The Company maintains two professional offices in Hamilton, Bermuda which serve as its headquarters and its registered office. The Company’s principal executive office is in Hanover, New Hampshire. In addition, the Company maintains a professional office in Guilford, Connecticut, which houses its investment and corporate finance functions.
(g) Includes outstanding Convertible Preference Shares, Options and warrants to acquire common shares, when applicable.
Esurance writes business in 24 states. During 2006, Esurance’s largest states were California (with 19% of direct premium written), Florida (17%), New York (9%), Texas (6%) and Michigan (6%).
After-tax changes in White Mountains’ book value from its investment in Montpelier Re for the years ended December 31, 2006, 2005 and 2004 were as follows:
WMRUS has the ability to distribute its 2007 earnings without restriction. At December 31, 2006, WMRUS had $7 million of unrestricted cash. During 2006, WMRUS paid $14 million of dividends to its immediate parent.
Insurance float is an important dynamic of White Mountains’ operations that must be managed effectively. Float is money that an insurance company holds for a limited time. In an insurance operation, float arises because premiums are collected before losses are paid. This interval can extend over many years. During that time, the insurer invests the funds. When the premiums that an insurer collects do not cover the losses and expenses it eventually must pay, the result is an underwriting loss, which is considered to be the cost of float. The amount and cost of float for White Mountains is affected by underlying market conditions, as well as acquisitions or dispositions of insurance and reinsurance businesses.
In November 2006, White Mountains and White Mountains Re Group, Ltd, as co-borrowers and co-guarantors, established a $500 million revolving credit facility that matures in November 2011. As of December 31, 2006, White Mountains had $320 million outstanding on this facility, which bears interest at a current rate of 5.9%, and had accrued $2.5 million of interest expense on this borrowing during 2006.
The WTM Bank Facility and the FAC Bank Facility contain 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 and in the case of the WTM Bank Facility minimum interest coverage standards. Failure to meet one or more of these covenants could result in an event of default, which ultimately could eliminate availability under these facilities and result in acceleration of principal repayment on any amounts outstanding. At December31, 2006, White Mountains was in compliance with all of the covenants under the WTM Bank Facility and the FAC Bank Facility, and anticipates it will continue to remain in compliance with these covenants for the foreseeable future.
Backlogs in the recording of assumed reinsurance can also complicate the accuracy of loss reserve estimation. As of December 31, 2006, there were no significant backlogs related to the processing of assumed reinsurance information at White Mountains Re.