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Discontinued Operations | 9 Months Ended
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Sep. 30, 2014
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | Discontinued Operations For the three and nine months ended September 30, 2014, White Mountains recorded income from discontinued operations of $6.7 million and $8.8 million. During the third quarter of 2014, White Mountains recorded a gain in discontinued operations of $14.0 million from a payment received from Allianz, the purchaser of White Mountains's former subsidiary Fireman’s Fund Insurance Company (“FFIC”), related to the utilization of alternative minimum tax credits associated with the tax loss on the sale of FFIC in 1991. During the third quarter of 2014, White Mountains also recorded a $6.7 million after-tax loss in discontinued operations from a change in the estimated value of the surplus notes OneBeacon expects to issue with the Runoff Transaction. Income from discontinued operations for the nine months ended September 30, 2014 also included an interim payment from Allstate that primarily relates to the favorable development on loss reserves transferred in the sale of Esurance and Answer Financial. For the three and nine months ended September 30, 2013, White Mountains recorded income from discontinued operations of $0.4 million and $4.8 million. The results of discontinued operations for the nine months ended September 30, 2013 primarily related to the sale of Esurance and Answer Financial. Runoff Transaction As described in Note 1 and Note 2, in October 2012, OneBeacon entered into an agreement to sell the Runoff Business to Armour. During the three and nine months ended September 30, 2014 and 2013, the results of operations for the Runoff Business have been classified as discontinued operations and are presented, net of related income taxes, in the statement of comprehensive income. The assets and liabilities associated with the Runoff Business as of September 30, 2014 and December 31, 2013 have been presented in the balance sheet as held for sale. The amounts classified as discontinued operations exclude investing and financing activities that are conducted on an overall consolidated level and, accordingly, there were no separately identifiable investments associated with the Runoff Business. The Pennsylvania Insurance Department is currently conducting its regulatory review of the Runoff Transaction, which included a public hearing on July 23, 2014. Subsequent to the public hearing, the Pennsylvania Insurance Department re-opened the public comment period, which then ended on October 17, 2014. The regulatory review process included a third party actuarial review of the Runoff Business loss and LAE reserves, completed in September 2013 and, subsequently, an independent stochastic modeling of the future cash flows of the Runoff Business, which was completed in June 2014. OneBeacon expects the Runoff Transaction to close in the fourth quarter of 2014. During the second quarter of 2014, OneBeacon amended the Runoff SPA, primarily to increase the cap on seller financing by $6.7 million to $80.9 million, as well as to extend the termination date to December 31, 2014. Consistent with the proposed closing balance sheet, pro forma as of June 30, 2014, OneBeacon expects to provide seller financing at closing in the form of surplus notes with an estimated par value of $80.9 million. As a result, OneBeacon recorded an increase of $8.2 million ($5.3 million after-tax) in the estimated loss on sale of the Runoff Business during the second quarter of 2014 to reflect the estimated difference between the fair value and par value of the surplus notes upon issuance. Additionally, during the second quarter of 2014, OneBeacon's expectation of the treatment under the Runoff SPA of the $7.4 million reserve charge recorded during the second quarter of 2013 changed. Previously, OneBeacon expected that the Runoff SPA would be amended to provide for the transfer of $7.4 million of additional assets to support the reserve charge. As previously noted, the Runoff SPA was instead revised to increase the cap on seller financing. As a result, the $7.4 million reserve charge ($4.8 million after-tax) was recorded as a reduction to the estimated loss on sale during the second quarter of 2014. During the third quarter of 2014, OneBeacon updated its estimated loss on sale to reflect the change in the valuation of the surplus notes expected to be issued in conjunction with the closing of the Runoff Transaction. The change in the valuation estimate resulted in a loss of $10.3 million ($6.7 million after-tax), which was a result of widening credit spreads during the quarter, as well as an increase to the estimated discount rate related to the private nature of the notes and the related lack of liquidity. The estimated loss on sale may change prior to closing as a result of, among other factors, changes in the estimated fair value of the surplus notes. The internal valuation model used to estimate the fair value of the surplus notes is sensitive to changes in treasury rates and credit spreads, and to changes in estimates with respect to other variables including a discount to reflect the private nature of the notes (and the related lack of liquidity), the credit quality of the notes and the timing and likelihood of interest and principal payments on the notes, which are subject to regulatory approval and therefore may vary from the contractual terms. Although these variables involve considerable judgment, OneBeacon does not currently expect any resulting change in the estimated value of the surplus notes to be material to its financial position, results of operations and cash flows. Reinsurance Included in the assets held for sale are reinsurance recoverables from two reinsurance contracts with subsidiaries of Berkshire Hathaway Inc. that OneBeacon was required to purchase in connection with White Mountains’s acquisition of OneBeacon in 2001 (the “OneBeacon Acquisition”): a reinsurance contract with National Indemnity Company (“NICO”) for up to $2.5 billion in old asbestos and environmental (“A&E”) claims and certain other exposures (the “NICO Cover”) and an adverse loss reserve development cover from General Reinsurance Corporation (“GRC”) for up to $570.0 million, comprised of $400.0 million of adverse loss reserve development occurring in years 2000 and prior in addition to $170.0 million of reserves ceded as of the date of the OneBeacon Acquisition (the “GRC Cover”). The NICO Cover and GRC Cover, which were contingent on and occurred contemporaneously with the OneBeacon Acquisition, were put in place in lieu of a seller guarantee of loss and LAE reserves and are therefore accounted for under GAAP as a seller guarantee. As of September 30, 2014 and December 31, 2013, the total reinsurance recoverables on paid and unpaid losses of $1,127.4 million and $1,243.7 million related to both the NICO cover and the GRC cover have been included in assets held for sale. Both NICO and GRC have an A.M Best rating of A++, Superior, which is the highest of sixteen ratings. The total reinsurance recoverables on paid and unpaid losses in assets held for sale were $7.4 million and $1,585.4 million as of September 30, 2014. The reinsurance recoverable on unpaid amount is gross of $127.0 million in purchase accounting adjustments that will become recoverable if claims are paid in accordance with current reserve estimates. Net Assets Held for Sale The following summarizes the assets and liabilities associated with the business classified as held for sale:
Millions |  | September 30, 2014 |  | December 31, 2013
Assets held for sale |  |  |  |  |
Fixed maturity investments, at fair value |  | $ | 203.9 |  |  | $ | 236.3 |
Reinsurance recoverable on unpaid losses |  | 1,458.4 |  |  | 1,604.7 |
Reinsurance recoverable on paid losses |  | 7.4 |  |  | 10.7 |
Insurance premiums receivable |  | 11.6 |  |  | 9.1 |
Deferred tax asset |  | 2.5 |  |  | 3.3 |
Other assets |  | 15.4 |  |  | 16.0 |
Total assets held for sale |  | $ | 1,699.2 |  |  | $ | 1,880.1 |
Liabilities held for sale |  |  |  |  |  |
Loss and loss adjustment expense reserves |  | $ | 1,600.9 |  |  | $ | 1,793.1 |
Unearned insurance premiums |  | — |  |  | .2 |
Ceded reinsurance payable |  | 12.1 |  |  | 12.3 |
Other liabilities |  | 86.2 |  |  | 74.5 |
Total liabilities held for sale |  | 1,699.2 |  |  | 1,880.1 |
Net assets held for sale |  | $ | — |  |  | $ | — |
Net Income from Discontinued Operations The following summarizes the results of operations, including related income taxes associated with the business classified as discontinued operations:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
Millions |  | 2014 |  | 2013 |  | 2014 |  | 2013
Revenues |  |  |  |  |  |  |  |  |
Earned insurance premiums |  | $ | .3 |  |  | $ | 1.1 |  |  | $ | .1 |  |  | $ | .7 |
Other revenue |  | — |  |  | .1 |  |  | — |  |  | 12.3 |
Total revenues |  | .3 |  |  | 1.2 |  |  | .1 |  |  | 13.0 |
Expenses |  |  |  |  |  |  |  |
Loss and loss adjustment expenses |  | — |  |  | .1 |  |  | (.7 | ) |  | 7.6 |
Insurance and reinsurance acquisition expenses |  | .1 |  |  | .1 |  |  | .1 |  |  | .1 |
Other underwriting expenses |  | .8 |  |  | .4 |  |  | 2.2 |  |  | .3 |
Total expenses |  | .9 |  |  | .6 |  |  | 1.6 |  |  | 8.0 |
Pre-tax (loss) income |  | (.6 | ) |  | .6 |  |  | (1.5 | ) |  | 5.0 |
Income tax benefit (expense) |  | .3 |  |  | (.2 | ) |  | .6 |  |  | (.2 | )
Net (loss) income from discontinued operations |  | (.3 | ) |  | .4 |  |  | $ | (.9 | ) |  | $ | 4.8 |
Net gain from sales of discontinued operations |  | 7.0 |  |  | — |  |  | 9.7 |  |  | — |
Net income from discontinued operations |  | $ | 6.7 |  |  | $ | .4 |  |  | $ | 8.8 |  |  | $ | 4.8 |
Earnings Per Share Basic earnings per share amounts are based on the weighted average number of common shares outstanding including unvested restricted shares that are considered participating securities. Diluted earnings per share amounts are based on the weighted average number of common shares including unvested restricted shares and the net effect of potentially dilutive common shares outstanding. The following table outlines the computation of earnings per share for discontinued operations for the three and nine months ended September 30, 2014 and 2013:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Basic and diluted earnings per share numerators (in millions): |  |  |  |  |  |  |  |  |
Net income attributable to White Mountains’s common shareholders |  | $ | 6.7 |  |  | $ | .4 |  |  | $ | 8.8 |  |  | $ | 4.8 |
Allocation of income for participating unvested restricted common shares(1) |  | (.1 | ) |  | — |  |  | (.1 | ) |  | — |
Net income attributable to White Mountains’s common shareholders, net of restricted common share amounts (2) |  | $ | 6.6 |  |  | $ | .4 |  |  | $ | 8.7 |  |  | $ | 4.8 |
Basic earnings per share denominators (in thousands): |  |  |  |  |  |  |  |  |
Total average common shares outstanding during the period |  | 6,091.5 |  |  | 6,176.6 |  |  | 6,140.9 |  |  | 6,208.4 |
Average unvested restricted common shares(3) |  | (81.3 | ) |  | (95.5 | ) |  | (77.7 | ) |  | (90.0 | )
Basic earnings per share denominator |  | 6,010.2 |  |  | 6,081.1 |  |  | 6,063.2 |  |  | 6,118.4 |
Diluted earnings per share denominator (in thousands): |  |  |  |  |  |  |  |  |
Total average common shares outstanding during the period |  | 6,091.5 |  |  | 6,176.6 |  |  | 6,140.9 |  |  | 6,208.4 |
Average unvested restricted common shares(3) |  | (81.3 | ) |  | (95.5 | ) |  | (77.7 | ) |  | (90.0 | )
Average outstanding dilutive options to acquire common shares(4) |  | — |  |  | — |  |  | — |  |  | — |
Diluted earnings per share denominator |  | 6,010.2 |  |  | 6,081.1 |  |  | 6,063.2 |  |  | 6,118.4 |
Basic and diluted earnings per share (in dollars): |  | $ | 1.10 |  |  | $ | .06 |  |  | $ | 1.43 |  |  | $ | .78 |
(1) Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities. (2) Net earnings attributable to White Mountains’s common shareholders, net of restricted share amounts, is equal to undistributed earnings for the three and nine months ended September 30, 2014 and 2013. (3) Restricted common shares outstanding vest either in equal annual installments or upon a stated date (see Note 13). (4) The diluted earnings per share denominator for the three and nine months ended September 30, 2014 and 2013 does not include the impact of 125,000 common shares issuable upon exercise of the non-qualified options outstanding as they are anti-dilutive to the calculation.

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- Definition The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=8077374&loc=d3e2443-110228 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760 + Details
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