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Derivatives | 12 Months Ended
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Dec. 31, 2013
Derivative [Line Items] |
Derivatives | Derivatives
Variable Annuity Reinsurance |
Derivative [Line Items] |
Derivatives | Variable Annuity Reinsurance White Mountains has entered into agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan. At December 31, 2013, the total guarantee value was approximately ¥203.6 billion (approximately $1.9 billion at exchange rates on that date). The collective account values of the underlying variable annuities were approximately 104% of the guarantee value at December 31, 2013. The following table summarizes the pre-tax operating results of WM Life Re for the years ended December 31, 2013, 2012 and 2011:
|  | Year Ended December 31,
Millions |  | 2013 |  | 2012 |  | 2011
Fees, included in other revenue |  | $ | 25.0 |  |  | $ | 31.8 |  |  | $ | 32.5 |
Change in fair value of variable annuity liability, included in other revenue |  | 378.5 |  |  | 312.8 |  |  | (156.5 | )
Change in fair value of derivatives, included in other revenue |  | (402.0 | ) |  | (339.0 | ) |  | 92.9 |
Foreign exchange, included in other revenue |  | (14.5 | ) |  | (30.3 | ) |  | 15.1 |
Other investment income and (losses) gains |  | (7.1 | ) |  | 2.5 |  |  | (.9 | )
Total revenues |  | (20.1 | ) |  | (22.2 | ) |  | (16.9 | )
Change in fair value of variable annuity death benefit liabilities, included in general and administrative expenses |  | 10.2 |  |  | 14.2 |  |  | (1.8 | )
Death benefit claims paid, included in general and administrative expenses |  | (1.9 | ) |  | (5.7 | ) |  | (3.8 | )
General and administrative expenses |  | (4.9 | ) |  | (5.2 | ) |  | (4.7 | )
Pre-tax loss |  | $ | (16.7 | ) |  | $ | (18.9 | ) |  | $ | (27.2 | )
During 2013, the ratio of annuitants’ aggregate account values to the aggregate guarantee value provided by WM Life Re increased, and as a result, annuitants have been surrendering their policies at higher rates than WM Life Re has observed in the past. In response to this trend, WM Life Re adjusted the projected surrender assumptions used in the valuation of its variable annuity reinsurance liability upward. For the year ended December 31, 2013, the change in the fair value of the variable annuity liability included $6.5 million of gains associated with changes in projected surrender assumptions. There was no change in projected surrender assumptions in 2012. For the year ended December 31, 2011, the change in the fair value of the variable annuity liability included $7.2 million of losses associated with changes in projected surrender assumptions. All of White Mountains’ variable annuity reinsurance liabilities were classified as Level 3 measurements at December 31, 2013. The following summarizes realized and unrealized gains (losses) recognized in other revenues for the years ended December 31, 2013, 2012 and 2011 and the carrying values at December 31, 2013 and 2012 by type of derivative instrument:
|  |  |  |  |  |  |  | Carrying Value
|  | Year Ended December 31, |  | December 31,
Millions |  | 2013 |  | 2012 |  | 2011 |  | 2013 |  | 2012
Fixed income/interest rate |  | $ | (108.7 | ) |  | $ | (149.5 | ) |  | $ | 8.9 |  |  | $ | (9.7 | ) |  | $ | 27.1 |
Foreign exchange |  | (96.7 | ) |  | (102.3 | ) |  | 29.5 |  |  | 58.0 |  |  | 52.8 |
Equity |  | (196.6 | ) |  | (87.2 | ) |  | 54.5 |  |  | 20.9 |  |  | 18.4 |
Total |  | $ | (402.0 | ) |  | $ | (339.0 | ) |  | $ | 92.9 |  |  | $ | 69.2 |  |  | $ | 98.3 |
The following table summarizes the changes in White Mountains’ variable annuity reinsurance liabilities and derivative instruments for the year ended December 31, 2013, 2012 and 2011:
|  | Variable Annuity (Liabilities) |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3(1) |  | Level 2(1)(2) |  | Level 1(3) |  | Total(4)
Balance at January 1, 2013 |  | $ | (441.5 | ) |  | $ | 140.5 |  |  | $ | (20.5 | ) |  | $ | (21.7 | ) |  | $ | 98.3 |
Purchases |  | — |  |  | 59.4 |  |  | — |  |  | — |  |  | 59.4 |
Realized and unrealized gains (losses) |  | 388.7 |  | (5) | (136.5 | ) |  | (196.1 | ) |  | (69.4 | ) |  | (402.0 | )
Transfers in (out) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | — |  |  | 221.3 |  |  | 92.2 |  |  | 313.5 |
Balance at December 31, 2013 |  | $ | (52.8 | ) |  | $ | 63.4 |  |  | $ | 4.7 |  |  | $ | 1.1 |  |  | $ | 69.2 |
|  | 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 (losses) gains |  | 327.0 |  | (5) | (84.0 | ) |  | (186.9 | ) |  | (68.1 | ) |  | (339.0 | )
Transfers in (out) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (28.7 | ) |  | 127.2 |  |  | 42.3 |  |  | 140.8 |
Balance at December 31, 2012 |  | $ | (441.5 | ) |  | $ | 140.5 |  |  | $ | (20.5 | ) |  | $ | (21.7 | ) |  | $ | 98.3 |
|  | 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 (losses) gains |  | (158.3 | ) | (5) | 14.5 |  |  | 67.7 |  |  | 10.7 |  |  | 92.9 |
Transfers in (out) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (47.7 | ) |  | (100.7 | ) |  | (6.6 | ) |  | (155.0 | )
Balance at December 31, 2011 |  | $ | (768.5 | ) |  | $ | 247.1 |  |  | $ | 39.2 |  |  | $ | 4.1 |  |  | $ | 290.4 |
(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 $81.3, $393.6 and $485.3 at December 31, 2013, 2012 and 2011 posted as collateral to its reinsurance counterparties.
(5) | Includes $10.2, $14.2, $(1.8) for December 31, 2013, 2012 and 2011 related to the change in the fair value of variable annuity death benefit liabilities, which are included in general and administrative expenses.
In addition, WM Life Re held cash and short-term investments posted as collateral to its variable annuity reinsurance and derivatives counterparties. The total collateral includes the following:
|  | December 31,
Millions |  | 2013 |  | 2012
Cash |  | $ | 56.1 |  |  | $ | 249.8 |
Short-term investments |  | 2.0 |  |  | 5.1 |
Fixed maturity investments |  | 23.2 |  |  | 138.7 |
Total |  | $ | 81.3 |  |  | $ | 393.6 |
Collateral in the form of fixed maturity securities consists of Government of Japan Bonds, which are recorded at fair value. Collateral in the form of short-term investments consists of money-market instruments, carried at amortized cost, which approximates fair value. All of White Mountains’ variable annuity reinsurance liabilities were classified as Level 3 measurements at December 31, 2013 and 2012. The fair value of White Mountains’ variable annuity reinsurance liabilities are estimated using actuarial and capital market assumptions related to the projected discounted cash flows over the term of the reinsurance agreement. Assumptions regarding future policyholder behavior, including surrender and lapse rates, are generally unobservable inputs and significantly impact the fair value estimates. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates as well as the variations in actuarial assumptions regarding policyholder behavior may result in significant fluctuations in the fair value estimates. Generally, the liabilities associated with these guarantees increase with declines in the equity markets, interest rates and currencies against the Japanese yen, as well as with increases in market volatilities. White Mountains uses derivative instruments, including put options, interest rate swaps, total return swaps on bond and equity indices and forwards and futures contracts on major equity indices, currency pairs and government bonds, to mitigate the risks associated with changes in the fair value of the reinsured variable annuity guarantees. The types of inputs used to estimate the fair value of these derivative instruments, with the exception of actuarial assumptions regarding policyholder behavior and risk margins, are generally the same as those used to estimate the fair value of variable annuity liabilities. The following summarizes quantitative information about significant unobservable inputs associated with the fair value estimates for variable annuity reinsurance liabilities and derivative instruments that have been classified as Level 3 measurements:
($ in Millions) |  | December 31, 2013
Description |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average
Variable annuity benefit guarantee liabilities |  | $ | 52.8 |  |  | Discounted cash flows |  | Surrenders |  |  |  |  |  |
|  |  |  | 0-1 year |  | 0.3 | % | - | 30.0% |  | 21.0 | %
|  |  |  | 1-2 years |  | 0.2 | % | - | 32.0% |  | 15.8 | %
|  |  |  | 2-3 years |  | 0.1 | % | - | 14.0% |  | 6.2 | %
|  |  |  |  | Mortality |  | 0.0 | % | - | 5.3% |  | 1.0 | %
|  |  |  |  | Foreign exchange volatilities |  |  |  |  |  |
|  |  |  | 0-1 year |  | 11.6 | % | - | 14.0% |  | 12.5 | %
|  |  |  | 1-2 years |  | 12.9 | % | - | 15.0% |  | 13.7 | %
|  |  |  | 2-3 years |  | 13.5 | % | - | 16.3% |  | 14.3 | %
|  |  |  | Index volatilities |  |  |  |  |  |
|  |  |  | 0-1 year |  | 16.4 | % | - | 19.5% |  | 17.9 | %
|  |  |  | 1-2 years |  | 17.6 | % | - | 20.1% |  | 19.4 | %
|  |  |  |  | 2-3 years |  | 18.9 | % | - | 21.9% |  | 21.9 | %
Foreign Exchange Options |  | $ | 32.6 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | (1.2 | )% | - | 8.0% |  | 2.4 | %
Equity Index Options |  | $ | 30.8 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | 0.5% | - | 9.7% |  | 3.4 | %
WM Life Re enters into both over-the-counter (“OTC”) and exchange traded derivative instruments to economically hedge the liability from the variable annuity benefit guarantee. In the case of OTC derivatives, WM Life Re has exposure to credit risk for amounts that are uncollateralized by counterparties. WM Life Re’s internal risk management guidelines establish net counterparty exposure thresholds that take into account OTC counterparties’ credit ratings. The OTC derivative contracts are subject to restrictions on liquidation of the instruments and distribution of proceeds under collateral agreements. In the case of exchange traded instruments, WM Life Re has exposure to credit risk for amounts uncollateralized by margin balances. WM Life Re has entered into master netting agreements with certain of its counterparties whereby the collateral provided (held) is calculated on a net basis. The following summarizes amounts offset under master netting agreements:
|  | December 31, 2013 |  | December 31, 2012
Millions |  | Gross asset amounts before offsets(1) |  | Gross liability amounts offset under master netting arrangements |  | Net amounts recognized in Other Assets |  | Gross asset amounts before offsets(1) |  | Gross liability amounts offset under master netting arrangements |  | Net amounts recognized in Other Assets
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | $ | 2.4 |  |  | $ | (11.7 | ) |  | $ | (9.3 | ) |  | $ | 52.6 |  |  | $ | (26.9 | ) |  | $ | 25.7 |
Exchange traded |  | 1.0 |  |  | (1.6 | ) |  | (.6 | ) |  | 1.6 |  |  | (.2 | ) |  | 1.4 |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 67.8 |  |  | (12.0 | ) |  | 55.8 |  |  | 87.8 |  |  | (34.4 | ) |  | 53.4 |
Exchange traded |  | 2.3 |  |  | — |  |  | 2.3 |  |  | .8 |  |  | (1.4 | ) |  | (.6 | )
Equity contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 30.7 |  |  | (9.2 | ) |  | 21.5 |  |  | 63.6 |  |  | (22.9 | ) |  | 40.7 |
Exchange traded |  | 1.8 |  |  | (2.3 | ) |  | (.5 | ) |  | .1 |  |  | (22.4 | ) |  | (22.3 | )
Total(2) |  | $ | 106.0 |  |  | $ | (36.8 | ) |  | $ | 69.2 |  |  | $ | 206.5 |  |  | $ | (108.2 | ) |  | $ | 98.3 |
(1) Amount equal to fair value of instrument as recognized in other assets. (2) All derivative instruments held by WM Life Re are subject to master netting arrangements. The following summarizes the value, collateral held or provided by WM Life Re and net exposure to credit losses on OTC and exchange traded derivative instruments by counterparty recorded within other assets:
|  | December 31, 2013
Millions |  | Net amount of assets reflected in Balance Sheet |  | Collateral provided to counterparty - Cash |  | Collateral provided to counter-party - Financial Instruments |  | Net amount of exposure after effect of collateral provided |  | Excess collateral provided to counter-party- Cash |  | Excess collateral provided - Financial Instruments |  | Counter-party collateral held by WM Life Re - Cash |  | Net amount of exposure to counter-party |  | Standard & Poor's Rating(1)
JP Morgan |  | $ | 9.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 9.1 |  |  | $ | 22.0 |  |  | $ | — |  |  | $ | — |  |  | $ | 31.1 |  |  | A | +
Bank of America |  | 27.2 |  |  | — |  |  | — |  |  | 27.2 |  |  | — |  |  | — |  |  | — |  |  | 27.2 |  |  | A |
Nomura |  | (.4 | ) |  | — |  |  | .4 |  |  | — |  |  | — |  |  | 22.8 |  |  | .8 |  |  | 22.0 |  |  | BBB | +
Citigroup - OTC |  | 19.4 |  |  | — |  |  | — |  |  | 19.4 |  |  | 2.3 |  |  | — |  |  | — |  |  | 21.7 |  |  | A |
Citigroup - Exchange Traded |  | 1.2 |  |  | — |  |  | — |  |  | 1.2 |  |  | 19.8 |  |  | — |  |  | — |  |  | 21.0 |  |  | A |
Royal Bank of Scotland |  | 11.3 |  |  | — |  |  | — |  |  | 11.3 |  |  | — |  |  | — |  |  | — |  |  | 11.3 |  |  | A | -
Barclays |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |  |  | — |  |  | — |  |  | — |  |  | 1.4 |  |  | A |
Total |  | $ | 69.2 |  |  | $ | — |  |  | $ | .4 |  |  | $ | 69.6 |  |  | $ | 44.1 |  |  | $ | 22.8 |  |  | $ | .8 |  |  | $ | 135.7 |  |  |  |
|  | December 31, 2012
Millions |  | Net amount of assets reflected in Balance Sheet |  | Collateral provided to counter-party - Cash |  | Collateral provided to counter-party - Financial Instruments |  | Net amount of exposure after effect of collateral provided |  | Excess collateral provided to counter-party- Cash |  | Excess collateral provided - Financial Instruments |  | Counter-party collateral held by WM Life Re- Cash |  | Net amount of exposure to counter-party |  | Standard & Poor's Rating(1)
Citigroup - OTC |  | $ | 19.9 |  |  | $ | — |  |  | $ | — |  |  | $ | 19.9 |  |  | $ | 30.8 |  |  | $ | — |  |  | $ | — |  |  | $ | 50.7 |  |  | A |
Bank of America |  | 78.5 |  |  | — |  |  | — |  |  | 78.5 |  |  | — |  |  | — |  |  | 30.6 |  |  | 47.9 |  |  | A |
Royal Bank of Scotland |  | 33.6 |  |  | — |  |  | — |  |  | 33.6 |  |  | — |  |  | — |  |  | — |  |  | 33.6 |  |  | A |
JP Morgan |  | (22.8 | ) |  | 22.8 |  |  | — |  |  | — |  |  | 32.8 |  |  | — |  |  | — |  |  | 32.8 |  |  | A | +
Nomura |  | (.9 | ) |  | .9 |  |  | — |  |  | — |  |  | .8 |  |  | 28.0 |  |  | — |  |  | 28.8 |  |  | BBB | +
Citigroup - Exchange Traded |  | (21.5 | ) |  | 21.5 |  |  | — |  |  | — |  |  | 13.6 |  |  | — |  |  | — |  |  | 13.6 |  |  | A |
Barclays |  | 11.6 |  |  | — |  |  | — |  |  | 11.6 |  |  | — |  |  | — |  |  | — |  |  | 11.6 |  |  | A | +
Goldman Sachs |  | (.1 | ) |  | .1 |  |  | — |  |  | — |  |  | 3.1 |  |  | — |  |  | — |  |  | 3.1 |  |  | A | -
Total |  | $ | 98.3 |  |  | $ | 45.3 |  |  | $ | — |  |  | $ | 143.6 |  |  | $ | 81.1 |  |  | $ | 28.0 |  |  | $ | 30.6 |  |  | $ | 222.1 |  |  |  |
(1) | Standard & Poor’s ratings as detailed above are: “A+” (Strong, which is the fifth highest of twenty-one creditworthiness ratings),“A” (which is the sixth highest of twenty-one creditworthiness ratings), “A-” (which is the seventh highest of twenty-one creditworthiness ratings), and BBB+ (which is the eighth highest of twenty-one creditworthiness ratings).
Forward contracts |
Derivative [Line Items] |
Derivatives | Forward Contracts White Mountains is exposed to foreign currency risk related to Sirius International as its functional currency is the Swedish krona (SEK). In addition, Sirius International holds net assets denominated in euros (EUR), British pound sterling (GBP), and U.S. Dollars (USD). Beginning in September 2012, White Mountains entered into forward contracts through a twelve month trial program with a third-party currency specialist manager to determine whether purchasing external forward currency contracts would improve the management of foreign currency exposure at Sirius Group. White Mountains monitors its exposure to foreign currency and adjusts its forward positions within the risk guidelines and ranges established by senior management for each currency, as necessary. While White Mountains actively manages its forward positions, mismatches between movements in foreign currency rates and its forward contracts may result in currency positions being outside the pre-defined ranges and/or foreign currency losses. At December 31, 2013, White Mountains held approximately $20.4 million (SEK 131.3 million) total gross notional value of foreign currency forward contracts. All of White Mountains’ forward contracts are traded over-the-counter. The fair value of the contracts has been estimated using OTC quotes for similar instruments and accordingly, the measurements have been classified as Level 2 measurements at December 31, 2013. The following tables summarize the changes in White Mountains’ forward contracts for the year ended December 31, 2013 and 2012:
Millions |  | December 31, 2013 |  | December 31, 2012
Beginning of period |  | $ | (.1 | ) |  | $ | — |
Purchases |  | — |  |  | — |
Realized and unrealized losses |  | (.1 | ) |  | (.3 | )
Sales/settlements |  | .1 |  |  | .2 |
End of period |  | $ | (.1 | ) |  | $ | (.1 | )
The following summarizes realized and unrealized derivative gains (losses) recognized in net realized and unrealized investment gains and the carrying values, included in other long-term investments, at December 31, 2013 and 2012 by type of currency:
|  | December 31, 2013 |  | December 31, 2012
Millions |  | Gains (Losses) |  | Carrying Value |  | Gains (Losses) |  | Carrying Value
USD |  | $ | (.2 | ) |  | $ | — |  |  | $ | (.2 | ) |  | $ | — |
SEK |  | — |  |  | — |  |  | — |  |  | — |
EUR |  | .1 |  |  | (.1 | ) |  | (.1 | ) |  | (.1 | )
GBP |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | (.1 | ) |  | $ | (.1 | ) |  | $ | (.3 | ) |  | $ | (.1 | )
All of White Mountains’ forward contracts are subject to master netting agreements. The following summarizes amounts offset under master netting agreements:
|  | December 31, 2013 |  | December 31, 2012
Millions |  | Gross asset amounts before offsets(1) |  | Gross liability amounts offset under master netting arrangements |  | Net amounts recognized in investments |  | Gross asset amounts before offsets(1) |  | Gross liability amounts offset under master netting arrangements |  | Net amounts recognized in investments
USD |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
EUR |  | — |  |  | (.1 | ) |  | (.1 | ) |  | — |  |  | (.1 | ) |  | (.1 | )
GBP |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | — |  |  | $ | (.1 | ) |  | $ | (.1 | ) |  | $ | — |  |  | $ | (.1 | ) |  | $ | (.1 | )
(1) | Amount equal to fair value of instrument as recognized in investments.
White Mountains does not hold or provide any collateral for the forward contracts. The following table summarizes the notional amounts and the uncollateralized balances associated with forward currency contracts by counterparty:
|  | December 31, 2013 |  | December 31, 2012
Millions |  | Notional Amount |  | Carrying Value |  | Standard & Poor's Rating(1) |  | Notional Amount |  | Carrying Value
Barclays Bank Plc |  | $ | 5.8 |  |  | $ | — |  |  | A |  | $ | 7.7 |  |  | $ | (.1 | )
Deutsche Bank |  | 7.7 |  |  | — |  |  | A |  | 11.1 |  |  | — |
Goldman Sachs |  | 2.1 |  |  | — |  |  | A- |  | .4 |  |  | — |
HSBC |  | 3.3 |  |  | (.1 | ) |  | AA- |  | 10.1 |  |  | — |
JP Morgan |  | 1.3 |  |  | — |  |  | A+ |  | 1.9 |  |  | — |
Royal Bank of Canada |  | .2 |  |  | — |  |  | AA- |  | — |  |  | — |
Total |  | $ | 20.4 |  |  | $ | (.1 | ) |  |  |  | $ | 31.2 |  |  | $ | (.1 | )
(1) | Standard & Poor’s (“S&P”) ratings as detailed above are: “AA-” (Very Strong, which is the sixth highest of twenty-one creditworthiness ratings), “A+” (Strong, which is the seventh highest of twenty-one creditworthiness ratings) and “A” (Strong, which is the eighth highest of twenty-one creditworthiness ratings).
Interest Rate Cap |
Derivative [Line Items] |
Derivatives | Interest Rate Cap In May 2007, SIG issued the SIG Preference Shares, with an initial fixed annual dividend rate of 7.506%. In June 2017, the fixed rate will move to a floating rate equal to the greater of (i) 7.506% or (ii) 3 month LIBOR plus 320 bps. In July 2013, SIG executed an interest rate cap for the period from June 2017 to June 2022 to protect against a significant increase in interest rates during that 5-year period (the “Interest Rate Cap”). The Interest Rate Cap economically fixes the annual dividend rate on the SIG Preference Shares from June 2017 to June 2022 at 8.30%. The cost of the Interest Rate Cap was an upfront premium of 395 bps of the $250.0 million notional value, or approximately $9.9 million for the full notional amount. The Interest Rate Cap does not qualify for hedge accounting. It is recorded in other assets at fair value. Changes in fair value are recognized as unrealized gains or losses and are presented within other revenues. Collateral held is recorded within short-term investments with an equal amount recognized as a liability to return collateral. The fair value of the interest rate cap has been estimated using a single broker quote and accordingly, has been classified as a Level 3 measurement at December 31, 2013. The following table summarizes the change in the fair value of the Interest Rate Cap for the year ended December 31, 2013:
Millions |  | December 31, 2013
Beginning of period |  | $ | — |
Purchases |  | 9.9 |
Net realized and unrealized gains |  | 1.2 |
Sales/settlements |  | — |
End of period |  | $ | 11.1 |
White Mountains does not provide any collateral to the interest rate counterparties. Under the terms of the Interest Rate Cap, White Mountains holds collateral in respect of future amounts due. White Mountains’ liability to return that collateral is based on the amounts provided by the counterparties and investment earnings thereon. The following table summarizes the Interest Rate Cap collateral balances held by White Mountains and ratings by counterparty:
|  | December 31, 2013
Millions |  | Collateral Balances Held |  | Standard & Poor’s Rating(1)
Barclays Bank Plc |  | $ | 7.5 |  |  | A
Nordea Bank Finland Plc |  | 3.3 |  |  | AA-
Total |  | $ | 10.8 |  |  |
(1) | Standard & Poor’s ratings as detailed above are: “A” (Strong, which is the sixth highest of twenty-one creditworthiness ratings) and “AA-” (Very Strong, which is the fourth highest of twenty-one creditworthiness ratings).
weather derivatives [Member] |
Derivative [Line Items] |
Derivatives | Weather Derivatives For the year ended December 31, 2013, Sirius Group recognized $0.6 million of net gains on its weather and weather contingent derivatives portfolio. The fair values of the assumed contracts are subject to change in the near-term and reflect management’s best estimate based on various factors including, but not limited to, observed and forecasted weather conditions, changes in interest or foreign currency exchange rates and other market factors. Estimating the fair value of derivative instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from or paid to a third party to settle the contracts. Such amounts could be materially different from the amounts that might be realized in an actual transaction to settle the contract with a third party. Because of the significance of the unobservable inputs used to estimate the fair value of Sirius Group’s weather risk contracts, the fair value measurements of the contracts are deemed to be Level 3 measurements in the fair value hierarchy.

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