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Variable Annuity Reinsurance (Tables) | 3 Months Ended
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Mar. 31, 2012
Variable Annuity Reinsurance |
Pre-tax operating results of WM Life Re |
|  | Three Months Ended March 31, |
Millions |  | 2012 |  | 2011 |
Fees, included in other revenues |  | $ | 8.0 |  | $ | 7.9 |
Change in fair value of variable annuity liability, included in other revenues |  | 211.2 |  | 52.3 |
Change in fair value of derivatives, included in other revenues |  | (206.5 | ) | (65.5 | )
Foreign exchange, included in other revenues |  | (23.0 | ) | (4.6 | )
Other investment income and gains (losses) |  | (2.1 | ) | (.4 | )
Total revenues |  | (12.4 | ) | (10.3 | )
Change in fair value of variable annuity death benefit liabilities, included in other expenses |  | 8.8 |  | 3.0 |
Death benefit claims paid, included in other expenses |  | (1.8 | ) | (1.0 | )
General and administrative expenses |  | (1.3 | ) | (.7 | )
Pre-tax loss |  | $ | (6.7 | ) | $ | (9.0 | )
Changes in White Mountains' variable annuity reinsurance liabilities and derivative instruments |
|  | Variable Annuity (Liabilities) |  | Derivative Instruments |
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total (4) |
Balance at January 1, 2012 |  | $ | (768.5 | ) | $ | 247.1 |  | $ | 39.2 |  | $ | 4.1 |  | $ | 290.4 |
Purchases |  | — |  | 6.1 |  | — |  | — |  | 6.1 |
Realized and unrealized gains (losses) |  | 220.0 |  | (60.3 | ) | (98.2 | ) | (48.0 | ) | (206.5 | )
Transfers in (out) |  | — |  | — |  | — |  | — |  | — |
Sales/settlements |  | — |  | (9.1 | ) | 58.9 |  | 34.5 |  | 84.3 |
Balance at March 31, 2012 |  | $ | (548.5 | ) | $ | 183.8 |  | $ | (.1 | ) | $ | (9.4 | ) | $ | 174.3 |
|  | 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) |  | 55.3 |  | (25.2 | ) | (20.7 | ) | (19.6 | ) | (65.5 | )
Transfers in (out) |  | — |  | — |  | — |  | — |  | — |
Sales/settlements |  | — |  | (29.1 | ) | 3.3 |  | 26.9 |  | 1.1 |
Balance at March 31, 2011 |  | $ | (554.9 | ) | $ | 226.0 |  | $ | 54.8 |  | $ | 7.3 |  | $ | 288.1 |
(1) Consists of over-the-counter instruments. (2) Consists of interest rate swaps, total return swaps, foreign currency forward contracts, and bond forwards. 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) Consists of 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 $390.9 and $301.3 at March 31, 2012 and 2011 posted as collateral to its reinsurance counterparties.
Schedule of significant unobservable inputs associated with the fair value estimates for variable annuity reinsurance liabilities and derivative instruments |
|  | March 31, 2012 |
($ in Millions) Description |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average |
Variable annuity benefit guarantee liabilities |  | $ | 548.5 |  | Discounted cash flows |  | Surrenders |  | 0.1% - 3.0% |  | 0.7 | %
|  |  |  |  | Mortality |  | 0.1% - 3.1% |  | 1.3 | %
|  |  |  |  | Foreign exchange volatilities |  | 12.1% - 28.7% |  | 16.9 | %
|  |  |  |  | Index volatilities |  | 11.9% - 30.2% |  | 22.8 | %
Foreign exchange and equity index options |  | $ | 183.8 |  | Black-Scholes option pricing model |  | Expected equity dividends |  | 1.4% - 6.2% |  | 2.7 | %
|  |  |  | Foreign exchange volatilities |  | 12.1% - 28.7% |  | 16.9 | %
|  |  |  |  | Index volatilities |  | 11.9% - 30.2% |  | 22.8 | %
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument |
|  | Gains (Losses) |  | Carrying Value |
|  | Three Months Ended |  | As of |
|  | March 31, |  | March 31, |  | March 31, |  | December 31, |
Millions |  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Fixed income/Interest rate |  | $ | (79.0 | ) | $ | (6.2 | ) | $ | 4.0 |  | $ | 31.1 |
Foreign exchange |  | (55.0 | ) | (47.4 | ) | 109.5 |  | 161.3 |
Equity |  | (72.5 | ) | (11.9 | ) | 60.8 |  | 98.0 |
Total |  | $ | (206.5 | ) | $ | (65.5 | ) | $ | 174.3 |  | $ | 290.4 |
Summary of collateral provided to WM Life Re from counterparties |
Millions |  | March 31, 2012 |  | December 31, 2011 |
Short-term investments |  | $ | 43.9 |  | $ | 73.2 |
Fixed maturity securities |  | — |  | — |
Total |  | $ | 43.9 |  | $ | 73.2 |
Summary of value, collateral provided (held) by WM Life Re and net exposure on OTC derivative instruments |
Millions |  | March 31, 2012 |  | December 31, 2011 |
OTC derivative instruments(1) |  | $ | 190.7 |  | $ | 295.4 |
Collateral held |  | (43.9 | ) | (73.2 | )
Collateral provided |  | 115.4 |  | 83.0 |
Net exposure to credit losses on fair value of OTC instruments |  | $ | 262.2 |  | $ | 305.2 |
(1) Value of OTC derivative instruments as of March 31, 2012 and December 31, 2011 excludes adjustments for counterparty credit risk of $(7.0) and $(9.1) included in fair value under GAAP.
Summary of uncollateralized amounts due under WM Life Re's OTC derivative contracts |
Millions |  | Uncollateralized balance as of March 31, 2012 |  | S&P Rating(1) |
Citigroup(2) |  | $ | 63.4 |  | A- |
Royal Bank of Scotland |  | 59.8 |  | A- |
Bank of America |  | 52.8 |  | A- |
JP Morgan(2) |  | 35.8 |  | A |
Nomura(2) |  | 28.5 |  | BBB+ |
Barclays |  | 17.9 |  | A |
Goldman Sachs(2) |  | 4.0 |  | A- |
Total |  | $ | 262.2 |  |  |
(1) Standard & Poor’s (“S&P”) ratings as detailed above are: “A” (Strong, which is the sixth highest of twenty-one creditworthiness ratings), “A-” (Strong, which is the seventh highest of twenty-one creditworthiness ratings) and “BBB+” (Adequate, which is the eighth highest of twenty-one creditworthiness ratings). (2) Collateral provided (held) calculated under master netting agreement.
Summary of additional collateral posted for variable reinsurance counterparties |
Millions |  | March 31, 2012 |  | December 31, 2011 |
Cash |  | $ | 360.1 |  | $ | 453.5 |
Short-term investments |  | 1.5 |  | .6 |
Fixed maturity investments |  | 29.3 |  | 31.2 |
Total |  | $ | 390.9 |  | $ | 485.3 |

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- Definition Tabular disclosure of derivative instruments (including nonderivative instruments that are designated and qualify as hedging instruments) of (a) the location and amount of gains and losses reported in the statement of financial performance and (b) the location and fair value amounts of the instruments reported in the statement of financial position. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Topic 815 -SubTopic 10 -Publisher FASB -Number -Article -Subparagraph -Name Accounting Standards Codification -Paragraph 4A -Section 50 -URI http://asc.fasb.org/extlink&oid=6935481&loc=SL5618551-113959 + Details
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- Definition Assets posted as collateral under variable annuity reinsurance trust agreement for the benefit of the reinsurance counterparty. + References No definition available. + Details
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- Definition Tabular disclosure of quantitative information about the inputs used in the fair value measurement of variable annuity liabilities and derivative instruments. This disclosure may include, but is not limited to, the fair value of the liability, valuation technique used to measure fair value, the inputs used to measure fair value, the ranges of the inputs, and the weighted averages of the inputs. + References No definition available. + Details
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- Definition Represents the disclosure, in tabular form, related to assets and liabilities by class, that are measured at fair value on a recurring and/or nonrecurring basis in periods after initial recognition. The disclosures that may be required or desired include: (a) the fair value measurements recorded during the period and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements fall, segregating fair value measurements using Levels 1, 2, and 3. + References No definition available. + Details
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- Definition Tabular disclosure of Life Re's pre-tax operating results. + References No definition available. + Details
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- Definition Tabular disclosure of the value, collateral provided (held) and net exposure on fair value of OTC instruments. + References No definition available. + Details
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- Definition Summary of collateral provided to WM Life Re from counterparties. + References No definition available. + Details
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