HG Global headquarters are located in Hamilton, Bermuda and BAM’s headquarters are located in New York, New York.
MediaAlpha’s headquarters are located in Los Angeles, California, Wobi’s headquarters are located in Tel Aviv, Israel and Buzzmove’s headquarters are located in London, United Kingdom
During 2017 and 2016, Other Operations recognized $133 and $(28) of net realized and unrealized gains (losses) which contributed to the increase and decrease in revenues. In 2015, White Mountains changed the accounting for its investment in Symetra from the equity method to fair value and recognized $259 of unrealized investment gains. See Note 14 - “Investments in Unconsolidated Affiliates” on page.
White Mountains’s total assets have decreased as a result of the sale of OneBeacon in 2017 and Sirius Group in 2016.
White Mountains’s non-controlling interests have decreased as a result of the sale of OneBeacon in 2017 and Sirius Group in 2016. See Note 11 - “Common Shareholders’ Equity and Non-controlling Interests” on page for a detailed breakdown of non-controlling interests by consolidated entity.
Adjusted book value per share is a non-GAAP measure. See “NON-GAAP FINANCIAL MEASURES” on page 51.
White Mountains ended 2017 with book value per share of $931 and adjusted book value per share of $915, an increase of 18.8% and 16.1% for the year, including dividends. The increases were primarily driven by the gain on the sale of OneBeacon. Comprehensive income attributable to common shareholders increased to $631 million in 2017 compared to $547 million in 2016. Comprehensive income attributable to common shareholders in both 2017 and 2016 was driven by large transaction gains. In 2017, OneBeacon was acquired by Intact Financial Corporation in an all-cash transaction for $18.10 per share, from which White Mountains received $1.3 billion and recorded a net gain of $555 million. In 2016, White Mountains recorded net gains of $477 million and $82 million from the sales of Sirius Group and Tranzact. See Note 2 - “Significant Transactions” on page for a description of each transaction.
Written premiums and MSC in the HG Global/BAM segment totaled $101 million in 2017, compared to $77 million in 2016, as higher pricing more than offset a decrease in issuance volume. BAM insured municipal bonds with par value of $10.4 billion in 2017, compared to $11.3 billion in 2016. Total pricing, which is written premiums plus MSC, including the present value of future installment MSC not yet collected, weighted by the par value of municipal bonds insured, was 99 basis points, up from 68 basis points in 2016. As of December 31, 2017, BAM’s total claims paying resources were $708 million on gross par outstanding of $42 billion. Total claims paying resources increased $65 million from December 31, 2016, reflecting positive cash flow building in the BAM system. During 2017, BAM paid $5 million of principal and interest in cash on the surplus notes held by HG Re.
Beginning in the second quarter of 2017, White Mountains changed its calculation of adjusted book value per share (i) to include a discount for the time value of money arising from the expected timing of cash payments of principal and interest on the BAM surplus notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. See “NON-GAAP FINANCIAL MEASURES” on page 51.
MediaAlpha reported break-even results in 2017, compared to pre-tax loss of $4 million in 2016. MediaAlpha’s EBITDA was $11 million in 2017, compared to $7 million in 2016. The increases in pre-tax income and EBITDA were primarily driven by growth in the Health, Life and Medicare and the P&C verticals. In October 2017, MediaAlpha acquired certain assets associated with the Health, Life and Medicare insurance business of Healthplans.com. The acquired assets include domain names, advertiser and publisher relationships, traffic acquisition accounts, and owned and operated websites. During the fourth quarter of 2017, which includes the annual open enrollment period for Health and Medicare coverages, business from the acquired assets contributed $2 million of both pre-tax income and EBITDA.
White Mountains’s other long-term investments portfolio returned 0.8% for 2016. The results were primarily attributable to favorable mark-to-market adjustments to the surplus notes financed in conjunction with OneBeacon’s sale of its runoff business (the “OneBeacon Surplus Notes”), mostly offset by losses from private equity funds and private capital investments.
For the year ended December 31, 2016, White Mountains repurchased and retired 1,106,145 of its common shares for $887 million at an average share price of $802.08, approximately 101% of White Mountains’s December 31, 2016 adjusted book value per share. For the year ended December 31, 2016, White Mountains returned a total of $892 million of capital to shareholders through share repurchases and dividends.
MediaAlpha reported pre-tax loss of $4 million in 2016, compared to $2 million in 2015. EBITDA was $7 million in both 2016 and 2015. For 2016, an increase in the pre-tax income from the Health, Life and Medicare vertical of approximately $2 million was offset by lower pre-tax income from the P&C vertical. Additionally, in 2016, amortization expense was $2 million higher than 2015, primarily from amortization related to the 2016 acquisition of certain assets in the travel vertical.
(1) MSC are recorded directly to BAM’s equity, which is recorded as non-controlling interest on White Mountains’s balance sheet.
BAM reports on a statutory accounting basis to the NYDFS and does not report stand-alone GAAP financial results. BAM is owned by its members, the municipalities that purchase BAM’s insurance for their debt issuances. BAM charges an insurance premium on each municipal bond insurance policy it writes. A portion of the premium is an MSC and the remainder is a risk premium. In the event of a municipal bond refunding, the MSC from the original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond. Issuers of debt insured by BAM are members of BAM so long as any of their BAM-insured debt is outstanding, and as members they have certain interests in BAM, including the right to vote for BAM’s directors and to receive dividends in the future, if declared.
Written premiums and MSC in the HG Global/BAM segment were $101 million in 2017, compared to $77 million in 2016, as higher pricing more than offset a decrease in issuance volume. BAM’s volume for 2017 was affected by S&P’s review of BAM’s financial strength rating. On June 6, 2017, S&P placed BAM on credit watch negative and initiated a detailed review of BAM’s financial strength rating. On June 26, 2017, S&P concluded its review and affirmed BAM’s “AA/stable” financial strength rating. During the time that BAM was under review by S&P, it voluntarily withdrew from the marketplace and did not write any municipal bond insurance policies. Total pricing, which is written premiums plus MSC, weighted by the par value of municipal bonds insured, was 99 basis points in 2017, up from 68 basis points in 2016. In 2017, BAM insured $10.4 billion of municipal bonds, $9.6 billion of which were in the primary market, down 8% from 2016.
(1) Total pricing also includes the present value of future installment MSC not yet collected of $2.8 for the twelve months ended December 31, 2017.
Mountains’s GAAP financial statements and attributed to non-controlling interests. White Mountains reported $50 million of GAAP pre-tax losses on BAM in 2017, driven by $19 million of interest expense on the BAM Surplus Notes and $42 million of operating expenses, compared to $49 million of pre-tax losses in 2016, driven by $18 million of interest expense on the BAM Surplus Notes and $38 million of operating expenses. During 2017, BAM paid $5 million of principal and interest in cash on the surplus notes held by HG Global.
BAM’s “claims paying resources” represent the capital and other financial resources BAM has available to pay claims and, as such, is a key indication of BAM’s financial strength. BAM’s claims-paying resources include BAM’s qualified statutory capital, including MSC, net unearned premiums, contingency reserves, present value of future installment premiums and MSC and the first loss reinsurance protection provided by HG Re, which is collateralized and held in trusts. BAM expects MSC and HG Re’s reinsurance protection to be the primary drivers of continued growth of its claims-paying resources.
Written premiums and MSC in the HG Global/BAM segment were $77 million in 2016, compared to $55 million in 2015, from both higher pricing and higher issuance volume. Total pricing, which is written premiums plus MSC, weighted by the par value of municipal bonds insured was 68 basis points in 2016, up from 52 basis points in 2015. In 2016, BAM insured $11.3 billion of municipal bonds, $10.3 billion of which were in the primary market, up 7% from 2015.
BAM’s claims paying resources increased 7% to $644 million at December 31, 2016. The increase was primarily driven by $38 million of MSC and a $26 million increase in the invested assets of the HG Re collateral trusts, partially offset by BAM’s 2016 statutory net loss of $33 million.
For segment reporting, the HG Global preferred dividend receivable at White Mountains is reclassified from the Other Operations segment to the HG Global/BAM segment. Dividends on HG Global preferred shares payable to White Mountains’s subsidiaries are eliminated in White Mountains’s consolidated financial statements.
The following table presents the gross par value of policies priced and closed by BAM for the years ended December 31, 2017 and 2016:
MediaAlpha reported break-even results in 2017, compared to a pre-tax loss of $4 million in 2016. EBITDA was $11 million in 2017, compared to $7 million in 2016. For the year ended December 31, 2017, the increase in pre-tax income and EBITDA were primarily driven by increases in gross profit of $7 million in the Health, Life and Medicare vertical and $1 million in the P&C vertical, partially offset by increased operating expenses.
Advertising and commission revenues were $117 million in 2016, compared to $106 million in 2015. The increase was driven by $18 million and $11 million of revenue growth in the Health, Life and Medicare vertical and the non-P&C verticals, partially offset by $18 million of revenue decline in the P&C vertical.
MediaAlpha’s cost of sales is comprised primarily of revenue share based payments to partners. Cost of sales were $98 million in 2016, compared to $91 million in 2015.
The following table presents White Mountains’s financial results from its Other Operations segment for the years ended December 31, 2017, 2016 and 2015:
White Mountains’s Other Operations segment reported pre-tax income of $32 million in 2017 compared to pre-tax loss of $117 million in 2016. The improved results were primarily driven by strong equity returns in 2017. Net realized and unrealized investment gains were $133 million in 2017, compared to net realized and unrealized investment losses of $28 million in 2016. Net investment income increased to $44 million in 2017 from $23 million in 2016. The increase was driven by a higher invested asset base resulting primarily from the proceeds received from the OneBeacon Transaction. See “Summary of Investment Results” on page 38. Other revenues were $6 million in 2017, compared to $20 million in 2016, primarily driven by lower third-party investment management fee income at WM Advisors.
White Mountains’s Other Operations segment reported net realized and unrealized investment losses of $28 million in 2016, compared to net realized and unrealized investment gains of $260 million in 2015, which included the gain from Symetra. The net realized and unrealized investment losses for the year ended December 31, 2016 included $21 million of losses in two private equity investments. The Other Operations segment reported net investment income of $23 million in 2016 compared to $5 million in 2015, driven by a higher invested asset base resulting primarily from the sale of Sirius Group. See “Summary of Investment Results” on page 38. In addition, other revenues in 2016 included third-party investment management fee income at WM Advisors of $10 million, compared to $13 million in 2015. Other revenue also included a $20 million pre-tax gain in 2015 from the sale of Hamer LLC, a small manufacturing company that White Mountains received in 2012 in connection with the liquidation of a limited partnership fund. General and administrative expenses decreased in the year ended December 31, 2016 compared to the year ended December 31, 2015 as compensation expenses during 2016, driven by the rising market price of White Mountains’s common shares, were more than offset by the impact from $36 million of incentive compensation expense recorded during 2015 related to the agreements to sell Sirius Group and Symetra.
During the year ended December 31, 2016, White Mountains wrote down its investment in the SSIE Surplus Notes, which reduced book value per share by approximately $4. White Mountains consolidated SSIE, the issuer of the SSIE Surplus Notes. As a result, the impact of the write down is eliminated in pre-tax income. However, the write down resulted in a $21 million decrease to White Mountains’s book value and a corresponding increase to non-controlling interest equity.
The following table presents White Mountains’s consolidated portfolio pre-tax investment results, including the returns from discontinued operations, for the years ended December 31, 2017, 2016 and 2015:
White Mountains’s fixed income portfolio returned 3.5% for 2017, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 2.3%, as interest rates rose in the period. White Mountains’s fixed income portfolio returned 2.4% for 2016, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 2.0%, as interest rates rose in the period.
In the fourth quarter of 2017, White Mountains established a U.S. investment grade corporate bond portfolio with Principal Global Investors, LLC (“Principal”), a third party manager. As of December 31, 2017, the fair value of the Principal U.S. investment grade corporate bond investments was $250 million and the duration of the Principal investment grade corporate bond portfolio was approximately 4.7 years.
In the fourth quarter of 2016, White Mountains established a medium duration GBP investment grade corporate bond mandate with Legal & General Investment Management, Ltd. (“LGIM”), a third-party manager. As of December 31, 2017, the fair value of the medium duration GBP investment grade corporate bonds was $206 million and the duration of the LGIM portfolio was approximately 7.5 years. White Mountains entered into a foreign currency forward contract, which is recorded in other long-term investments, to manage its GBP foreign currency exposure relating to this mandate. As of December 31, 2017, the contract had a total gross notional value of $206 million (GBP 152 million) and a carrying value of $(4) million.
White Mountains’s portfolio of common equity securities and other long-term investments returned 12.7% for 2017 and 4.3% for 2016. White Mountains’s portfolio of common equity securities and other long-term investments represented approximately 32% and 15% of total invested assets as of December 31, 2017 and 2016. The increase in the percentage of this portfolio is primarily attributable to management’s decision to add equity exposure during the year and a decline in the investment asset base due to the OneBeacon Transaction and share repurchase activity.
White Mountains’s portfolio of common equity securities primarily consists of passive ETFs and publicly-traded common equity securities that are actively managed by third party managers. White Mountains’s portfolio of common equity securities returned 20.1% for 2017, underperforming the S&P 500 Index return of 21.8%. White Mountain’s portfolio of common equity securities returned 6.2% for 2016, underperforming the S&P 500 Index return of 12.0%.
The portfolio of ETFs seeks to provide investment results that, before expenses, generally correspond to the performance of broad market indices. As of December 31, 2017 and 2016, White Mountains had approximately $570 million and $322 million invested in ETFs. In 2017 and 2016, the ETFs essentially earned the effective index return, before expenses, over the period in which White Mountains was invested in these funds.
White Mountains’s third party common equity manager relationships (the “actively managed common equity portfolios”) have been with Silchester International Investors (“Silchester”), who invests in value-oriented non-U.S. equity securities through a unit trust, and Lateef Investment Management, a growth at a reasonable price adviser managing a highly concentrated portfolio of mid-cap and large-cap growth companies. During the first quarter of 2017, White Mountains established a new third-party manager relationship with Lazard Asset Management (“Lazard”), to manage a Pan-European common equity portfolio, of which the majority of the securities are denominated in Euros. In September 2017, White Mountains terminated its relationship with Lazard in order to concentrate its non-U.S. equity exposure in small to mid-cap international equities through other third-party managers. During the third quarter of 2017 and prior to terminating Lazard, White Mountains established a new third-party manager relationship with Highclere International Investors (“Highclere”), who invests in small to mid-cap equity securities listed in markets outside of the United States and Canada through a unit trust.
White Mountains entered into foreign currency forward contracts, which are recorded in other long-term investments, to manage its foreign currency exposure relating to the common equity portfolio managed by Lazard and a portion of the common equity portfolios managed by Silchester and Highclere. These foreign currency forward contracts were closed as of December 31, 2017.
White Mountains maintains a portfolio of other long-term investments that primarily consists of one hedge fund, private equity funds, non-controlling interests in private capital investments and foreign currency forward contracts. As of December 31, 2017, approximately 59% of these other long-term investments, excluding foreign currency forward contracts, were in one long-short hedge fund and ten private equity funds, with a general emphasis on narrow, sector-focused funds.
White Mountains’s pre-tax total return on invested assets was 2.7% for 2016, compared to 3.6% for 2015. The 2015 results were primarily driven by $259 million in pre-tax unrealized investment gains recognized in the fourth quarter of 2015 resulting from the Symetra transaction. Excluding the results from the Symetra transaction, the total return on invested assets was -0.2% for 2015, which included 0.9% from foreign currency losses.
White Mountains’s fixed income portfolio returned 2.4% for 2016, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 2.0%, as interest rates rose in the period. White Mountains’s fixed income portfolio returned 0.2% for 2015, underperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 1.2%, primarily due to foreign currency losses from strengthening in the U.S. dollar.
As of December 31, 2016, the fixed income portfolio duration, including short-term investments, was approximately 2.8 years, compared to 2.2 years as of December 31, 2015. The increase in the duration of the fixed income portfolio over this period was primarily a result of buying into the fourth quarter bond market selloff, the establishment of both the Principal high yield mandate in the third quarter of 2016 and the LGIM GBP investment grade corporate bond mandate in the fourth quarter of 2016.
White Mountains’s portfolio of common equity securities and other long-term investments returned 4.3% for 2016. White Mountains’s portfolio of common equity securities and other long-term investments returned 19.3% for 2015. Excluding the results from the Symetra transaction, the portfolio of common equity securities and other long-term investments returned -1.8% for 2015.
White Mountains’s portfolio of common equity securities and other long-term investments represented approximately 15% and 23% of total invested assets as of December 31, 2016 and 2015. When reflecting the Symetra transaction on February 1, 2016 and the Sirius Group sale on April 18, 2016, White Mountains’s portfolio of common equity securities and other long-term investments represented approximately 12% of total invested assets as of December 31, 2015.
White Mountains’s common equity securities returned 6.2% for 2016, underperforming the S&P 500 Index return of 12.0% due to pockets of poor performance from the actively managed common equity portfolios managed by third party managers. White Mountains’s portfolio of common equity securities returned 33.2% for 2015. Excluding the results from the Symetra transaction, the portfolio of common equity securities returned 2.9% for 2015, outperforming the S&P 500 Index return of 1.4%.
White Mountains’s other long-term investments portfolio returned 0.8% for 2016. The results were primarily attributable to favorable mark-to-market adjustments to the OneBeacon Surplus Notes, mostly offset by losses from private equity funds and private capital investments. White Mountains’s other long-term investment portfolio returned -10.1% for 2015. The results were primarily attributable to unfavorable mark-to-market adjustments to the OneBeacon Surplus Notes and poor performance from investments in energy exposed private equity funds and a distressed debt hedge fund.
The following table presents the composition of White Mountains’s total operations investment portfolio as of December 31, 2017 and 2016:
The cost or amortized cost and carrying value of White Mountains’s fixed maturity investments as of December 31, 2017 is presented below by contractual maturity. Actual maturities could differ from contractual maturities because certain borrowers may call or prepay their obligations with or without call or prepayment penalties.
As of December 31, 2017, White Mountains had gross foreign currency exposure on approximately $444 million of net assets relating to cash and fixed maturity investments managed by LGIM, common equity securities managed by Silchester and Highclere and various other consolidated and unconsolidated private capital investments.
The following table presents the fair value of White Mountains’s foreign denominated assets and the associated foreign currency forward contracts as of December 31, 2017:
White Mountains reported income tax benefit of $33 million in 2016 on pre-tax loss of $147 million. White Mountains’s effective tax rate for 2016 was different than the U.S. statutory rate of 35% due primarily to a full valuation allowance on all U.S. operations, a $21 million tax benefit generated by the sale of Tranzact recognized in continuing operations related to the reversal of a valuation allowance that resulted from income that was recognized within discontinued operations, and a tax benefit recorded at BAM related to its MSC. For 2016, 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 $11 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity.
During 2017, 2016 and 2015, White Mountains entered into a number of sale transactions that have been accounted for as discontinued operations within its consolidated financial statements. See Note 19 - “Held for Sale and Discontinued Operations” on page for detailed financial information on each business sold.
For the 2015 period, White Mountains reported Sirius Group’s comprehensive income of $16 million and a combined ratio of 85%, which included $18 million of losses after reinstatement premiums from the Tianjin port explosion. Also, the combined ratios for the year ended December 31, 2015 were higher by 1 point due to the cost of ILW covers purchased to mitigate the potential impact of major events on Sirius Group’s balance sheet pending the close of the sale to CMI. The 2015 period included 3 points of catastrophe losses, primarily from the Chennai flood in Southern India and winter storms in the Northeastern United States. Favorable net loss reserve development was 6 points in 2015 primarily due to decreases in casualty and property loss reserves.
Holding Company Level. The primary sources of cash for the Company and certain of its intermediate holding companies are expected to be distributions and tax sharing payments received from its operating subsidiaries, capital raising activities, net investment income, proceeds from sales, repayments and maturities of investments and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be repurchases of the Company’s common shares, payments on and repurchases/retirements of its debt obligations, dividend payments to holders of the Company’s common shares, distributions to non-controlling interest holders of consolidated subsidiaries, purchases of investments, payments to tax authorities, contributions to operating subsidiaries, operating expenses and, from time to time, purchases of operating subsidiaries.
Operating Subsidiary Level. The primary sources of cash for White Mountains’s reinsurance and other operating subsidiaries are expected to be premium and fee collections, net investment income, proceeds from sales, repayments and maturities of investments, contributions from holding companies, capital raising activities and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be loss payments, policy acquisition and other underwriting costs, cost of sales, purchases of investments, payments on and repurchases/retirements of its debt obligations, distributions and tax sharing payments made to holding companies, distributions to non-controlling interest holders, operating expenses and, from time to time, purchases of operating subsidiaries.
Both internal and external forces influence White Mountains’s financial condition, results of operations and cash flows. Premium and fee levels, loss payments, cost of sales and investment returns may be impacted by changing rates of inflation and other economic conditions. Some time 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. The exact timing of the payment of losses and benefits cannot be predicted with certainty. White Mountains’s reinsurance subsidiary maintains a portfolio of invested assets with varying maturities and a substantial amount of cash and short-term investments to provide adequate liquidity for the payment of losses.
Effective January 1, 2014, HG Global and BAM agreed to change the interest rate on the BAM Surplus Notes for the five years ending December 31, 2018 from a fixed rate of 8.0% to a variable rate equal to the one-year U.S. treasury rate plus 300 basis points, set annually, which is 4.6% for 2018. Prior to the end of 2018, BAM has the option to extend the variable rate period for an additional three years. At the end of the variable rate period, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. No payment of interest or principal on the BAM Surplus Notes may be made without the approval of the NYDFS. BAM has stated its intention to seek regulatory approval to pay interest and principal on its surplus notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, business plan and its AA stable rating from S&P.
White Mountains has an unsecured revolving credit facility with a syndicate of lenders administered by Wells Fargo Bank, N.A., which has a total commitment of $425 million and a maturity date of August 14, 2018. During the third quarter of 2017, White Mountains borrowed $350 million under the WTM Bank Facility to partially fund a tender offer and subsequently repaid the $350 million after receiving the proceeds from the OneBeacon Transaction. As of December 31, 2017, the WTM Bank Facility was undrawn.
The following table presents White Mountains’s material contractual obligations and commitments as of December 31, 2017:
White Mountains also has future binding commitments to fund certain other long-term investments. These commitments, which total approximately $109 million, do not have fixed funding dates and, are therefore, excluded from the table above. In January and February of 2018, White Mountains made additional unfunded commitments totaling $175 million to CrossHarbor and Kudu.
During 2017, BAM received $37 million in MSC from its members.
During 2017, White Mountains made gross investments into funds managed by Enlightenment Capital totaling $13 million and received a total of $24 million of distributions from these funds.
Cash flows from investing and financing activities for the year ended December 31, 2016
During 2016, HG Global raised $6 million of additional capital through the issuance of preferred shares, 97% of which were purchased by White Mountains. HG Global used $3 million of the proceeds to repay and cancel an internal credit facility with White Mountains.
During 2016, Star & Shield borrowed a total of $4 million under an internal revolving credit facility from White Mountains.
On February 1, 2016, Symetra closed its merger agreement with Sumitomo Life and White Mountains received proceeds of $658 million, or $32.00 per Symetra common share.
During 2016, White Mountains made gross investments into funds managed by Tuckerman Capital totaling $10 million and received a total of $4 million of distributions from these funds.
On July 21, 2016, White Mountains completed the sale of Tranzact and received net proceeds of $221 million at closing. On October 5, White Mountains received additional proceeds of $1 million following the release of the post-closing purchase price adjustment escrow.
On October 10, 2016, White Mountains completed the sale of Ashmere and received proceeds of $15 million.
During 2015, the Company repurchased and retired 387,495 of its common shares for $284 million, which included 12,156 common shares repurchased under employee benefit plans and 13,500 common shares from the Prospector Offshore Fund, Ltd. redemption.
During 2015, the Company borrowed a total of $125 million and subsequently repaid a total of $75 million under the WTM Bank Facility.
During 2015, BAM received $29 million in MSC from its members.
During 2015, MediaAlpha paid $4 million of dividends, of which approximately $2 million was paid to White Mountains.
During 2015, White Mountains received $60 million of dividends from OneBeacon, which is reported as discontinued operations.
On February 23, 2015, Wobi acquired 56.2% of the outstanding share capital of Cashboard for NIS 10 million (approximately $2 million). During the second quarter of 2015, Wobi purchased newly issued common shares of Cashboard for NIS 10 million (approximately $3 million).
This report includes five non-GAAP financial measures that have been reconciled from their most comparable GAAP financial measures.
Adjusted book value per share is a non-GAAP financial measure which is derived by adjusting (i) the GAAP book value per share numerator and (ii) the common shares outstanding denominator, as described below. Beginning in 2017, the GAAP book value per share numerator has been adjusted (i) to include a discount for the time value of money arising from the expected timing of cash payments of principal and interest on the BAM surplus notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. Under GAAP, White Mountains is required to carry the BAM surplus notes, including accrued interest, at nominal value with no consideration for time value of money. Based on a debt service model that forecasts operating results for BAM through maturity of the surplus notes, the present value of the BAM surplus notes, including accrued interest, was estimated to be $162 million less than the nominal GAAP carrying values as of December 31, 2017. The value of HG Global’s unearned premium reserve, net of deferred acquisition costs, was $82 million as of December 31, 2017. White Mountains believes these adjustments are useful to management and investors in analyzing the intrinsic value of HG Global, including the value of the surplus notes and the value of the in-force business at HG Re, HG Global’s reinsurance subsidiary. For 2016, the numerator used in the calculation of adjusted book value per share also includes the dilutive effects of future proceeds from the outstanding non-qualified options for periods prior to January 20, 2017, the expiration date of the non-qualified options. For 2015, the numerator used in the calculation of adjusted book value per share also excludes equity in net unrealized investment gains (losses) from Symetra’s fixed maturity portfolio for periods that White Mountains accounted for its investment in Symetra under the equity method. White Mountains accounted for its investment in Symetra under the equity method until November 5, 2015, when it changed its accounting to fair value. The denominator used in the calculation of adjusted book value per share equals the number of common shares outstanding adjusted (i) to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized and (ii) to include the dilutive effects of outstanding non-qualified options for periods prior to January 20, 2017, the expiration date of the non-qualified options. The reconciliation of GAAP book value per share to adjusted book value per share is included on page 28.
In 2017, MediaAlpha became a reportable segment, and White Mountains has included MediaAlpha’s EBITDA calculation as a non-GAAP financial measure. EBITDA is defined as net income (loss) excluding interest expense on debt, income tax benefit (expense), depreciation and amortization. White Mountains believes that this non-GAAP financial measure is useful to management and investors in analyzing MediaAlpha’s economic performance without the effects of interest rates, levels of debt, effective tax rates, or depreciation and amortization primarily resulting from purchase accounting. In addition, White Mountains believes that investors use EBITDA as a supplemental measurement to evaluate the overall operating performance of companies within the same industry. The reconciliation of MediaAlpha’s GAAP net income to EBITDA is included on page 36.
The following table presents a reconciliation of the GAAP returns to the returns excluding Symetra follows:
White Mountains records certain assets and liabilities at fair value in its consolidated financial statements, with changes therein recognized in current period earnings. In addition, White Mountains discloses estimated fair value for certain liabilities measured at historical or amortized cost. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at a particular measurement date. Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets (“Level 2”), and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”).
As of December 31, 2017, White Mountains used quoted market prices or other observable inputs to determine fair value for approximately 94% of the investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, short-term investments, which include U.S. Treasury Bills and common equity securities. Investments valued using Level 2 inputs include fixed maturity investments, which have been disaggregated into classes, including debt securities issued by corporations, mortgage and asset-backed securities, municipal obligations, and foreign government, agency and provincial obligations. Investments valued using Level 2 inputs also include certain passive ETFs traded on foreign exchanges that track U.S. stock indices such as the S&P 500 and that management values using the fund manager’s published NAV to account for the difference in market close times. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Investments valued using Level 3 fair value estimates are based upon unobservable inputs and include investments in certain fixed maturity investments, common equity securities and other long-term investments where quoted market prices are unavailable or are not considered reasonable. Transfers between levels are based on investments held as of the beginning of the period.
Debt Securities Issued by Corporations: The fair value of debt securities issued by corporations is determined from a pricing evaluation technique that uses information from market sources and integrates relative credit information, observed market movements, and sector news. Key inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications.
Municipal Obligations: The fair value of municipal obligations is determined from a pricing evaluation technique that uses information from market makers, brokers-dealers, buy-side firms, and analysts along with general market information. Key inputs include benchmark yields, reported trades, issuer financial statements, material event notices and new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including type, coupon, credit quality ratings, duration, credit enhancements, geographic location and market research publications.
Foreign Government, Agency and Provincial Obligations: The fair value of foreign government, agency and provincial obligations is determined from a pricing evaluation technique that uses feeds from data sources in each respective country, including active market makers and inter-dealer brokers. Key inputs include benchmark yields, reported trades, broker-dealer quotes, two-sided markets, benchmark securities, bids, offers, local exchange prices, foreign exchange rates and reference data including coupon, credit quality ratings, duration and market research publications.
White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). See Note 3 - “Investment Securities” on page for tables that summarize the changes in White Mountains’s fair value measurements by level for the years ended December 31, 2017 and 2016 and for amount of total gains (losses) included in earnings attributable to net unrealized investment gains (losses) for Level 3 investments for years ended December 31, 2017, 2016 and 2015.
Any write-off of the carried amount of the BAM Surplus Notes and/or the accrued interest thereon would adversely impact White Mountains’s adjusted book value per share. See Item 1A., Risk Factors, “If BAM does not pay some or all of the interest and principal due on the BAM Surplus Notes, White Mountains’s adjusted book value per share, results of operations and financial condition could be materially adversely affected.” on page 18.
Periodically, White Mountains’s management reviews the recoverability of amounts recorded from the BAM Surplus Notes. As of December 31, 2017, White Mountains believes such notes and interest thereon to be fully recoverable.
White Mountains’s review is based on a debt service model that forecasts operating results for BAM, and related payments on the BAM Surplus Notes, through maturity of the BAM Surplus Notes in 2042. The model depends on assumptions regarding future trends for the issuance of municipal bonds, interest rates, credit spreads, insured market penetration, competitive activity in the market for municipal bond insurance and other factors affecting the demand for and price of BAM’s municipal bond insurance. Assumptions regarding future trends for these factors are a matter of significant judgment.
Interest payments on the BAM Surplus Notes are due quarterly but are subject to deferral, without penalty or default and without compounding, for payment in the future. No principal is due on the BAM Surplus Notes prior to the stated maturity date of 2042. BAM has the right to prepay principal in whole or in part at any time.
The financial statements and supplementary data have been filed as a part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 63 of this report.
The financial statements of Symetra for the interim period ended September 30, 2015 have been filed as a part of this Annual Report on Form 10-K (see Exhibit 99 on page 61 of this report).