The pre-tax total return on invested assets was 5.6% for 2017, compared to 2.7% for 2016. White Mountains’s fixed income portfolio returned 3.5% for 2017 and 2.4% for 2016, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index returns of 2.3% for 2017 and 2.0% for 2016. White Mountains’s portfolio of common equity securities returned 20.1% for 2017 and 6.2% for 2016, underperforming the S&P 500 Index returns of 21.8% for 2017 and 12.0% for 2016. White Mountains’s other long-term investments portfolio returned -5.8% for 2017, primarily attributable to losses from foreign currency forward contracts and private capital investments.
The following table presents White Mountains’s adjusted book value per share, a non-GAAP financial measure, for the years ended December 31, 2017, 2016 and 2015 and reconciles this non-GAAP measure to the most comparable GAAP measure. See “NON-GAAP FINANCIAL MEASURES” on page 51.
White Mountains reported income tax benefit of $8 million in 2017 on pre-tax income of $8 million. White Mountains’s effective tax rate related to pre-tax income from continuing operations for 2017 was different from the U.S. statutory rate of 35%, primarily due to a full valuation allowance on all U.S. operations, income generated in jurisdictions with lower tax rates than the United States, a tax benefit recorded at BAM related to its MSC, and consolidated pre-tax income being near break-even. For 2017, BAM had amounts recorded in shareholders’ equity related to its MSC that were available to partially offset its loss from continuing operations. As a result, BAM recorded a tax benefit of $10 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity. See Note 6 - “Income Taxes” on page.
In 2017, under the MediaAlpha Bank Facility, MediaAlpha borrowed $20 million and repaid $2 million on the term loan and borrowed $6 million on the revolving loan. In 2017, under the Previous MediaAlpha Bank Facility, MediaAlpha repaid $13 million.
The estimated payments reflected in the table are based on current accrual factors (including performance relative to targets and common share price) and assume that all outstanding balances were 100% vested as of December 31, 2017.
During 2017, MediaAlpha borrowed $20 million on the term loan and $6 million on the revolving loan under the MediaAlpha Bank Facility. During 2017, MediaAlpha repaid $13 million under the Previous MediaAlpha Bank Facility and $2 million on the term loan under the MediaAlpha Bank Facility.
During 2017, White Mountains made gross investments into funds managed by Tuckerman Capital totaling $17 million and received a total of $2 million of distributions from these funds.
White Mountains’s process to assess the reasonableness of the market prices obtained from the outside pricing services covers substantially all of its fixed maturity investments and includes, but is not limited to, a review of pricing methodologies and the pricing services’ quality control procedures on at least an annual basis, a comparison of prices provided on its invested assets by the outside pricing service to prices obtained from alternate independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices and a review of the underlying assumptions utilized by the pricing services for select measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1 million from the expected price based on these reasonableness procedures are considered outliers. Also considered outliers are prices that have not changed from period to period and prices that have trended unusually compared to market conditions. In circumstances where the results of White Mountains’s review process does not appear to support the market price provided by the pricing services, White Mountains challenges the vendor provided price. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question.
Other Long-Term Investments: White Mountains’s other long-term investments as of December 31, 2017 included $55 million in one hedge fund and $70 million in ten private equity funds. The largest investment in a single fund was $55 million and $22 million as of December 31, 2017 and 2016.