (which may include a telecopy transmission of a signed signature page of
this Agreement) that the party has signed a counterpart of this Agreement.

          (b) FEES. The Lenders, the Joint Lead Arrangers, the Syndication
Agent, the Issuing Lender and the Administrative Agent shall have received all
fees required to be paid by Fund American on or prior to the Closing Date, and
all out-of-pocket expenses required to be paid by the Borrowers hereunder for
which invoices have been presented (including reasonable fees, disbursements and
other charges of Bingham McCutchen LLP, counsel to the Administrative Agent).

          (c) CLOSING CERTIFICATE. The Administrative Agent shall have received
a certificate of each of the Borrowers, dated the Closing Date, substantially in
the form of EXHIBIT E, with appropriate insertions and attachments.

          (d) LEGAL OPINIONS. The Administrative Agent shall have received (i)
the legal opinion of Robert Seelig, Esquire counsel to the Borrowers,
substantially in the form of EXHIBIT F and (ii) the legal opinion of Conyers
Dill & Pearman, Bermuda counsel to White Mountains, substantially in the form of
EXHIBIT G.

          (e) TERMINATION OF EXISTING CREDIT FACILITY. The Administrative Agent
shall have received evidence (including, without limitation, payoff letters),
satisfactory to the Administrative Agent in its reasonable discretion, that Fund
American shall have terminated its credit facility in connection with that
certain Amended and Restated Credit Agreement dated as



                                                                              44

of October 30, 2002 among Fund American, Fund American Enterprises Holdings,
Inc., the lenders party thereto and Lehman Commercial Paper Inc., as
Administrative Agent.

          (f) NO MATERIAL ADVERSE EFFECT. The Administrative Agent shall be
reasonably satisfied that no event or condition has occurred since December 31,
2002 that could reasonably be expected to have a Material Adverse Effect.

          5.2 CONDITIONS TO CLOSING AND EACH EXTENSION OF CREDIT. The occurrence
of the Closing Date and the agreement of each Lender to make any extension of
credit requested to be made by it hereunder on any date (including, without
limitation, its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:

          (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by either of the Borrowers in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date as if
made on and as of such date, except to the extent that they expressly relate to
an earlier date, in which case they shall be true and correct in all material
respects as of such earlier date.

          (b) NO DEFAULT. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of credit
requested to be made on such date.

          (c) BORROWING REQUEST. Except as provided in Section 3.5, the
Administrative Agent shall have received a Borrowing Request or, as applicable,
an Application.

Each borrowing by and issuance of a Letter of Credit on behalf of a Borrower
hereunder shall constitute a representation and warranty by such Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 (a) and (b) have been satisfied.

SECTION 6 AFFIRMATIVE COVENANTS

          The Borrowers hereby jointly and severally agree that, from and after
the Closing Date and so long as the Commitments remain in effect, any Letter of
Credit remains outstanding, there exist any unpaid Reimbursement Obligations or
any principal or interest on any Loan or any fee payable hereunder is owing to
any Lender or the Administrative Agent hereunder, each of the Borrowers shall
and shall cause each of their Subsidiaries to:

          6.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (either
electronically or with sufficient copies for distribution by the Administrative
Agent to each Lender):

          (a) (i) as soon as available, but in any event within 95 days after
the end of each fiscal year of White Mountains subsequent to the Closing Date, a
copy of the audited consolidated balance sheet of White Mountains and its
consolidated Subsidiaries as at the end of such year and the related audited
consolidated statements of income and of cash flows for such year, setting forth
in each case in comparative form the figures as of the end of and for the



                                                                              45

previous year, reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by
PricewaterhouseCoopers LLP or other independent certified public accountants of
nationally recognized standing; and (ii) as soon as available, but in any event
not later than 50 days after the end of each of the first three fiscal quarters
of each fiscal year of White Mountains subsequent to the Closing Date, the
unaudited consolidated balance sheet of White Mountains and its consolidated
Subsidiaries as at the end of such fiscal quarter and the related unaudited
consolidated statements of income and of cash flows for such fiscal quarter and
the portion of the fiscal year through the end of such fiscal quarter, setting
forth in each case in comparative form the figures as of the end of and for the
corresponding period in the previous year, certified by a Responsible Officer of
White Mountains as being fairly stated in all material respects in accordance
with GAAP (subject to normal year-end audit adjustments and the absence of
footnotes); all such financial statements, together with notes to such financial
statements, to fairly present in all material respects the financial condition
and income and cash flows of the subject thereof as at the dates and for the
periods covered thereby in accordance with GAAP applied consistently throughout
the periods reflected therein and with prior periods (except (x) as approved by
such accountants or officer, as the case may be, and disclosed therein or (y) in
the case of unaudited financial statements, subject to normal year-end
adjustments and the absence of footnotes).

          (b)   to the extent such a report is required by law to be prepared,
as soon as available but not later than 85 days after the end of each fiscal
year of (or such later date as may be allowed by the applicable Governmental
Authority), (i) OneBeacon Insurance Group LLC, copies of the unaudited combined
Annual Statement of OneBeacon Insurance Group, certified by a Responsible
Officer of OneBeacon Insurance Group LLC, and (ii) a Material Insurance
Subsidiary, copies of the unaudited Annual Statement of such Material Insurance
Subsidiary, certified by a Responsible Officer of such Material Insurance
Subsidiary; all such statements to be prepared in accordance with SAP
consistently applied throughout the periods reflected therein and, if required
by the applicable Governmental Authority, audited and certified by independent
certified public accountants of recognized national standing (it being
understood that delivery of audited statements shall be made within 10 days
following the delivery of such statements to the applicable Governmental
Authority );

          (c) to the extent such statement is required by law to be prepared, as
soon as available but not later than 70 days after the end of each of the first
three fiscal quarters of each fiscal year (or such later date as may be allowed
by the applicable Governmental Authority) of a Material Insurance Subsidiary,
copies of the Quarterly Statement of such Material Insurance Subsidiary,
certified by a Responsible Officer of such Material Insurance Subsidiary, all
such statements to be prepared in accordance with SAP consistently applied
throughout the period reflected herein;

          (d) within 15 days after being delivered to any Material Insurance
Subsidiary subsequent to the Closing Date, any final Report on Examination
issued by the applicable Department or the NAIC that results in material
adjustments to the financial statements referred to in paragraphs (b) or (c)
above; and

          (e) to the extent such a statement is required by law to be prepared,
within 10 days following the delivery to the applicable Department, a copy of
each "Statement of Actuarial



                                                                              46

Opinion" and "Management Discussion and Analysis" for a Material Insurance
Subsidiary which is provided to the applicable Department as to the adequacy of
loss reserves of such Material Insurance Subsidiary, such opinion to be in the
format prescribed by the insurance code of the state of domicile of such
Material Insurance Subsidiary.

          6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent (either electronically or with sufficient copies for distribution by the
Administrative Agent to each Lender) or, in the case of clause (d), to the
relevant Lender:

          (a) concurrently with the delivery of the audited financial statements
referred to in Section 6.1(a)(i), a certificate of the independent certified
public accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default or
Event of Default (it being understood that such certificate may be limited in
scope and qualified in accordance with customary practices of the accounting
profession), except as specified in such certificate;

          (b) concurrently with the delivery of any financial statements
pursuant to Section 6.1(a), (i) a certificate of a Responsible Officer of White
Mountains stating such Responsible Officer has obtained no knowledge of any
continuing Default or Event of Default except as specified in such certificate
(ii) a Compliance Certificate containing all information and calculations
necessary for determining compliance by White Mountains with Section 7.1 as of
the last day of the fiscal quarter or fiscal year of White Mountains and (iii) a
certificate of Fund American stating that, to the extent that any Loans to White
Mountains were outstanding as of the last day of such fiscal quarter or year or
any Letter of Credit was issued for the account of White Mountains and
outstanding as of the last day of such fiscal quarter or year, the Guaranty by
Fund American pursuant to Section 2.21 hereof of the principal amount of such
Loans outstanding as of such date plus all Reimbursement Obligations as of such
date of White Mountains in respect of any such Letter of Credit plus all
interest accrued and payable by White Mountains as of such date with respect
thereto was not prohibited pursuant to Section 4 of the Certificate of
Designation (and, if the principal amount of such Loans outstanding as of such
last day plus all such Reimbursement Obligations as of such last day exceeded
$50 million, such certificate shall be accompanied by a calculation of the
additional amount of White Mountains indebtedness that could have been
guaranteed by Fund American as of such last day pursuant to Section 4 of the
Certificate of Designation).

          (c) within 10 days after the same are filed with the SEC, all reports
and filings on Forms 10-K, 10-Q and 8-K that the Borrowers may make to, or file
with, the SEC; and

          (d) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.

          6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature (other than Indebtedness), except where
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrowers or their



                                                                              47

Subsidiaries, as the case may be; PROVIDED, that the Borrowers may, in the
ordinary course of business, extend payments on those payables if beneficial to
the operation of their businesses.

          6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE, ETC. (a)(i) With
respect to each Subsidiary of White Mountains, preserve, renew and keep in full
force and effect its corporate existence and (ii) with respect to White
Mountains and each of its Subsidiaries, take all reasonable action to maintain
all licenses, permits, rights, privileges and franchises necessary or desirable
in the normal conduct of its business, except, in each case, as otherwise would
not be a Fundamental Change and except, in the case of clause (i) above and
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law, except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.

          6.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all Property and
systems useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted and (b) maintain with financially
sound and reputable insurance companies (other than with the Borrowers or their
Subsidiaries) insurance on all its Property in at least such amounts and against
at least such risks (but including in any event public liability, product
liability and business interruption) as are usually insured against in the same
general area by companies engaged in the same or a similar business (it being
understood that, to the extent consistent with prudent business practices of
Persons carrying on a similar business in a similar location, a program of
self-insurance for first and other loss layers may be utilized).

          6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP (or SAP as applicable) and all Requirements of Law shall be
made of all material dealings and transactions in relation to its business and
activities and (b) upon reasonable prior notice, permit representatives of the
Administrative Agent (who may be accompanied by representatives of other
Lenders) and, during the continuance of an Event of Default, any Lender to (x)
visit and inspect any of its properties, (y) during the continuance of an Event
of Default, conduct reasonable examinations of (and, with the consent of the
Borrowers, such consent not to be reasonably withheld, make abstracts from) any
of its books and records at any reasonable time and as often as may reasonably
be requested and (z) discuss the business, operations, properties and financial
and other condition of the Borrowers with officers and employees of the
Borrowers. It is understood that (i) any information obtained by the
Administrative Agent or any Lender in any visit or inspection pursuant to this
Section shall be subject to the confidentiality requirements of Section 10.14,
(ii) the Borrowers may impose, with respect to any Lender or any Affiliate of
any Lender reasonably deemed by the Borrowers to be engaged significantly in a
business which is directly competitive with any material business of the
Borrowers and their Subsidiaries, reasonable restrictions on access to
proprietary information of the Borrowers and their Subsidiaries and (iii) the
Lenders will coordinate their visits through the Administrative Agent with a
view to preventing the visits provided for by this Section from becoming
unreasonably burdensome to the Borrowers and their Subsidiaries.



                                                                              48

          6.7 NOTICES. Give notice to the Administrative Agent (it being agreed
that the Administrative Agent shall, upon receipt of such notice, notify each
Lender thereof) of the following within the time periods specified:

          (a) Promptly after any Responsible Officer of a Borrower obtains
knowledge thereof, the occurrence of any Default or Event of Default;

          (b) Within five days after any Responsible Officer of a Borrower
obtains knowledge thereof, the occurrence of:

               (i) default or event of default under any Contractual Obligation
          of the Borrowers or any of their Subsidiaries or litigation,
          investigation or proceeding which may exist at any time between the
          Borrowers or any of their Subsidiaries and any Governmental Authority,
          that in either case, if not cured or if adversely determined, as the
          case may be, could reasonably be expected to have a Material Adverse
          Effect; and

               (ii) (A) any litigation or proceeding affecting the Borrowers or
          any of their Subsidiaries (other than claims-related litigation
          involving an Insurance Subsidiary) in which (x) the amount involved is
          $50,000,000 or more and not covered by insurance or (y) in which
          injunctive or similar relief is sought that could reasonably be
          expected to have a Material Adverse Effect and (B) any claims-related
          litigation affecting any Insurance Subsidiary which could reasonably
          be expected to have a Material Adverse Effect; and

          (c) As soon as possible and, in any event, within 30 days after a
Responsible Officer of the Borrowers obtains knowledge thereof: (A) the
occurrence of any Reportable Event with respect to any Plan, a failure to make
any required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (B) the institution of proceedings or
the taking of any other action by the PBGC or the Borrowers or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the termination, Reorganization or Insolvency of, any Plan.

Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrowers or the relevant Subsidiary proposes to
take with respect thereto.

          6.9 TAXES. Pay, discharge, or otherwise satisfy before the same shall
become overdue, all taxes, assessments and other governmental charges imposed
upon it and its real estate, sales and activities, or any part thereof, or upon
the income or profits therefrom, other than where failure to pay such taxes
could not reasonably be expected to result in a Material Adverse Effect;
PROVIDED that any such tax, assessment, charge, levy or claim need not be paid
if the validity or amount thereof shall currently be contested in good faith by
appropriate proceedings and reserves in conformity with SAP or GAAP, as
applicable, have been provided on the books of the Borrowers and their
Subsidiaries, as the case may be.



                                                                              49

          6.10 FURTHER ASSURANCES. Each of the Borrowers will, and will cause
each of their Subsidiaries to, cooperate with the Lenders and the Administrative
Agent and execute such further INSTRUMENTS and documents as the Lenders or the
Administrative Agent shall reasonably request to give effect to the transactions
contemplated by this Agreement and the other Loan Documents.

SECTION 7 NEGATIVE COVENANTS

          The Borrowers hereby jointly and severally agree that, from and after
the Closing Date and so long as the Commitments remain in effect, any Letter of
Credit remains outstanding, there exist any unpaid Reimbursement Obligations or
any principal or interest on any Loan or any fee payable hereunder is owing to
any Lender or the Administrative Agent hereunder:

          7.1 FINANCIAL CONDITION COVENANTS.

          (a) MAINTENANCE OF CONSOLIDATED NET WORTH. White Mountains shall not
permit its Consolidated Net Worth, as of the end of any fiscal quarter
subsequent to June 30, 2003, to be less than the sum of (i) $2,000,000,000 plus
(ii) 50% of positive Consolidated Net Income for each fiscal quarter ending
after June 30, 2003.

          (b) MAINTENANCE OF TOTAL CONSOLIDATED DEBT TO CONSOLIDATED
CAPITALIZATION. White Mountains shall not permit the ratio, as of the end of any
fiscal quarter ending after June 30, 2003, of its Total Consolidated Debt to
Consolidated Capitalization to exceed thirty-five percent (35%).

          7.2 LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The
Borrowers will not permit any of their Subsidiaries (other than Fund American)
to create, incur or assume or suffer to exist any Indebtedness or issue any
preferred stock, except:

          (a) Indebtedness and preferred stock outstanding as of the Closing
Date and any refinancings, refundings, renewals or extensions thereof (without
any increase in the principal amount thereof , other than by the amount of any
necessary pre-payment premiums, unpaid accrued interest and other costs of
refinancing, or any shortening of the final maturity of any principal amount
thereof to a date prior to the Revolving Credit Termination Date).

          (b) Indebtedness or preferred stock of any Insurance Subsidiary
incurred or issued in the ordinary course of its business or in securing
insurance-related obligations (that do not constitute Indebtedness) of such
Insurance Subsidiary and letters of credit issued for the account of any
Insurance Subsidiary in the ordinary course of its business or in securing
insurance-related obligations (that do not constitute Indebtedness) of such
Insurance Subsidiary.

          (c) short-term Indebtedness of any Insurance Subsidiary incurred to
provide short-term liquidity to facilitate claims payment in the event of
catastrophes.

          (d) Indebtedness or preferred stock of a Subsidiary acquired after the
Closing Date or a corporation merged into or consolidated with a Subsidiary
after the Closing Date and



                                                                              50

Indebtedness assumed in connection with the acquisition of assets, which
Indebtedness, in each case, exists at the time of such acquisition, merger or
consolidation and is not created in contemplation of such event, as well as any
refinancings, refunds, renewals or extensions of such Indebtedness (without
increase in the principal amount thereof other than by the amount of any
necessary pre-payment premiums, unpaid accrued interest and other costs of
refinancing).

          (e) Indebtedness or preferred stock owing or issued by a Subsidiary to
any Subsidiary or to any Borrower.

          (f) Guarantees of Obligations made by a Subsidiary in respect of
obligations of a Subsidiary (other than Fund American).

          (g) other Indebtedness or preferred stock, provided that at the time
such Indebtedness or preferred stock is incurred or issued, the aggregate
principal amount or liquidation preference of such Indebtedness or preferred
stock when added to all other Indebtedness and preferred stock incurred or
issued pursuant to this clause (g) and then outstanding, does not exceed 15% of
the Consolidated Net Worth of White Mountains.

          7.3 LIMITATION ON LIENS. The Borrowers will not, and will not permit
any of their Subsidiaries to, create, incur, assume or suffer to exist (i) any
Lien upon any stock or indebtedness of any Subsidiary, whether owned on the date
of this Agreement or hereafter acquired, to secure any Debt of the Borrowers or
any of their Subsidiaries or any other person (other than the obligations
hereunder) or (ii) any Lien upon any other Property, whether owned or leased on
the date of this Agreement, or thereafter acquired, to secure any Debt of the
Borrowers or any of their Subsidiaries or any other person (other than the
obligations hereunder), except:

          (a) (x) any Lien existing on the date of this Agreement or (y) any
Lien upon stock or indebtedness or other Property of any Person existing at the
time such Person becomes a Subsidiary or existing upon stock or indebtedness of
a Subsidiary or any other Property at the time of acquisition of such stock or
indebtedness or other Property (PROVIDED that such Lien was not created in
connection with the acquisition of such Person or such Property), and any
extension, renewal or replacement (or successive extensions, renewals or
replacements) in whole or in part of any such Lien in clauses (x) or (y) above;
PROVIDED, HOWEVER, that the principal amount of Debt secured by such Lien shall
not exceed the principal amount of Debt so secured at the time of such
extension, renewal or replacement; and PROVIDED, FURTHER, that such Lien shall
be limited to all or such part of the stock or indebtedness or other Property
which secured the Lien so extended, renewed or replaced.

          (b) any Permitted Liens; and

          (c) any Lien upon any Property if the aggregate amount of all Debt
then outstanding secured by such Lien and all other Liens permitted pursuant to
this clause (c) does not exceed 10% of the total consolidated stockholders'
equity (including preferred stock) of White Mountains as shown on the audited
consolidated balance sheet contained in the latest annual report to stockholders
of White Mountains; PROVIDED that Debt secured by Liens permitted by clauses (a)
and (b) shall not be included in the amount of such secured Debt.



                                                                              51

          7.4 LIMITATION ON CHANGES IN FISCAL PERIODS. Neither of the Borrowers
shall permit their fiscal year to end on a day other than December 31 or change
their method of determining fiscal quarters.

          7.5 LIMITATION ON LINES OF BUSINESS. Neither of the Borrowers shall
engage to any extent that is material for such Borrower and its Subsidiaries,
taken as a whole, in any business, either directly or through any Subsidiary,
other than a Principal Business.

          7.6 CERTAIN LIMITATIONS. Fund American will not amend or modify (or
consent to any amendment or modification to) the Certificate of Designation if
such amendment or modification would result in the terms of the Certificate of
Designation, as amended or modified, prohibiting the Guaranty by Fund American
pursuant to Section 2.21(b) hereof of (a) the outstanding principal amount of
any Loan that has been advanced to White Mountains and is outstanding at the
time of such amendment or modification, (b) the Reimbursement Obligations at
such time of White Mountains in respect of any Letter of Credit that has been
issued for the account of White Mountains and is outstanding at such time or (c)
any interest accrued and payable by White Mountains as of such time with regard
thereto.

SECTION 8 EVENTS OF DEFAULT

          If any of the following events shall occur and be continuing:

          (a) The Borrowers shall fail to pay any principal of any Loan made to
the Borrowers or Reimbursement Obligation owing by the Borrowers when due in
accordance with the terms hereof; or the Borrowers shall fail to pay any
interest on any Loan made to the Borrowers or Reimbursement Obligation owing to
the Borrowers, or any other amount payable by the Borrowers hereunder or under
any other Loan Document, within three Business Days after any such interest or
other amount becomes due in accordance with the terms hereof; or

          (b) Any representation or warranty made or deemed made by either of
the Borrowers herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan Document
shall prove to have been inaccurate in any material respect on or as of the date
made or deemed made or furnished; or

          (c) Either of the Borrowers shall default in the observance or
performance of any agreement contained in Section 6.4(a)(i) (with respect to the
Borrowers only), Section 6.4(a)(ii), Section 6.7(a) or Section 7; or

          (d) Either of the Borrowers shall default in the observance or
performance of any other agreement, covenant, term or condition contained in
this Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section) and such default shall continue unremedied for
a period of 30 days; or

          (e) The Borrowers or any of their Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including, without
limitation, any Guarantee



                                                                              52

Obligation, but excluding the Loans and Reimbursement Obligations) on the
scheduled or original due date with respect thereto (after giving effect to any
applicable grace periods); or (ii) default in making any payment of any interest
on any such Indebtedness beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created; or (iii)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, the effect of which default is to
cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee
or agent on behalf of such holder or beneficiary) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated maturity
or to become subject to or mandatory offer to purchase by the obligor thereunder
as a result of the occurrence of such default thereunder or (in the case of any
such Indebtedness constituting a Guarantee Obligation) to become payable;
PROVIDED, that a default described in clause (i), (ii) or (iii) of this
paragraph (e) shall not at any time constitute an Event of Default unless, at
such time, one or more defaults of the type described in clauses (i), (ii) and
(iii) of this paragraph (e) shall have occurred and be continuing with respect
to Indebtedness the outstanding principal amount of which exceeds in the
aggregate $25,000,000; or

          (f) (i) The Borrowers or any of their Material Insurance Subsidiaries
shall voluntary commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Borrowers or any of their Material
Insurance Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrowers or any of
their Material Insurance Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above that (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) the Borrowers or any
of their Material Insurance Subsidiaries shall take any corporate action to
authorize or effect any of the acts set forth in clause (i), or (ii), above; or
(iv) the Borrowers or any of their Material Insurance Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or

          (g) (i) Any person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Borrowers or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Majority Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA or, (v) the
Borrowers or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the



                                                                              53

Insolvency or Reorganization of, a Multiemployer Plan and in each case in
clauses (i) through (v) above, such event or condition, together with all other
such events or conditions for which liability to the Borrowers is reasonably
expected to occur, if any, could, in the reasonable judgment of the Majority
Lenders, reasonably be expected to have a Material Adverse Effect; or

          (h) One or more judgments or decrees shall be entered against the
Borrowers or any of their Subsidiaries involving for the Borrowers and their
Subsidiaries taken as a whole a liability (to the extent not paid or fully
covered by insurance above applicable deductions) of $25,000,000 or more, and
all such judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 45 days from the entry thereof; or

          (i) The guarantees, set forth in Section 2.21 herein, shall cease, for
any reason (other than as provided in Section 10.15) to be in full force and
effect or either of the Borrowers or any Affiliate of either of the Borrowers
shall so assert in writing; or

          (j) a Change of Control; or

          (k) Any License of any Insurance Subsidiary (i) shall be revoked by
the Governmental Authority which issued such License, or any action
(administrative or judicial) to revoke such License shall have been commenced
against such Insurance Subsidiary and shall not have been dismissed within
thirty days after the commencement thereof, (ii) shall be suspended by such
Governmental Authority for a period in excess of thirty days or (iii) shall not
be reissued or renewed by such Governmental Authority upon the expiration
thereof following application for such reissuance or renewal of such Insurance
Subsidiary , which, in the case of each clause (i), (ii) and (iii) above, could
reasonably be expected to have a Material Adverse Effect; or

          (l) a Fundamental Change;

then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to either of the
Borrowers, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Majority Lenders, the Administrative Agent
may, or upon the request of the Majority Lenders, the Administrative Agent
shall, by notice to the Borrowers declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrowers, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. In the case of any Letter of
Credit issued for the account of a Borrower with respect to which presentment
for honor shall not have occurred at the time of an



                                                                              54

acceleration pursuant to this paragraph, such Borrower shall at such time
deposit in a cash collateral account opened by the Administrative Agent an
amount equal to the aggregate then undrawn and unexpired amount of such Letters
of Credit. Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrowers hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrowers hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the applicable Borrower (or such other Person as may be lawfully entitled
thereto).

SECTION 9 THE ADMINISTRATIVE AGENT

          9.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each Lender irrevocably authorizes
the Administrative Agent, in such capacity, to take such action on its behalf
under the provisions of this Agreement and the other Loan Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.

          9.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.

          9.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except to the extent that any of the foregoing are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by either of the Borrowers or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of either of the Borrowers that is a party thereto
to perform its obligations hereunder or thereunder. The



                                                                              55

Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of either of the
Borrowers.

          9.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrowers), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 10.6 and all actions required by such
Section in connection with such transfer shall have been taken. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Majority Lenders (or, if so
specified by this Agreement, all Lenders or any other instructing group of
Lenders specified by this Agreement), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.

          9.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent shall have received notice from a
Lender or the Borrowers referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent shall receive such a notice, the
Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Majority Lenders (or, if
so specified by this Agreement, all Lenders or any other instructing group of
Lenders specified by this Agreement); provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.

          9.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
the Administrative Agent hereafter taken, including any review of the affairs of
either of the Borrowers or any affiliate of either of the Borrowers, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and



                                                                              56

information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrowers and their affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrowers and their
affiliates. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall have no duty or responsibility to provide any Lender
with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
either of the Borrowers or any affiliate of either of the Borrowers that may
come into the possession of the Administrative Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.

          9.7 INDEMNIFICATION. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrowers and
without limiting the obligation of the Borrowers to do so), ratably according to
their respective Revolving Credit Percentages in effect on the date on which
indemnification is sought under this Section (or, if indemnification is sought
after the date upon which the Commitments shall have terminated and the Loans
shall have been paid in full, ratably in accordance with such Revolving Credit
Percentages immediately prior to such date), for, and to hold the Administrative
Agent harmless from and against, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever that may at any time (including, without limitation, at
any time following the payment of the Loans) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the
Administrative Agent's gross negligence or willful misconduct. The agreements in
this Section shall survive the payment of the Loans and all other amounts
payable hereunder.

          9.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits from,
hold equity interests in and generally engage in any kind of business with
either of the Borrowers or their Affiliates as though the Administrative Agent
were not an Administrative Agent. With respect to its Loans made or renewed by
it and with respect to any Letter of Credit issued or participated in by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not an Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.



                                                                              57

          9.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as Administrative Agent upon 15 days' notice to the Lenders and the
Borrowers. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Majority Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or 8 (f)
with respect to a Borrower shall have occurred and be continuing) be subject to
approval by the Borrowers (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 15 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective, and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Majority Lenders appoint a successor
agent as provided for above. After the retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.

          9.10 AUTHORIZATION TO RELEASE LIENS AND GUARANTEES. The Administrative
Agent is hereby irrevocably authorized by each of the Lenders to effect any
release of guarantee obligations contemplated by Section 10.15.

          9.11 THE JOINT LEAD ARRANGERS AND THE SYNDICATION AGENT. The Joint
Lead Arrangers and the Syndication Agent, in their respective capacities as
such, shall have no duties or responsibilities, and shall incur no liability,
under this Agreement and the other Loan Documents.

SECTION 10 MISCELLANEOUS

          10.1 AMENDMENTS AND WAIVERS. Neither this Agreement or any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Majority Lenders and each Borrower party to the relevant Loan Document may, or
(with the written consent of the Majority Lenders) the Administrative Agent and
each Borrower party to the relevant Loan Document may, from time to time, (a)
enter into written amendments, supplements or modifications hereto and to the
other Loan Documents (including amendments and restatements hereof or thereof)
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the
Borrowers hereunder or thereunder or (b) waive, on such terms and conditions as
may be specified in the instrument of waiver, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment,
supplement or modification shall:



                                                                              58

               (i) forgive or reduce the principal amount or extend the final
     scheduled date of maturity of any Loan or Reimbursement Obligation, reduce
     the stated rate of any interest or fee payable hereunder or extend the
     scheduled date of any payment thereof, or increase the amount or extend the
     expiration date of any Commitment of any Lender, in each case without the
     consent of each Lender directly affected thereby;

               (ii) (a) amend, modify or waive any provision of this Section
     10.1, (b) amend, modify or waive the definition of Majority Lenders, (c)
     consent to the assignment or transfer by either of the Borrowers of any of
     its rights and obligations under this Agreement and the other Loan
     Documents or (d) release either of the Borrowers from their guarantee
     obligations under the Guarantees except as provided in Section 10.15, in
     each case without the consent of all Lenders;

               (iii) amend, modify or waive any provision of Section 9 without
     the consent of the Administrative Agent;

               (iv) amend, modify or waive any provision of Section 2.3 or 2.4
     without the written consent of the Swing Line Lender;

               (v) amend, modify or waive any provision of Section 2.14 without
     the consent of each Lender directly affected thereby;

               (vi) amend, modify or waive any provision of Section 3 without
     the consent of the Issuing Lender;

               (vii) amend, modify or waive the provisions of the definition of
     Interest Period regarding twelve month Interest Periods for Eurodollar
     Loans without the consent of each relevant Lender.

Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Borrowers, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Borrowers, the Lenders and the Administrative Agent
shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon. Any such waiver, amendment, supplement or modification shall be
effected by a written instrument signed by the parties required to sign pursuant
to the foregoing provisions of this Section; PROVIDED, that delivery of an
executed signature page of any such instrument by facsimile transmission shall
be effective as delivery of a manually executed counterpart thereof.

          For the avoidance of doubt, this Agreement may be amended (or amended
and restated) with the written consent of the Majority Lenders, the
Administrative Agent and each Borrower party to each relevant Loan Document (x)
to add one or more additional credit facilities to this Agreement and to permit
the extensions of credit from time to time outstanding thereunder and the
accrued interest and fees in respect thereof to share ratably in the benefits of
this Agreement and the other Loan Documents with the Loans, the L/C Obligations
and the



                                                                              59

accrued interest and fees in respect thereof and (y) to include appropriately
the Lenders holding such credit facilities in any determination of the Majority
Lenders.

          10.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (a) in the case of the Borrowers and the Administrative
Agent, as follows and (b) in the case of the Lenders, as set forth in an
administrative questionnaire delivered to the Administrative Agent or on
Schedule 1 hereto or, in the case of a Lender which becomes a party to this
Agreement pursuant to an Assignment and Acceptance, in such Assignment and
Acceptance or (c) in the case of any party, to such other address as such party
may hereafter notify to the other parties hereto:


     The Borrowers:                    White Mountains Insurance Group, Ltd.
                                       80 South Main Street
                                       Hanover, NH 03755
                                       Attention: Dennis P. Beaulieu,
                                                  Corporate Secretary
                                       Telephone: (603) 640-2200
                                       Telecopy: (603) 643-4592


                                       Fund American Companies, Inc.
                                       370 Church Street
                                       Guilford, CT 06437
                                       Attention: Reid T. Campbell
                                       Telephone: (203) 458-2467
                                       Telecopy: (203) 458-0754



                                                                              60

     The Administrative Agent:         Fleet National Bank
                                       100 Federal Street
                                       10th Floor
                                       Mail Code: MADE 1001H
                                       Boston, MA 02110
                                       Attention: David Bosselait, Director
                                       Telephone: (617) 434-3778
                                       Telecopy: (617) 434-1096


                                       With copy to:

                                       Bingham McCutchen LLP
                                       150 Federal Street
                                       Boston, MA 02110
                                       Attention: Jonathan K. Bernstein
                                       Telephone: 617-951-8630
                                       Telecopy: 617-951-8736

     Issuing Lender:                   As notified by the Issuing Lender to the
                                       Administrative Agent and the Borrowers


PROVIDED that any notice, request or demand to or upon the Administrative Agent,
the Issuing Lender or any Lender shall not be effective until received.

          10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

          10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.

          10.5 PAYMENT OF EXPENSES. Fund American agrees (a) to pay or reimburse
the Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with the syndication and administration of the
Loans and Letters of Credit (other than fees payable to syndicate members) and
the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without



                                                                              61

limitation, the reasonable fees and disbursements and other charges of counsel
to the Administrative Agent and the charges of Intralinks, (b) to pay or
reimburse each Lender and the Administrative Agent for all of their reasonable,
out-of-pocket costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the reasonable fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) to pay, indemnify, or reimburse each Lender and the Administrative
Agent for, and hold each Lender and the Administrative Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify or reimburse
each Lender, the Administrative Agent, and their respective affiliates, and
their respective officers, directors, shareholders, trustees, employees,
advisors, agents and controlling persons (each, an "Indemnitee") for, and hold
each Indemnitee harmless from and against any and all other liabilities,
obligations, losses, damages, claims, penalties, causes of action, judgments or
suits of any kind whatsoever and reasonable, related out-of-pocket costs and
expenses arising out of the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents, including, without limitation, any of the foregoing relating to the
use of proceeds of the Loans or the violation of, noncompliance with or
liability under, any environmental law applicable to the operations of the
Borrowers or any of their Subsidiaries or any of the Properties and the
reasonable, related, out-of-pocket, costs, expenses, fees and disbursements and
other charges of legal counsel in connection with claims, actions or proceedings
by any Indemnitee against the Borrowers hereunder (all the foregoing in this
clause (d), collectively, the "Indemnified Liabilities"), provided, that the
Borrowers shall have no obligation hereunder to any Indemnitee with respect to
Indemnified Liabilities to the extent such Indemnified Liabilities are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such Indemnitee. No
Indemnified Person shall be liable to the Borrowers for any damages arising from
the use by others of information or materials obtained through electronic,
telecommunications or other information transmission systems provided that this
sentence will not, as to any Indemnified Person, apply to the extent such
Indemnified Person is found by a final, non-appealable judgment of a court to
have acted with willful misconduct or gross negligence. It is understood and
agreed that, to the extent not precluded by a conflict of interest (as
reasonably determined by the relevant Indemnitee), each Indemnitee shall
endeavor to work cooperatively with the Borrowers with a view towards minimizing
the legal and other expenses associated with any defense and any potential
settlement or judgment. To the extent reasonably practicable and not
disadvantageous to any Indemnitee (as reasonably determined by the relevant
Indemnitee), it is anticipated that a single counsel selected by the affected
Lenders may be used. Without limiting the foregoing, and to the extent permitted
by applicable law, the Borrowers agrees not to assert and to cause their
Subsidiaries not to assert, and hereby waives and agrees to cause their
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature with respect
to the execution, delivery, enforcement, performance and



                                                                              62

administration of this Agreement, the other Loan Documents and any such other
documents, under or related to Environmental Laws, that any of them might have
by statute or otherwise against any Indemnitee, except to the extent such rights
result from the gross negligence or willful misconduct of such Indemnitee. All
amounts due under clauses (a), (b) and (c) of the first sentence of this Section
shall be payable not later than 30 days following written demand therefor.
Statements payable by the Borrowers pursuant to this Section shall be submitted
to Reid T. Campbell (Telephone No. (203) 458-2467) (Fax No. (203) 458-0754), at
the address of the Borrowers set forth in Section 10.2, or to such other Person
or address as may be hereafter designated by the Borrowers in a written notice
to the Administrative Agent. The agreements in this Section shall survive
repayment of the Loans and all other amounts payable hereunder.

          10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrowers, the
Lenders, the Administrative Agent, all future holders of the Loans and their
respective successors and assigns, except that the Borrowers may not assign or
transfer their rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and each Lender. Neither of the
Guarantors may assign any of their obligations in respect of the Guarantees.

          (b) Any Lender may, without the consent of the Borrowers or the
Administrative Agent (but with notice to the Administrative Agent), in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "PARTICIPANT") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrowers and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event shall
any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by either Borrower therefrom, except to the extent that such
amendment, waiver or consent would, pursuant to Section 10.1, require the
consent of all Lenders. The Borrowers agree that if amounts owing by the
Borrowers under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, PROVIDED that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if such
Participant were a Lender hereunder. The Borrowers also agrees that each
Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if such Participant were a Lender; PROVIDED that, in the
case of Section 2.16, such Participant shall have complied with the requirements
of said Section, and PROVIDED, FURTHER, that no Participant shall be entitled to
receive any greater amount pursuant to any such Section than the transferor
Lender would have been



                                                                              63

entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.

          (c) Any Lender (an "ASSIGNOR") may, in accordance with applicable law
and upon written notice to the Administrative Agent and the Borrowers, at any
time and from time to time assign to (A) any Lender, (B) an affiliate of any
Lender, PROVIDED THAT (i) such affiliate is a financial institution having a
senior unsecured debt rating of not less than "A-", or its equivalent, by S&P
and (ii) such Assignor has obtained the prior written consent of the
Administrative Agent to such assignment, such consent not be unreasonably
withheld or delayed or (C) an additional bank, financial institution or other
entity PROVIDED THAT, in the case of an assignment pursuant to this clause (C),
such Assignor has obtained the prior written consent of the Administrative Agent
and the Borrowers to such assignment, each such consent not be unreasonably
withheld or delayed (the entities described in (A), (B) and (C) each being
referred to as an "ASSIGNEE") all or any part of its rights and obligations
under this Agreement pursuant to an Assignment and Acceptance, substantially in
the form of EXHIBIT H, executed by such Assignee and such Assignor (and, where
the consent of the Borrowers or the Administrative Agent is required pursuant to
the foregoing provisions, by the Borrowers and/or the Administrative Agent) as
applicable; PROVIDED that (i) no such assignment of Revolving Credit Loans to an
Assignee (other than any Lender or any affiliate thereof) shall be in an
aggregate principal amount of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement) and (ii) no such
assignment of Revolving Credit Commitments and/or Revolving Credit Loans (other
than in the case of an assignment of all of a Lender's interests under this
Agreement) shall result in such Lender's Commitments being reduced to less than
$5,000,000. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(w) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with Commitments or Loans as set forth therein, and (x) the Assignor
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an Assignor's rights and obligations
under this Agreement, such Assignor shall cease to be a party hereto, except as
to Section 2.15, 2.16, 10.5 and 10.14 in respect of the period prior to such
effective date). Notwithstanding any provision of this Section (y) the consent
of the Borrowers shall not be required for any assignment that occurs at any
time when any Event of Default shall have occurred and be continuing and (z) the
parties to this Agreement acknowledge that the provisions of this Section
concerning assignments of Loans and Notes relate only to absolute assignments
and that such provisions do not prohibit assignments creating security interests
and further acknowledge that any Lender may at any time pledge or assign a
security interest in all or any portion of its interest and rights under this
Agreement (including all or any portion of its Notes) to secure obligations of
such Lender, including any pledge or assignment to secure obligations to any of
the twelve Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341.

          (d) The Administrative Agent shall, on behalf of the Borrowers,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the



                                                                              64

Borrowers, the Administrative Agent and the Lenders shall treat each Person
whose name is recorded in the Register as the owner of the Loans and any Notes
evidencing such Loans recorded therein for all purposes of this Agreement. Any
assignment of any Loan, whether or not evidenced by a Note, shall be effective
only upon appropriate entries with respect thereto being made in the Register
(and each Note shall expressly so provide). Any assignment or transfer of all or
part of a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or
more new Notes in the same aggregate principal amount shall be issued to the
designated Assignee, and the old Notes shall be returned by the Administrative
Agent to the Borrowers marked "canceled". The Register shall be available for
inspection by the Borrowers or any Lender (with respect to any entry relating to
such Lender's Loans) at any reasonable time and from time to time upon
reasonable prior notice.

          (e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in any case where the consent of any other Person
is required by Section 10.6(c), by each such other Person) together with payment
to the Administrative Agent of a registration and processing fee of $3,500
(except that (x) no such registration and processing fee shall be payable in the
case of an Assignee which is an affiliate of the Assignor or a Person under
common management with the Assignor and (y) only one registration and processing
fee shall be payable in cases of contemporaneous multiple assignments by an
Assignor to Assignees which are affiliates of each other), the Administrative
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Administrative Agent and the Borrowers. On or prior to such effective date,
the Borrowers, at its own expense, upon request, shall execute and deliver to
the Administrative Agent (in exchange for the Revolving Credit Note of the
assigning Lender) a new Revolving Credit Note to such Assignee in an amount
equal to the Revolving Credit Commitment assumed or acquired by it pursuant to
such Assignment and Acceptance and, if the Assignor has retained a Revolving
Credit Commitment, a new Revolving Credit Note, as the case may be, to the
Assignor in an amount equal to the Revolving Credit Commitment. Such new Note or
Notes shall be dated the Closing Date and shall otherwise be in the form of the
Note or Notes replaced thereby.

          10.7 ADJUSTMENTS; SET-OFF. (a) Except to the extent that this
Agreement provides for a payment to be allocated to a particular Lender, if any
Lender (a "Benefitted Lender") shall at any time receive any payment of all or
part of the obligations under the Credit Agreement or the other Loan Documents,
owing to it, or receive any collateral in respect thereof (whether voluntarily
or involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's obligations under the Credit Agreement or the other Loan
Documents, such Benefitted Lender shall purchase for cash from the other Lenders
a participating interest in such portion of each such other Lender's obligations
under the Credit Agreement or the other Loan Documents, or shall provide such
other Lenders with the benefits of any such collateral, as shall be necessary to
cause such Benefitted Lender to share the excess payment or benefits of such
collateral ratably with each of the Lenders; provided, however, that if all or
any portion of such excess payment or benefits is



                                                                              65

thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.

          (b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrowers,
any such notice being expressly waived by the Borrowers to the extent permitted
by applicable law, upon any amount becoming due and payable by a Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise), to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of such Borrower. Each Lender agrees promptly to notify
the Borrowers, as the case may be, and the Administrative Agent after any such
setoff and application made by such Lender, PROVIDED that the failure to give
such notice shall not affect the validity of such setoff and application.

          10.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrowers and the Administrative Agent.

          10.9 SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

          10.10 INTEGRATION. This Agreement and the other Loan Documents
represent the entire agreement of the Borrowers the Administrative Agent, the
Syndication Agent and the Lenders with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Arranger, the Administrative Agent, the Syndication Agent or any Lender
relative to subject matter hereof not expressly set forth or referred to herein
or in the other Loan Documents.

          10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

          10.12 SUBMISSION TO JURISDICTION; WAIVERS. Each of the Borrowers
hereby irrevocably and unconditionally:

          (a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the



                                                                              66

courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;

          (b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

          (c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Borrowers, as
the case may be, at its address set forth in Section 10.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto;

          (d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and

          (e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.

          10.13 ACKNOWLEDGMENTS. Each of the Borrowers hereby acknowledges that:

          (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;

          (b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrowers arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Administrative Agent and the Lenders, on one hand, and the Borrowers, on the
other hand, in connection herewith or therewith is solely that of debtor and
creditor; and

          (c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Syndication Agent, the Administrative Agent and the Lenders or among the
Borrowers and the Lenders.

          10.14 CONFIDENTIALITY. Each of the Administrative Agent, the
Syndication Agent and the Lenders agrees to keep confidential all non-public
information (including oral information) provided to it by either Borrower
pursuant to this Agreement that is designated by such Borrower as confidential;
PROVIDED that nothing herein shall prevent the Syndication Agent, the
Administrative Agent or any Lender from disclosing any such information (a) to
the Syndication Agent, the Administrative Agent, any other Lender or any
Affiliate of any thereof (PROVIDED, that such Affiliates shall expressly agree
to be bound by the provisions of this Section, and the disclosing Lender shall
be responsible for insuring compliance by such Affiliate with this Section), (b)
to any Participant or Assignee (each, a "TRANSFEREE") or prospective Transferee
that expressly agrees to comply with confidentiality provisions similar to the
provisions of this Section, (c) to any of its employees, directors, agents,
attorneys, accountants and other professional advisors, (d) to any financial
institution that is a direct or indirect contractual



                                                                              67

counterparty in swap agreements or such contractual counterparty's professional
advisor (so long as such contractual counterparty or professional advisor to
such contractual counterparty expressly agrees to be bound by the provisions of
this Section or confidentiality provisions similar to the provisions of this
Section), (e) upon the request or demand of any Governmental Authority having
jurisdiction over it, (f) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (g) in connection with any litigation or similar proceeding,
(h) that has been publicly disclosed other than in breach of this Section, (i)
to the NAIC or any similar organization or any nationally recognized rating
agency that requires access to information about a Lender's investment portfolio
in connection with ratings issued with respect to such Lender, (j) in connection
with the exercise of any remedy hereunder or under any other Loan Document or
(k) to any and all persons, without limitation of any kind, any information with
respect to U.S. federal income tax treatment and U.S. federal income tax
structure of the transactions contemplated hereby and all materials of any kind
(including opinions or other tax analyses) that are provided to it or them
relating to such tax treatment and tax structure, except that tax treatment and
tax structure shall not include the identity of any existing or future party to
this Agreement.

          10.15 RELEASE OF GUARANTEE OBLIGATIONS. Notwithstanding anything to
the contrary contained herein or any other Loan Document, when all obligations
of a Borrower hereunder and under the other Loan Documents that are guaranteed
by a Guarantor have been paid in full, all Commitments have terminated, there
exist no unpaid Reimbursement Obligations and no Letter of Credit issued for the
account of such Borrower shall be outstanding, upon request of the Borrowers,
the Administrative Agent shall (without notice to, or vote or consent of, any
Lender) take such actions as be required to release all guarantee obligations of
such Guarantor under any Loan Document, including, without limitation, its
Guarantee. Any such release of guarantee obligations shall be deemed subject to
the provision that such guarantee obligations shall be reinstated if after such
release any portion of any payment in respect of the obligations guaranteed
thereby shall be rescinded or must otherwise be restored or returned upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of such
Borrower or such Guarantor, or upon or as a result of the appointment of a
receiver, intervener or conservator of, or trustee or similar officer for, such
Borrower or such Guarantor or any substantial part of its property, or
otherwise, all as though such payment had not been made.

          10.16 ACCOUNTING CHANGES. In the event that any "Accounting Change"
(as defined below) shall occur and such change results in a change in the method
of calculation of financial covenants, standards or terms in this Agreement,
then the Borrowers and the Administrative Agent agree to enter into negotiations
in order to amend such provisions of this Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria for evaluating
the Borrowers' financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made. Until such time as such
an amendment shall have been executed and delivered by the Borrowers, the
Administrative Agent and the Majority Lenders, all financial covenants,
standards and terms in this Agreement shall continue to be calculated or
construed as if such Accounting Changes had not occurred. "Accounting Changes"
refers to changes in accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants, applicable
Insurance Regulators, the NAIC or, if applicable, the SEC.



                                                                              68

          10.17 WAIVERS OF JURY TRIAL. THE BORROWERS, THE ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.



          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.


                                     FUND AMERICAN COMPANIES, INC.


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     WHITE MOUNTAINS INSURANCE GROUP, LTD.


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     FLEET NATIONAL BANK, individually and
                                     as Administrative Agent


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     BANK ONE, NA, individually and as
                                     Syndication Agent


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     BANK OF AMERICA, N.A.


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     BARCLAYS BANK PLC


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     LEHMAN BROTHERS


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     MELLON BANK, N.A.


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     STATE STREET BANK AND TRUST COMPANY


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     THE BANK OF NEW YORK


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:



                                     THE BANK OF TOKYO-MITSUBISHI, LTD.,
                                     NEW YORK BRANCH


                                     By:
                                         ---------------------------------------
                                        Name:
                                        Title:

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Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO RULE 13a—14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Raymond Barrette, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of White Mountains Insurance Group, Ltd.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4.

The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 4, 2003
Raymond Barrette
President and Chief Executive Officer
(Principal Executive Officer)

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Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO RULE 13a—14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

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Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO RULE 13a—14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, David T. Foy, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of White Mountains Insurance Group, Ltd.;

2.

3.

4.

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 4, 2003

/s/ David T. Foy
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO RULE 13a—14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

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Exhibit 32.1

PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of White Mountains Insurance Group, Ltd. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Raymond Barrette, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

•: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,
•: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

/s/ Raymond Barrette
President and Chief Executive Officer
(Principal Executive Officer)

Date: November 4, 2003

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Exhibit 32.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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Exhibit 32.2

PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of White Mountains Insurance Group, Ltd. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David T. Foy, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

•: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,
•: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

/s/ David T. Foy
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: November 4, 2003

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Exhibit 32.2

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



                                                                    Exhibit 99.1

                           MONTPELIER RE HOLDINGS LTD.
                           CONSOLIDATED BALANCE SHEETS
                 (millions, except share and per share amounts)



                                                          September 30,     December 31,
                                                              2003              2002
                                                          ------------      ------------
                                                                       
Assets

Investments and cash:
Fixed maturities, at fair value                            $  1,900.6        $  1,354.8
Equities (quoted), at fair value                                 26.9                 -
Equities (unquoted), at estimated fair value                     63.7              63.7
Cash and cash equivalents, at fair value                        227.5             162.9
                                                           ----------        ----------

Total investments and cash                                    2,218.7           1,581.4

Unearned premium ceded                                           26.8               3.8
Reinsurance premiums receivable                                 260.0             147.2
Funds withheld by cedents                                         3.8              20.5
Deferred acquisition costs                                       72.0              44.9
Reinsurance recoverable                                           7.6              16.6
Accrued investment income                                        14.3              13.1
Other assets                                                      3.0               6.4
                                                           ----------        ----------

Total Assets                                               $  2,606.2        $  1,833.9
                                                           ==========        ==========

Liabilities

Loss and loss adjustment expense reserves                  $    220.3        $    146.1
Unearned premium                                                411.8             241.0
Reinsurance balances payable                                     25.5               2.5
Investment trades pending                                       113.4              34.3
Senior notes                                                    248.8                 -
Long-term debt                                                      -             150.0
Accounts payable, accrued expenses and
 other liabilities                                               17.1               7.5
                                                           ----------        ----------

   Total Liabilities                                          1,036.9             581.4
                                                           ----------        ----------

Shareholders' equity
Common voting shares and Additional
 paid-in capital                                              1,129.6           1,126.5
Accumulated other comprehensive income                           42.0              35.6
Retained earnings                                               397.7              90.4
                                                           ----------        ----------

   Total Shareholders' Equity                                 1,569.3           1,252.5
                                                           ----------        ----------

Total Liabilities and Shareholders'
 Equity                                                    $  2,606.2        $  1,833.9
                                                           ==========        ==========

Common voting shares outstanding (000's)                       63,393sh          63,393sh
Common voting and common equivalent
 shares outstanding (000's)                                    73,262            73,262





                                                                       
Book value per share:

            Basic book value per common voting share       $    24.76        $    19.76

                                                           ==========        ==========
            Fully converted book value per common
            voting and common equivalent share             $    23.72        $    19.39
                                                           ==========        ==========




                           MONTPELIER RE HOLDINGS LTD.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                      (millions, except per share amounts)





                                          Three          Three         Nine          Nine
                                        Months to      Months to     Months to     Months to
                                      September 30,  September 30, September 30, September 30,
                                          2003           2002          2003          2002
                                      -------------  ------------- ------------- -------------
                                                                        
             Revenues:

               Gross premiums
                written                   $ 145.9       $ 193.7       $ 706.6       $ 533.8
               Reinsurance
                premiums ceded                1.8         (20.9)        (39.9)        (39.7)
                                          -------       -------       -------       -------
               Net premiums
                written                     147.7         172.8         666.7         494.1
               Change in net
                unearned
                premiums                     15.2         (66.4)       (144.7)       (269.5)
                                          -------       -------       -------       -------
               Net premiums
                earned                      162.9         106.4         522.0         224.6
               Net investment
                income                       12.3          12.3          35.7          30.5
               Net realized
                investment
                gains (losses)
                on investments               (3.0)          4.0           6.3           5.5
               Net foreign
                exchange
                gains                         2.1           0.3           1.9           1.0
                                          -------       -------       -------       -------

                 Total
                  revenues                  174.3         123.0         565.9         261.6

             Expenses:

               Loss and loss
                adjustment
                expenses                     35.1          69.0         112.9         122.4
               Acquisition
                costs                        32.3          20.4         107.2          41.6
               General and
                administrative
                expenses                     12.8           5.8          32.9          15.9
               Interest
                expense                       3.0           1.2           5.5           3.3
                                          -------       -------       -------       -------

                 Total
                  expenses                   83.2          96.4         258.5         183.2

               Income before
                taxes                        91.1          26.6         307.4          78.4

               Income tax
                expense                       0.1             -           0.1             -

                                          -------       -------       -------       -------
             Net income                   $  91.0       $  26.6       $ 307.3       $  78.4
                                          -------       -------       -------       -------





                                                                        
               Other
                comprehensive
                income items                  3.1          15.5           6.5          25.4

                                          -------       -------       -------       -------
             Comprehensive
              income                      $  94.1       $  42.1       $ 313.8       $ 103.8
                                          =======       =======       =======       =======

             Earnings per
              share:

               Basic earnings
                per share                 $  1.44       $  0.51       $  4.85       $  1.49
               Diluted earnings
                per share                 $  1.34       $  0.50       $  4.58       $  1.49

               Basic
                comprehensive
                net income per
                share                     $  1.48       $  0.80       $  4.95       $  1.98
               Diluted
                comprehensive
                net income per
                share                     $  1.39       $  0.79       $  4.67       $  1.98

             Insurance
              ratios:

               Loss ratio                    21.5%         64.8%         21.6%         54.5%
               Expense ratio                 27.7%         24.7%         26.8%         25.6%
               Combined ratio                49.2%         89.5%         48.4%         80.1%




                           MONTPELIER RE HOLDINGS LTD.
                      FULLY CONVERTED BOOK VALUE PER COMMON
                       VOTING AND COMMON EQUIVALENT SHARE
                 (millions, except share and per share amounts)



                                         September 30,    December 31,
                                             2003            2002
                                         ------------     ------------
                                                    
Numerator (in millions):

shareholders' equity                     $    1,569.3     $    1,252.5
proceeds from assumed exercise
 of outstanding warrants                        122.0            122.0
proceeds from assumed exercise
 of outstanding options                          46.1             46.1
                                         ------------     ------------

   Book value numerator                  $    1,737.4     $    1,420.6
                                         ============     ============

Denominator (in shares):

common voting shares outstanding           63,392,600sh     63,392,600sh
shares issuable upon exercise
 of outstanding warrants                    7,319,160sh      7,319,160sh
shares issuable upon exercise
 of outstanding options                     2,550,000sh      2,550,000sh
                                         ------------     ------------

   Book value denominator                  73,261,760sh     73,261,760sh
                                         ============     ============

Fully converted book value per
 common voting and common
 equivalent share                        $      23.72     $      19.39
                                         ============     ============




                           MONTPELIER RE HOLDINGS LTD.
             DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
                 (millions, except share and per share amounts)



                                                            Three Months     Three Months
                                                               Ended            Ended
                                                           September 30,     September 30,
                                                                2003             2002
                                                           -------------     -------------
                                                                       
Basic earnings per common share:

Net income available to common
 shareholders                                              $        91.0     $        26.6
Weighted average common shares
 outstanding - Basic                                          63,392,600sh      52,440,000sh
                                                           -------------     -------------

     Basic earnings per common share                       $        1.44     $        0.51
                                                           =============     =============

Diluted earnings per common and common
 equivalent share:

Net income available to common
 shareholders                                              $        91.0     $        26.6
Weighted average common shares
 outstanding - Basic                                          63,392,600sh      52,440,000sh
Dilutive effect of warrants                                    3,450,357sh         623,864sh
Dilutive effect of share options                                 936,292sh          65,529sh
                                                           -------------     -------------
Weighted average common and common
 equivalent shares outstanding
  - Diluted                                                   67,779,249sh      53,129,393sh
                                                           -------------     -------------

     Diluted earnings per common and
      common equivalent share                              $        1.34     $        0.50
                                                           =============     =============


                                                            Nine Months       Nine Months
                                                               Ended             Ended
                                                           September 30,     September 30,
                                                                2003             2002
                                                           -------------     -------------
                                                                       
Basic Earnings per common share:

Net income available to common
 shareholders                                              $       307.3     $        78.4
Weighted average common shares
 outstanding - Basic                                          63,392,600sh      52,440,000sh
                                                           -------------     -------------

     Basic earnings per common share                       $        4.85     $        1.49
                                                           =============     =============

Diluted earnings per common share and
 common equivalent share:

Net income available to common
 shareholders                                              $       307.3     $        78.4





                                                                       
Weighted average common shares
 outstanding - Basic                                          63,392,600sh      52,440,000sh
Dilutive effect of warrants                                    3,021,557sh          78,500sh
Dilutive effect of share options                                 718,077sh           5,470sh
                                                           -------------     -------------
Weighted average common and common
 equivalent shares outstanding
 - Diluted                                                    67,132,234sh      52,523,970sh
                                                           -------------     -------------

     Diluted earnings per common and
      common equivalent share                              $        4.58     $        1.49
                                                           =============     =============