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Variable Annuity Reinsurance (Tables)
 6 Months Ended
Jun. 30, 2011
Variable Annuity Reinsurance  
Pre-tax operating results of WM Life Re

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Millions

 

2011

 

2010

 

2011

 

2010

 

Fees, included in other revenues

 

$

8.0

 

$

7.2

 

$

15.9

 

$

14.5

 

Change in fair value of variable annuity liability, included in other revenues

 

(35.9

)

(186.2

)

16.4

 

(151.2

)

Change in fair value of derivatives, included in other revenues

 

22.0

 

172.8

 

(43.5

)

130.5

 

Foreign exchange, included in other revenues

 

6.9

 

7.7

 

2.3

 

5.6

 

Other investment income and gains (losses)

 

(.2

)

(.2

)

(.6

)

(.5

)

Total revenues

 

.8

 

1.3

 

(9.5

)

(1.1

)

Change in fair value of variable annuity death benefit liabilities, included in other expenses

 

(.5

)

(8.1

)

2.5

 

(6.1

)

Death benefit claims paid, included in other expenses

 

(.7

)

(.4

)

(1.7

)

(.8

)

General and administrative expenses

 

(1.4

)

(1.4

)

(2.1

)

(3.6

)

Pre-tax (loss) income

 

$

(1.8

)

$

(8.6

)

$

(10.8

)

$

(11.6

)

 
Changes in White Mountains' variable annuity reinsurance liabilities and derivative instruments Table 2
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument

 

 

 

 

Variable Annuity
(Liabilities)

 

Derivative Instruments

 

Millions

 

Level 3

 

Level 3 (1)

 

Level 2 (1)(2)

 

Level 1 (3)

 

Total (4)

 

Balance at January 1, 2011

 

$

(610.2

)

$

275.3

 

$

72.2

 

$

—

 

$

347.5

 

Purchases

 

—

 

5.0

 

—

 

—

 

5.0

 

Realized and unrealized gains (losses)

 

18.9

 

(18.5

)

(8.2

)

(16.8

)

(43.5

)

Transfers in (out)

 

—

 

—

 

—

 

—

 

—

 

Sales/settlements

 

—

 

(29.1

)

(15.8

)

4.9

 

(40.0

)

Balance at June 30, 2011

 

$

(591.3

)

$

232.7

 

$

48.2

 

$

(11.9

)

$

269.0

 

 

 

 

Variable Annuity
(Liabilities)

 

Derivative Instruments

 

Millions

 

Level 3

 

Level 3 (1)

 

Level 2 (1)(2)

 

Level 1 (3)

 

Total (4)

 

Balance at March 31, 2011

 

$

(554.9

)

$

226.0

 

$

54.8

 

$

7.3

 

$

288.1

 

Purchases

 

—

 

—

 

—

 

—

 

—

 

Realized and unrealized gains (losses)

 

(36.4

)

6.7

 

12.5

 

2.8

 

22.0

 

Transfers in (out)

 

—

 

—

 

—

 

—

 

—

 

Sales/settlements

 

—

 

—

 

(19.1

)

(22.0

)

(41.1

)

Balance at June 30, 2011

 

$

(591.3

)

$

232.7

 

$

48.2

 

$

(11.9

)

$

269.0

 

 

 

(1)         Comprises over-the-counter instruments.

(2)         Comprises interest rate swaps, total return swaps and foreign currency forward contracts. Fair value measurement based upon bid/ask pricing quotes for similar instruments that are actively traded, where available.  Swaps for which an active market does not exist have been priced using observable inputs including the swap curve and the underlying bond index.

(3)         Comprises exchange traded equity index, foreign currency and interest rate futures. Fair value measurements based upon quoted prices for identical instruments that are actively traded.

(4)         In addition to derivative instruments, WM Life Re held cash, short-term and fixed maturity investments of $370.5 at June 30, 2011 posted as collateral to its reinsurance counterparties.

 
Summary of collateral provided to WM Life Re from counterparties

 

 

 

 

Three Months Ended

 

Six Months Ended

 

Carrying Value

 

 

 

June 30,

 

June 30,

 

June 30,

 

December 31,

 

Millions

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Fixed income/Interest rate

 

$

(6.3

)

$

19.2

 

$

(12.5

)

$

23.4

 

$

48.8

 

$

43.9

 

Foreign exchange

 

17.1

 

74.5

 

(30.2

)

68.5

 

161.2

 

225.3

 

Equity

 

11.2

 

79.1

 

(.8

)

38.6

 

59.0

 

78.3

 

Total

 

$

22.0

 

$

172.8

 

$

(43.5

)

$

130.5

 

$

269.0

 

$

347.5

 

 
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments

 

 

Millions

 

June 30, 2011

 

December 31, 2010

 

Short-term investments

 

$

51.6

 

$

52.4

 

Fixed maturity securities

 

1.0

 

48.6

 

Total

 

$

52.6

 

$

101.0

 

 
Summary of uncollateralized amounts due under WM Life Re's OTC derivative contracts

 

 

Millions

 

June 30, 2011

 

December 31, 2010

 

OTC derivative instruments(1)

 

$

284.2

 

$

351.5

 

Collateral held

 

(52.6

)

(101.0

)

Collateral provided

 

35.4

 

25.3

 

Net exposure to credit losses on fair value of OTC instruments

 

$

267.0

 

$

275.8

 

 

 

(1)         Value of OTC derivative instruments as of June 30, 2011 and December 31, 2010 excludes adjustments for counterparty credit risk of $(3.3) and $(4.0) included in fair value under GAAP.

 

The following table summarizes uncollateralized amounts due under WM Life Re’s OTC derivative contracts:

 

Millions

 

Uncollateralized
balance as of
June 30, 2011

 

S&P Rating(1)

 

 

 

 

 

 

 

Citigroup (3)

 

$

73.5

 

A

 

Royal Bank of Scotland

 

73.4

 

A

 

Bank of America

 

50.1

 

A

 

Barclays

 

25.9

 

A+

 

Goldman Sachs(3)

 

9.8

 

A

 

Other

 

34.3

 

(2)

 

Total

 

$

267.0

 

 

 

 

 

(1)         Standard & Poor’s (“S&P”) ratings as detailed above are: “A+” (which is the fifth highest of twenty-one creditworthiness ratings) and “A” (which is the sixth highest of twenty-one creditworthiness ratings).

(2)         The S&P ratings of the counterparties included in “Other” were “AA” (Very Strong, which is the third highest of twenty-one creditworthiness ratings) (17%), “A+” (27%) and “BBB+” (Adequate, which is the eighth highest of twenty-one creditworthiness ratings) (56%).

(3)         Collateral provided (held) calculated under master netting agreement.

 
Summary of additional collateral posted for variable reinsurance counterparties

 

 

Millions

 

June 30, 2011

 

December 31, 2010

 

Cash

 

$

345.9

 

$

291.1

 

Short-term investments

 

13.2

 

31.6

 

Fixed maturity investments

 

11.4

 

3.3

 

Total

 

$

370.5

 

$

326.0