Investments in Unconsolidated Affiliates

White Mountains’ investments in unconsolidated affiliates represent investments in other companies in which White Mountains has a significant voting and economic interest but does not control the entity.



	December 31,
Millions	2012		2011
Symetra common shares	$	288.4	$	261.0
Unrealized gains from Symetra’s fixed maturity portfolio	62.8		—
Carrying value of Symetra common shares	$	351.2	$	261.0
Symetra warrants	30.3		12.6
Total investment in Symetra	381.5		273.6

Hamer, LLC ⁽¹⁾	4.0		—
Bri-Mar Manufacturing, LLC ⁽¹⁾	1.9		—
Pentelia Capital Management	.5		1.7
Total investments in unconsolidated affiliates	$	387.9	$	275.3

⁽¹⁾ As of October 1, 2012, Hamer and Bri-Mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates.

Symetra

At December 31, 2012, White Mountains owned 17.4 million common shares of Symetra and warrants to acquire an additional 9.5 million common shares. In January 2010, Symetra completed an initial public offering at a price of $12.00 per share, with 25.3 million shares sold by Symetra and 9.7 million shares sold by existing shareholders. White Mountains did not sell any of its shares in the offering. As a result of the offering, White Mountains’ fully converted ownership in Symetra decreased from 24% to approximately 20% during the first quarter of 2010. The issuance of the new Symetra shares at a price below its adjusted book value per share diluted White Mountains’ investment in Symetra’s common shares, resulting in a $16.0 million decrease to White Mountains’ carrying value in Symetra.

White Mountains accounts for its investment in common shares of Symetra using the equity method. Under the equity method, the GAAP carrying value of White Mountains’ investment in Symetra common shares is normally equal to the percentage of Symetra’s GAAP book value represented by White Mountains’ common share ownership, which was 15% at December 31, 2012. At December 31, 2011, due to the prolonged low interest rate environment in which life insurance companies currently operate, White Mountains concluded that its investment in Symetra common shares was other-than-temporarily impaired and wrote down the GAAP book value of the investment to its estimated fair value of $261.0 million, or $15 per share at December 31, 2011. White Mountains recorded $45.9 million of after-tax equity in losses of unconsolidated affiliates and $136.6 million of after-tax equity in net unrealized losses of unconsolidated affiliates.

Under GAAP, a decline in the fair value of an investment is considered to be other-than-temporary when the fair value of the investment is not expected to recover to its GAAP carrying value in the near term. Declines in the fair value of an investment that are considered to be other-than-temporary are recognized as a write-down to the GAAP carrying value of the investment. The GAAP fair value of an investment is the price that would be paid by a market participant to acquire it in the investment’s principal (or most advantageous) market. For investments that are publicly traded, quoted market prices generally provide the best measurement of GAAP fair value. However, a decline in the quoted market price of an investment below its GAAP carrying value is not necessarily indicative of a loss in value that is other-than-temporary, and in circumstances where the characteristics of the investment being measured are not the same as those for which quoted market prices are available, unadjusted quoted market prices do not represent GAAP fair value. White Mountains’ investment in Symetra common shares is different than the shares that are traded on the public stock exchange, principally due to the size of its position and its representation on Symetra’s Board of Directors. In circumstances like this, GAAP requires that fair value be determined giving consideration to multiple valuation techniques. Management considered three different valuation techniques to determine the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011.

Valuation techniques based on actuarial appraisal

When determining the value of life insurance holding companies that are acquisition targets, market participants commonly utilize an approach that values the company as the sum of (A) adjusted statutory net worth of any regulated life insurance companies (i.e. statutory surplus plus asset valuation reserve) plus the GAAP net assets of any non-life businesses, less holding company debt and (B) the present value of future earnings related to business in force as of the valuation date plus the present value of future earnings related to business written after the valuation date. Part A of the calculation can be performed using observable inputs from the statutory and GAAP financial statements. Part B of the calculation requires a large number of actuarial calculations including assumptions such as discount rates, mortality, persistency and future investment results that, while based on historical data and are supportable, are nonetheless judgmental and largely unobservable. For Symetra, part A is approximately $15 per share as of December 31, 2011. Symetra management provided White Mountains with an actuarial appraisal that demonstrates that part B would be a meaningful positive value in most reasonable scenarios. When determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011, management ascribed the greatest weight to part A, as it is observable and less subjective.

Valuation techniques based on multiples from recent transactions

White Mountains uses growth in adjusted book value to assess Symetra’s financial performance. Adjusted book value excludes unrealized gains and losses from Symetra’s fixed maturity investment portfolio. Life insurance industry analysts and market participants commonly use multiples of adjusted book value per share to determine relative values of companies in the life insurance industry. Applying this approach to Symetra at December 31, 2011, utilizing multiples which were observed in a recently announced transaction within the life insurance industry provides an estimated fair value range from $16 to $30 per share. However, the range of fair value estimates generated by applying the adjusted book value per share multiple and market premium observed in the recently announced transaction is wide, and there have been no other significant acquisitions of life insurance companies in 2011. Therefore, management did not ascribe significant weight to valuations determined using the adjusted book value per share multiple or market price premium observed in recent acquisition activity when determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011.

Valuation techniques based on quoted market prices

White Mountains’ representation on Symetra’s Board of Directors gives it the ability to exercise significant influence over Symetra’s operations and policies. Generally, market participants are willing to pay a premium to obtain the ability to exert influence over the operations and policies of an investee, which is not reflected in the quoted market price of Symetra’s common shares. There is no reliable means to calculate the value of this premium for an investment in a life insurance company. The actuarial appraisals used by market participants described above implicitly consider the ability to influence an investee’s operations and policies in the actuarial assumptions underlying projected future earnings, but the value associated with the ability to exert influence is not explicitly calculated separately from other components of value. As a result, management did not ascribe significant weight to valuations based on quoted market prices when determining the GAAP fair value of White Mountains’ investment in Symetra common shares at December 31, 2011, as the premium associated with the ability to exert influence over the operations and policies of Symetra is unobservable and highly subjective.

After considering these valuation techniques, management determined that the best estimate of the GAAP fair value of White Mountains’ investment in Symetra’s common shares at December 31, 2011 was $15 per share. Given the scarcity of relevant observable inputs and the wide range of estimates developed under the approaches used, the estimated GAAP fair value of White Mountains’ investment in Symetra’s common shares involved a significant degree of judgment, is very subjective in nature and, accordingly, is considered a Level 3 fair value measurement.

As a result of recording the write-down, White Mountains’ carrying value of its investment in Symetra differs from the carrying value by applying its ownership share against Symetra’s GAAP equity as normally done under the equity method. The pre-tax basis difference of $195.8 million as of December 31, 2011 is being amortized over a 30 year period pro rata based on estimated future cash flows associated with Symetra’s underlying assets and liabilities to which the basis difference has been attributed. White Mountains continues to record its equity in Symetra’s earnings and net unrealized gains (losses). In addition, White Mountains recognizes the amortization of the basis difference through equity in earnings of unconsolidated affiliates and equity in net unrealized gains (losses) from investments in unconsolidated affiliates consistent with the original attribution of the writedown between equity in earnings and equity in net unrealized gains (losses). For the year ended December 31, 2012, White Mountains recognized after-tax amortization of $3.3 million through equity in earnings of unconsolidated affiliates and $12.1 million through equity in net unrealized gains from investments in unconsolidated affiliates. At December 31, 2012, the pre-tax unamortized basis difference was $179.2 million. Management does not believe that the investment in Symetra’s common shares is other-than-temporarily impaired at December 31, 2012.

White Mountains accounts for its Symetra warrants as derivatives with changes in fair value recognized through the income statement as a gain or loss recognized through other revenues. White Mountains uses a Black Scholes valuation model to determine the fair value of the Symetra warrants. The major assumptions used in valuing the Symetra warrants at December 31, 2012 were a risk free rate of 0.21%, volatility of 38.9%, an expected life of 1.6 years, a strike price of $11.49 per share and a share price of $12.98 per share.

During 2012, White Mountains received cash dividends from Symetra of $4.9 million on its common share investment which is accounted for as a reduction of White Mountains’ investment in Symetra in accordance with equity accounting. During 2012, White Mountains also received cash dividends from Symetra of $2.7 million on its investment in Symetra warrants that was recorded as net investment income.

The following table summarizes amounts recorded by White Mountains relating to its investment in Symetra:



Millions	Common shares			Warrants			Total
Carrying value of investment in Symetra as of December 31, 2009 ⁽²⁾	$	269.2		$	38.5		$	307.7
Equity in earnings ^(1)(3)(8)	11.1			—			11.1
Net unrealized gains from Symetra’s fixed maturity portfolio ⁽⁶⁾⁽⁷⁾	72.7			—			72.7
Dividends received	(2.6		)	—			(2.6		)
Decrease in value of warrants	—			(1.4		)	(1.4		)
Carrying value of investment in Symetra as of December 31, 2010⁽²⁾	350.4			37.1			387.5
Equity in earnings ⁽¹⁾⁽⁸⁾	28.2			—			28.2
Impairment of equity in earnings of Symetra ⁽⁴⁾	(50.0		)	—			(50.0		)
Equity in net unrealized gains from Symetra’s fixed maturity portfolio ⁽⁷⁾	85.0			—			85.0
Impairment of net unrealized gains from Symetra’s fixed maturity portfolio ⁽⁵⁾	(148.6		)	—			(148.6		)
Dividends received	(4.0		)	—			(4.0		)
Decrease in value of warrants	—			(24.5		)	(24.5		)
Carrying value of investment in Symetra as of December 31, 2011 ⁽²⁾	261.0			12.6			273.6
Equity in earnings ^(1)(8)(9)	32.3			—			32.3
Equity in net unrealized gains from Symetra’s fixed maturity portfolio ⁽⁷⁾	62.8			—			62.8
Dividends received	(4.9		)	—			(4.9		)
Increase in value of warrants	—			17.7			17.7
Carrying value of investment in Symetra as of December 31, 2012 ^(2)(11)	$	351.2		$	30.3		$	381.5


⁽¹⁾	Equity in earnings for the years end December 31, 2012, 2011 and 2010 excludes tax expense of $2.6, $2.3, and $1.4


⁽²⁾	Includes White Mountains’ equity in net unrealized gains (losses) from Symetra’s fixed maturity portfolio of $62.8, $0, and $63.7 as of December 31, 2012, 2011 and 2010, which excludes tax expense of $5.1, $0 and $5.2


⁽³⁾	Includes a $17.9 loss from the dilutive effect of Symetra’s public offering


⁽⁴⁾	Impairment of equity in earnings of Symetra excludes tax benefit of $4.1


⁽⁵⁾	Impairment of net unrealized gains from Symetra’s fixed maturity portfolio excludes tax benefit of $12.0


⁽⁶⁾	Includes a $1.9 gain from the dilutive effect of Symetra’s public offering.


⁽⁷⁾	Net unrealized gains (losses) from Symetra’s fixed maturity portfolio excludes tax (expense) benefit of $(5.1), $(6.9) and $0.8 for the years ended December 31, 2012, 2011 and 2010.


⁽⁸⁾	Equity in earnings for the years end December 31, 2012, 2011 and 2010 includes $1.3, $1.0, and $0.8 loss from the dilutive effect of Symetra’s yearly dividend and the issuance of restricted shares by Symetra


⁽⁹⁾	Equity in earnings includes $3.5 increase relating to the pre-tax amortization of Symetra common share impairment from December 31, 2012.


⁽¹⁰⁾	Net unrealized gains includes $13.1 increase relating to the pre-tax amortization of Symetra common share impairment from December 31, 2012.


⁽¹¹⁾	The aggregate value of White Mountains’ investment in common shares of Symetra was $225.9 based upon the quoted market price of $12.98 per share

at December 31, 2012.

The following table summarizes financial information for Symetra as of December 31, 2012 and 2011:



	December 31,
Millions	2012		2011
Symetra balance sheet data:
Total investments	$	27,556.4	$	26,171.7
Separate account assets	807.7		795.8
Total assets⁽¹⁾	29,460.9		28,183.3
Policyholder liabilities	23,735.2		23,140.6
Long-term debt	449.4		449.2
Separate account liabilities	807.7		795.8
Total liabilities ⁽¹⁾	25,830.8		25,068.4
Common shareholders’ equity ⁽¹⁾	3,630.1		3,114.9

⁽¹⁾2011 balances have been restated for the effect of Symetra’s adoption of ASU 2010-26.

The following table summarizes financial information for Symetra for the years ended December 31, 2012, 2011 and 2010:



	Years ended December 31,
Millions	2012		2011		2010
Symetra income statement data:
Net premiums earned	$	605.0	$	540.5	$	473.0
Net investment income	1,275.2		1,270.9		1,199.4
Total revenues ⁽¹⁾	2,101.2		1,999.3		1,878.8
Policy benefits	1,371.8		1,307.3		1,234.6
Total expenses ⁽¹⁾	1,831.1		1,726.1		1,600.5
Net income ⁽¹⁾	205.4		195.8		193.8
Comprehensive net income	549.3		785.5		679.0

⁽¹⁾Amounts for the years ended December 31, 2011 and 2010 have been restated for the effect of Symetra’s adoption of

ASU 2010-26.

Hamer and Bri-Mar

White Mountains received equity interests in Hamer and Bri-Mar, two small manufacturing companies distributed to White Mountains in connection with the dissolution of the Tuckerman Capital, LP fund (see Note 16). Effective October 1, 2012, these investments are accounted for under the equity method. For the three months ended December 31, 2012, White Mountains recorded equity in earnings of $0.4 million for Hamer. Bri-Mar did not have any earnings for the three months ended December 31, 2012. As of December 31, 2012, White Mountains’ investments in Hamer and Bri-Mar was $4.0 million and $1.9 million, respectively.

Pentelia

White Mountains obtained an equity interest of 33% in Pentelia Capital Management (“PCM”) for $1.6 million in April 2007. This investment is accounted for under the equity method. For the year ended December 31, 2012, 2011 and 2010, White Mountains recorded $(1.3) million, $(0.2) million, and $0.5 million of equity in earnings in PCM. As of December 31, 2012 and 2011, White Mountains investment in PCM was $0.5 million and $1.7 million.

Delos

In August 2006, Sirius Group sold a wholly-owned subsidiary to an investor group led by Lightyear Capital for $138.8 million in cash and recognized a pre-tax gain of $14.0 million in other revenue. As part of this transaction, White Mountains acquired an equity interest of approximately 18% for $32.0 million in the acquiring entity, Delos, and accounted for its investment in Delos under the equity method. In December 2010, White Mountains sold its investment in Delos for $21.7 million and recognized a pre-tax loss of $10.9 million in other revenue.