Third-Party Reinsurance

In the normal course of business, White Mountains’ insurance and reinsurance subsidiaries may seek to limit losses that may arise from catastrophes or other events by reinsuring with third-party reinsurers. White Mountains remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The effects of reinsurance on White Mountains’ insurance and reinsurance subsidiaries’ written and earned premiums and on losses and LAE were as follows:



	Year ended December 31, 2012
Millions	OneBeacon			Sirius Group			Total
Written premiums:
Direct	$	1,204.0		$	186.1		$	1,390.1
Assumed	55.2			992.7			1,047.9
Gross written premiums	1,259.2			1,178.8			2,438.0
Ceded	(80.0		)	(231.1		)	(311.1		)
Net written premiums	$	1,179.2		$	947.7		$	2,126.9
Earned premiums:
Direct	$	1,158.3		$	169.9		$	1,328.2
Assumed	52.8			988.3			1,041.1
Gross earned premiums	1,211.1			1,158.2			2,369.3
Ceded	(79.1		)	(226.6		)	(305.7		)
Net earned premiums	$	1,132.0		$	931.6		$	2,063.6
Losses and LAE:
Direct	$	687.5		$	96.9		$	784.4
Assumed	29.6			523.9			553.5
Gross losses and LAE	717.1			620.8			1,337.9
Ceded	(67.1		)	(76.9		)	(144.0		)
Net losses and LAE	$	650.0		$	543.9		$	1,193.9



	Year ended December 31, 2011
Millions	OneBeacon			Sirius Group			Total
Written premiums:
Direct	$	1,079.2		$	139.5		$	1,218.7
Assumed	49.1			988.6			1,037.7
Gross written premiums	1,128.3			1,128.1			2,256.4
Ceded	(65.6		)	(212.4		)	(278.0		)
Net written premiums	$	1,062.7		$	915.7		$	1,978.4
Earned premiums:
Direct	$	1,035.9		$	128.5		$	1,164.4
Assumed	42.3			989.8			1,032.1
Gross earned premiums	1,078.2			1,118.3			2,196.5
Ceded	(66.0		)	(206.0		)	(272.0		)
Net earned premiums	$	1,012.2		$	912.3		$	1,924.5
Losses and LAE:
Direct	$	551.8		$	80.0		$	631.8
Assumed	9.2			627.8			637.0
Gross losses and LAE	561.0			707.8			1,268.8
Ceded	(12.7		)	(81.8		)	(94.5		)
Net losses and LAE	$	548.3		$	626.0		$	1,174.3



	Year ended December 31, 2010
Millions	OneBeacon			Sirius Group			Total
Written premiums:
Direct	$	1,236.7		$	121.6		$	1,358.3
Assumed	55.8			957.5			1,013.3
Gross written premiums	1,292.5			1,079.1			2,371.6
Ceded	(124.8		)	(213.3		)	(338.1		)
Net written premiums	$	1,167.7		$	865.8		$	2,033.5
Earned premiums:
Direct	$	1,242.5		$	117.9		$	1,360.4
Assumed	60.7			929.7			990.4
Gross earned premiums	1,303.2			1,047.6			2,350.8
Ceded	(122.1		)	(199.7		)	(321.8		)
Net earned premiums	$	1,181.1		$	847.9		$	2,029.0
Losses and LAE:
Direct	$	677.1		$	59.4		$	736.5
Assumed	45.1			684.4			729.5
Gross losses and LAE	722.2			743.8			1,466.0
Ceded	(36.6		)	(212.8		)	(249.4		)
Net losses and LAE	$	685.6		$	531.0		$	1,216.6

OneBeacon

In the normal course of its business, OneBeacon purchases reinsurance from high-quality, highly rated, third-party reinsurers in order to minimize loss from large losses or catastrophic events.

The timing and size of catastrophe losses are unpredictable and the level of losses experienced in any year could be material to OneBeacon’s operating results and financial position. Examples of catastrophes include losses caused by earthquakes, wildfires, hurricanes and other types of storms and terrorist acts. The extent of losses caused by catastrophes is a function of the amount and type of insured exposure in the area affected by the event as well as the severity of the event. OneBeacon uses models (primarily AIR Worldwide (“AIR”) Version 12) to estimate the probability of the occurrence of a catastrophic event as well as potential losses under various scenarios. OneBeacon uses this model output in conjunction with other data to manage its exposure to catastrophe losses through individual risk selection and by limiting its concentration of insurance written in catastrophe-prone areas such as coastal regions. In addition, OneBeacon imposes wind deductibles on

existing coastal windstorm exposures.

Since the terrorist attacks of September 11, 2001, OneBeacon has sought to mitigate the risk associated with any future terrorist attacks by limiting the aggregate insured value of policies in geographic areas with exposure to losses from terrorist attacks. This is accomplished by either limiting the total insured values exposed, or, where applicable, through the use of terrorism exclusions.

In December 2007, the U.S. government extended the Terrorism Risk Insurance Act of 2002 (the “Terrorism Act” or “TRIA”) until December 31, 2014. The Terrorism Act established a federal “backstop” for commercial property and casualty losses, including workers compensation, resulting from acts of terrorism by or on behalf of any foreign person or foreign interest. As extended, the law now also covers domestic acts of terrorism. The law limits the industry’s aggregate liability by requiring the federal government to share 85% of certified losses once a company meets a specific retention or deductible as determined by its prior year’s direct written premiums and limits the aggregate liability to be paid by the government and industry without further action by Congress at $100.0 billion. In exchange for this “backstop,” primary insurers are required to make coverage available to commercial insureds for losses from acts of terrorism as specified in the Terrorism Act. The following types of coverage are excluded from the program: commercial automobile, burglary and theft, surety, farmowners multi-peril and all professional liability coverage except directors and officers coverage.

OneBeacon estimates its individual retention level for commercial policies subject to the Terrorism Act to be approximately $100.0 million in 2013, which is based on 2012 net written premiums. The federal government will pay 85% of covered terrorism losses that exceed OneBeacon’s or the industry’s retention levels in 2013 up to a total of $100.0 billion.

OneBeacon seeks to further reduce its potential loss from catastrophe exposures through the purchase of catastrophe reinsurance. Effective May 1, 2012, OneBeacon renewed its property catastrophe reinsurance program through April 30, 2013. The program provides coverage for OneBeacon’s property business as well as certain acts of terrorism. Under the program, the first $25.0 million of losses resulting from any single catastrophe are retained and the next $155.0 million of losses resulting from the catastrophe are reinsured in three layers, although OneBeacon retains a co-participation of 55% of losses from $25.0 million to $40.0 million, 15% of losses from $40.0 million to $80.0 million and 10% of losses from $80.0 million to $180.0 million. Thus, for a $180.0 million loss, OneBeacon would retain $49.3 million. Any loss above $180.0 million would be retained in full. In the event of a catastrophe, OneBeacon’s property catastrophe reinsurance program is reinstated for the remainder of the original contract term by paying a reinstatement premium that is based on the percentage of coverage reinstated and the original property catastrophe coverage premium. This $180.0 million limit was reduced from the $225.0 million limit that OneBeacon’s previous catastrophe reinsurance program provided, as a result of lower catastrophe exposure as a specialty-focused company. As a result of hurricane Sandy in October 2012, OneBeacon recorded ceded losses of $15.6 million and reinstatement premiums of $1.9 million related to this treaty.

In addition to the corporate catastrophe reinsurance protection that it secures, OneBeacon may also purchase dedicated reinsurance protection for specific businesses. In 2012, OneBeacon purchased insurance to protect its collector cars and boats business from catastrophic losses. This treaty covered losses in excess of $2.5 million up to $25.0 million in two layers. The first layer, $2.5 million in excess of $2.5 million, carried a 5% co-participation. The company had a 20% co-participation on the second layer, $20.0 million in excess of $5 million. Catastrophe losses above $25.0 million are retained by the company in full. Reinstatement premiums are paid if the coverage is attached. As a result of hurricane Sandy in October 2012, OneBeacon recorded ceded losses of $11.9 million and reinstatement premiums of $1.4 million related to this treaty.

OneBeacon also purchased a per-occurrence treaty for its Inland Marine Underwriters business (“IMU”) that protects against large occurrences, whether a single large claim or a catastrophe. The IMU treaty attaches at $2.0 million per occurrence. Coverage is provided up to $60.0 million. The first layer of the marine treaty is $5.0 million in excess of $2.0 million, with an annual aggregate deductible of $1.5 million for large losses and $5.0 million for catastrophes losses. For losses in the layer $10.0 million excess of $50.0 million, the company retains half of the loss. The portion of loss above $60.0 million is retained in full by the company. Reinstatement premiums are paid in full or in part depending on the layer and the occurrence if the coverage is attached. As a result of hurricane Sandy in October 2012, OneBeacon recorded ceded loss of $41.0 million and reinstatement premiums of $5.4 million related to this treaty. Losses retained under both the collector cars and boats and marine reinsurance treaties are subject to the corporate catastrophe treaty.

Through June 30, 2010 OneBeacon ceded $25.6 million of written premiums from its Northeast homeowners business written through OneBeacon Insurance Company (“OBIC”) and its subsidiary companies, along with Adirondack and New Jersey Skylands Insurance Association. Effective July 1, 2010, the closing date of the Personal Lines Transaction, the agreement was amended to remove OneBeacon as a signatory.

OneBeacon’s property catastrophe reinsurance program does not cover property losses resulting from any nuclear events or biological, chemical or radiological terrorist attacks or losses resulting from acts of terrorism as defined under the Terrorism Act, as amended, committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as well as domestic acts of terrorism. Such losses are subject to coverage provided to insurance companies by TRIA.

OneBeacon also purchases property-per-risk reinsurance coverage to reduce large loss volatility. The property-per-risk reinsurance program reinsures losses in excess of $10.0 million up to $100.0 million. Individual risk facultative reinsurance may be purchased above $100.0 million where OneBeacon deems it appropriate. Under the property-per-risk program, OneBeacon retains a co-participation of 10% for losses in excess of $20.0 million up to $50.0 million and a co-participation of 20% for losses in excess of $50.0 million. The property-per-risk treaty also provides one limit of reinsurance protection for losses in excess of $10.0 million up to $100.0 million on an individual risk basis for terrorism losses. However, any nuclear events, or biological, chemical or radiological terrorist attacks are not covered.

OneBeacon also maintains a casualty reinsurance program that provides protection for individual policies involving general liability, automobile liability, professional liability or umbrella liability. OneBeacon's healthcare professional liability treaty covers losses in excess of $5.0 million up to $20.0 million in two layers. The first layer, $5.0 million excess of $5.0 million has a 20% co-participation. All other casualty business is covered in a separate treaty covering losses in excess of $5.0 million up to $21.0 million. This treaty has a 22.5% co-participation in the first layer ($6.0 million excess of $5.0 million) and a 10% co-participation in the second layer of $10.0 million excess of $11.0 million. OneBeacon purchases a treaty to protect against large workers compensation losses that covers 100% of the loss in excess of $1.0 million up to $10.0 million per person. In addition, for casualty losses involving more than one insured, OneBeacon maintains a dedicated treaty that covers up to $40.0 million in excess of a $10.0 million retention.

At December 31, 2012, OneBeacon had $3.3 million and $107.3 million of reinsurance recoverables on paid and unpaid losses. Reinsurance contracts do not relieve OneBeacon of its obligation to its policyholders. OneBeacon is selective with its reinsurers, placing reinsurance with only those reinsurers having a strong financial condition. OneBeacon monitors the financial strength of its reinsurers on an ongoing basis. Uncollectible amounts historically have not been significant. As of December 31, 2012, 90% of reinsurance recoverables on paid and unpaid losses are from reinsurers with an A.M. Best rating of A (Excellent, which is the third highest of 16 financial strength ratings) or better. The largest recoverable from an individual reinsurer was $10.1 million with Hannover Ruckversich, which has an A.M. Best Company (“A.M. Best”) ratings of A++ (Superior, which is the highest of 16 financial strength ratings). The reinsurance balances associated with the runoff business are included in discontinued operations (see Note 20).

Sirius Group

Sirius Group's reinsurance protection primarily consists of pro-rata and excess of loss protections to cover aviation, trade credit, and certain property exposures. Sirius Group's proportional reinsurance programs provide protection for part of the non-proportional treaty accounts written in Europe, the Americas, Asia, the Middle East, and Australia. These reinsurance protections are designed to increase underwriting capacity where appropriate, and to reduce exposure both to large catastrophe losses and to a frequency of smaller loss events. Attachment points and coverage limits vary by region around the world. In addition to its proportional reinsurance, Sirius Group also purchases excess of loss reinsurance protection for $15.0 million in excess of a retention of $5.0 million for the facultative and direct property portfolios written by the Stockholm, Hamburg and London branches (excluding business written in the United States). For the facultative and direct property portfolios written by the Hamburg and Stockholm branches, an additional $15.0 million of reinsurance protection in excess of the $20.0 million coverage has been purchased for 2013. Sirius Group also has $5.0 million of protection in excess of a retention of $5.0 million for the London branch for facultative and direct U.S.-catastrophe exposed business (excluding Florida risks), which was renewed through June 30, 2013. As a result of hurricane Sandy in October 2012, Sirius Group recognized a full $5.0 million recovery on this account.

In 2012, 2011 and 2010, Sirius Group has had in place group excess of loss retrocessional coverage for its non-U.S. and non-Japan earthquake-related exposures. This cover was renewed for one year at April 1, 2012, providing $17.0 million of reinsurance protection through partially placed coverage of a $40.0 million layer in excess of Sirius Group's retention of

$35.0 million. In addition, Sirius Group purchased two industry loss warranty (“ILW”) contracts that provide $10.0 million of coverage for a first event non-U.S. and non-Japan earthquake loss at a market loss event of $7.5 billion or more, with $5.0 million of additional coverage for a second market loss event at this level. Sirius Group also has $37.5 million of New Madrid earthquake ILW coverage through March 2013 that provides reinsurance protection both on a first and second market event of $20.0 billion.

In addition, Sirius Group has an ILW providing $5.0 million of coverage for a first loss European windstorm and flood at a market loss event of $5.0 billion, which expires March 2013. During the fourth quarter 2012, additional ILW protections providing $40.0 million of reinsurance coverage were purchased at different market loss levels for wind, flood, and all natural perils in Europe or Scandinavia, with the majority of these covers expiring in March 2013.

As of December 31, 2012, losses incurred for the February 2011 New Zealand earthquake totaled $47.0 million, $2.0 million of which was covered by Sirius Group’s non-U.S. and non-Japan earthquake coverage. During 2010, as a result of the Chile Earthquake in February 2010, Sirius Group recovered $65.0 million under its non-U.S. and non-Japan earthquake coverage, which was a full limit loss.

Sirius Group's aviation reinsurance program is intended to reduce exposure to a frequency of small losses, a single large loss, or a combination of both. In 2013, for the proportional and facultative aviation portfolios, reinsurance protection purchases were generally for coverage on losses from events that cause a market loss in excess of $150.0 million up to a full airline policy limit of $2.25 billion, including clash coverage. This program is in effect through November 2013. For the non-proportional aviation portfolio, reinsurance protection includes a 15% quota share treaty. In addition, the non-proportional portfolio is protected by $33.0 million in the form of first event ILWs, and $5.0 million of available limit in the form of second event ILWs. The first event ILWs attach at industry loss levels between $400.0 million and $1.0 billion. The majority of the reinsurance protections, excluding ILWs, include a reinstatement of the cover in case of loss.

For the marine yacht portfolio written by the London branch, reinsurance coverage is in place for $9.8 million in excess of a retention of $0.3 million.

For accident and health, Sirius Group has excess of loss protection covering personal accident and life of €10.0 million ($13.0 million based on the December 31, 2012 EUR to USD exchange rate) of protection in excess of a €5.0 million ($7.0 million based on the December 31, 2012 EUR to USD exchange rate) retention for the Stockholm, Hamburg, Liege and Singapore branches.

For 2012, Sirius Group ceded 20% and 50% of its trade credit and bond business, respectively, under a quota share retrocession, which supported growth in this line. The treaty was renewed for 2013.

Almost all of Sirius Group's excess of loss reinsurance protections, excluding ILWs, include provisions that reinstate coverage at a cost of 100% or more of the original reinsurance premium.

At December 31, 2012, Sirius Group had $14.6 million of reinsurance recoverables on paid losses and $321.8 million of reinsurance recoverables on unpaid losses that will become recoverable if claims are paid in accordance with current reserve estimates. Because retrocessional reinsurance contracts do not relieve Sirius Group of its obligation to its insureds, the collectability of balances due from Sirius Group's reinsurers is critical to its financial strength. Sirius Group monitors the financial strength and ratings of retrocessionaires on an ongoing basis.

The following table provides a listing of Sirius Group’s top reinsurers based upon recoverable amounts, the percentage of total recoverables and the reinsurer’s A.M. Best Rating.



Top Reinsurers ($ in millions)	Balance at December 31, 2012		% of Total		A.M. Best Rating⁽¹⁾	% Collateralized
General Reinsurance Corporation	$	56.2	17	%	A++	—	%
Swiss Re Group	36.4		11	%	A+	2	%
Olympus Re ⁽²⁾	29.6		9	%	NR-5	100	%
Lloyds of London ⁽³⁾	19.4		6	%	A	8	%
Michigan Catastrophic Claims Association ⁽⁴⁾	14.7		4	%	N/A	—	%

⁽¹⁾ A.M. Best ratings as detailed above are: “A++” (Superior, which is the highest of 16 financial strength ratings), “A+” (Superior, which is the

second highest of 16 financial strength ratings), and “A” (Excellent, which is the third highest of 16 financial strength ratings).

⁽²⁾ Non-U.S. insurance entity. The balance is fully collateralized through funds held, letters of credit or trust agreements.

⁽³⁾ Represents the total of reinsurance recoverables due to Sirius Group from all Lloyds Syndicates.

⁽⁴⁾ Michigan Catastrophic Claims Association (”MCCA”) is a non-profit unincorporated association., established by the State of Michigan with

the power to issue and collect assessments, to which every insurance company that sells automobile coverage in Michigan is required to be a

member. A.M. Best does not rate MCCA. Sirius Group acquired its recoverable from MCCA in the acquisition of Stockbridge Insurance

Company. As part of the acquisition, Sirius Group obtained $25.0 of reinsurance protection from the seller (currently rated A+ by A.M. Best)

for unfavorable loss reserve development, including uncollectible reinsurance.