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Investment Securities | 3 Months Ended
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Mar. 31, 2015
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | Investment Securities White Mountains’s invested assets consist of securities and other long-term investments held for general investment purposes. The portfolio of investment securities includes fixed maturity investments, short-term investments, common equity securities, and convertible fixed maturity and preferred investments which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date. Realized and unrealized investment gains and losses on trading securities are reported in pre-tax revenues. White Mountains’s investments in fixed maturity investments are generally valued using industry standard pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage-backed and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life. Realized investment gains and losses resulting from sales of investment securities are accounted for using the specific identification method. Premiums and discounts on all fixed maturity investments are amortized or accreted to income over the anticipated life of the investment. Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year. Short-term investments are carried at amortized or accreted cost, which approximated fair value as of March 31, 2015 and December 31, 2014. Other long-term investments consist primarily of hedge funds, private equity funds, surplus note investments, private equity securities and limited liability companies and other investments in limited partnerships. Net Investment Income Pre-tax net investment income for the three months ended March 31, 2015 and 2014 consisted of the following:
|  | Three Months Ended
|  | March 31,
Millions |  | 2015 |  | 2014
Investment income: |  |  |  |
Fixed maturity investments |  | $ | 23.1 |  |  | $ | 22.4 |
Short-term investments |  | .6 |  |  | .6 |
Common equity securities |  | 3.4 |  |  | 5.4 |
Convertible fixed maturity and preferred investments |  | .2 |  |  | .4 |
Other long-term investments |  | (.1 | ) |  | .7 |
Interest on funds held under reinsurance treaties |  | (.1 | ) |  | — |
Total investment income |  | 27.1 |  |  | 29.5 |
Third-party investment expenses |  | (3.8 | ) |  | (4.8 | )
Net investment income, pre-tax |  | $ | 23.3 |  |  | $ | 24.7 |
Net Realized and Unrealized Investment Gains and Losses Net realized and unrealized investment gains and losses for the three months ended March 31, 2015 and 2014 consisted of the following:
|  | Three Months Ended
|  | March 31,
Millions |  | 2015 |  | 2014
Net realized investment gains, pre-tax |  | $ | 52.8 |  |  | $ | 21.7 |
Net unrealized investment gains, pre-tax |  | 50.6 |  |  | 42.1 |
Net realized and unrealized investment gains, pre-tax |  | 103.4 |  |  | 63.8 |
Income tax expense attributable to net realized and unrealized investment gains |  | (26.3 | ) |  | (15.7 | )
Net realized and unrealized investment gains, after tax |  | $ | 77.1 |  |  | $ | 48.1 |
Net realized investment gains (losses) Net realized investment gains (losses) for the three months ended March 31, 2015 and 2014 consisted of the following:
|  | Three Months Ended |  | Three Months Ended
|  | March 31, 2015 |  | March 31, 2014
Millions |  | Net realized gains (losses) |  | Net foreign currency gains |  | Total net realized gains (losses) reflected in earnings |  | Net realized gains (losses) |  | Net foreign currency losses |  | Total net realized gains (losses) reflected in earnings
Fixed maturity investments |  | $ | 9.8 |  |  | $ | 21.2 |  |  | $ | 31.0 |  |  | $ | 4.4 |  |  | $ | (3.5 | ) |  | $ | .9 |
Short-term investments |  | — |  |  | 3.5 |  |  | 3.5 |  |  | — |  |  | — |  |  | — |
Common equity securities |  | 24.4 |  |  | 1.1 |  |  | 25.5 |  |  | 18.9 |  |  | (.1 | ) |  | 18.8 |
Convertible fixed maturity and preferred investments |  | (4.2 | ) |  | — |  |  | (4.2 | ) |  | 2.4 |  |  | — |  |  | 2.4 |
Other long-term investments |  | (4.1 | ) |  | 1.1 |  |  | (3.0 | ) |  | (.3 | ) |  | — |  |  | (.3 | )
Forward contracts |  | — |  |  | — |  |  | — |  |  | (.1 | ) |  | — |  |  | (.1 | )
Net realized investment gains (losses), pre-tax |  | 25.9 |  |  | 26.9 |  |  | 52.8 |  |  | 25.3 |  |  | (3.6 | ) |  | 21.7 |
Income tax (expense) benefit attributable to net realized investment gains (losses) |  | (6.5 | ) |  | (6.7 | ) |  | (13.2 | ) |  | (4.6 | ) |  | .9 |  |  | (3.7 | )
Net realized investment gains (losses), after tax |  | $ | 19.4 |  |  | $ | 20.2 |  |  | $ | 39.6 |  |  | $ | 20.7 |  |  | $ | (2.7 | ) |  | $ | 18.0 |
Net unrealized investment gains (losses) The following table summarizes net unrealized investment gains (losses) for the three months ended March 31, 2015 and 2014:
|  | Three Months Ended |  | Three Months Ended
|  | March 31, 2015 |  | March 31, 2014
Millions |  | Net unrealized gains (losses) |  | Net foreign currency gains |  | Total net unrealized gains (losses) reflected in earnings |  | Net unrealized gains |  | Net foreign currency gains |  | Total net unrealized gains reflected in earnings
Fixed maturity investments |  | $ | 12.1 |  |  | $ | 40.2 |  |  | $ | 52.3 |  |  | $ | 19.4 |  |  | $ | 12.2 |  |  | $ | 31.6 |
Short-term investments |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Common equity securities |  | (4.2 | ) |  | .8 |  |  | (3.4 | ) |  | 4.0 |  |  | .5 |  |  | 4.5 |
Convertible fixed maturity and preferred investments |  | .7 |  |  | .1 |  |  | .8 |  |  | .7 |  |  | — |  |  | .7 |
Other long-term investments |  | .9 |  |  | — |  |  | .9 |  |  | 4.9 |  |  | .4 |  |  | 5.3 |
Forward contracts |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net unrealized investment gains, pre-tax |  | 9.5 |  |  | 41.1 |  |  | 50.6 |  |  | 29.0 |  |  | 13.1 |  |  | 42.1 |
Income tax expense attributable to net unrealized investment gains |  | (2.8 | ) |  | (10.3 | ) |  | (13.1 | ) |  | (9.1 | ) |  | (2.9 | ) |  | (12.0 | )
Net unrealized investment gains, after tax |  | $ | 6.7 |  |  | $ | 30.8 |  |  | $ | 37.5 |  |  | $ | 19.9 |  |  | $ | 10.2 |  |  | $ | 30.1 |
The following table summarizes the amount of total pre-tax unrealized investment (losses) gains included in earnings for Level 3 investments for the three months ended March 31, 2015 and 2014:
|  | Three Months Ended
|  | March 31,
Millions |  | 2015 |  | 2014
Fixed maturity investments |  | $ | (.7 | ) |  | $ | .2 |
Common equity securities |  | (1.8 | ) |  | .8 |
Convertible fixed maturity and preferred investments |  | .1 |  |  | — |
Other long-term investments |  | (2.8 | ) |  | 6.1 |
Total unrealized investment (losses) gains, pre-tax - Level 3 investments |  | $ | (5.2 | ) |  | $ | 7.1 |
Investment Holdings The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’s fixed maturity investments as of March 31, 2015 and December 31, 2014 were as follows:
|  | March 31, 2015
Millions |  | Cost or amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Net foreign currency gains |  | Carrying value
U.S. Government and agency obligations |  | $ | 165.3 |  |  | $ | .3 |  |  | $ | (.1 | ) |  | $ | .2 |  |  | $ | 165.7 |
Debt securities issued by corporations |  | 2,103.8 |  |  | 46.7 |  |  | (1.0 | ) |  | 66.2 |  |  | 2,215.7 |
Municipal obligations |  | 96.0 |  |  | 1.8 |  |  | (.2 | ) |  | — |  |  | 97.6 |
Mortgage-backed and asset-backed securities |  | 2,049.3 |  |  | 11.9 |  |  | (2.6 | ) |  | 39.5 |  |  | 2,098.1 |
Foreign government, agency and provincial obligations |  | 106.9 |  |  | 1.2 |  |  | (.2 | ) |  | .9 |  |  | 108.8 |
Preferred stocks |  | 79.5 |  |  | 6.3 |  |  | — |  |  | .2 |  |  | 86.0 |
Total fixed maturity investments |  | $ | 4,600.8 |  |  | $ | 68.2 |  |  | $ | (4.1 | ) |  | $ | 107.0 |  |  | $ | 4,771.9 |
|  | December 31, 2014
Millions |  | Cost or amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Net foreign currency gains |  | Carrying value
U.S. Government and agency obligations |  | $ | 184.7 |  |  | $ | .1 |  |  | $ | (.3 | ) |  | $ | 3.6 |  |  | $ | 188.1 |
Debt securities issued by corporations |  | 2,221.3 |  |  | 45.2 |  |  | (5.1 | ) |  | 49.8 |  |  | 2,311.2 |
Municipal obligations |  | 82.0 |  |  | 1.4 |  |  | (.2 | ) |  | — |  |  | 83.2 |
Mortgage-backed and asset-backed securities |  | 1,811.1 |  |  | 7.6 |  |  | (3.5 | ) |  | 25.7 |  |  | 1,840.9 |
Foreign government, agency and provincial obligations |  | 274.6 |  |  | 4.2 |  |  | (1.0 | ) |  | (2.7 | ) |  | 275.1 |
Preferred stocks |  | 79.6 |  |  | 6.1 |  |  | — |  |  | .1 |  |  | 85.8 |
Total fixed maturity investments |  | $ | 4,653.3 |  |  | $ | 64.6 |  |  | $ | (10.1 | ) |  | $ | 76.5 |  |  | $ | 4,784.3 |
The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and carrying values of White Mountains’s common equity securities, convertible fixed maturity and preferred investments and other long-term investments as of March 31, 2015 and December 31, 2014 were as follows:
|  | March 31, 2015
Millions |  | Cost or amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Net foreign currency gains |  | Carrying value
Common equity securities |  | $ | 623.3 |  |  | $ | 163.4 |  |  | $ | (8.8 | ) |  | $ | 9.0 |  |  | $ | 786.9 |
Convertible fixed maturity and preferred investments |  | $ | 13.1 |  |  | $ | 1.8 |  |  | $ | (.3 | ) |  | $ | 1.2 |  |  | $ | 15.8 |
Other long-term investments |  | $ | 339.8 |  |  | $ | 74.7 |  |  | $ | (13.1 | ) |  | $ | 1.2 |  |  | $ | 402.6 |
|  | December 31, 2014
Millions |  | Cost or amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Net foreign currency (losses) gains |  | Carrying value
Common equity securities |  | $ | 633.6 |  |  | $ | 175.1 |  |  | $ | (5.2 | ) |  | $ | (1.9 | ) |  | $ | 801.6 |
Convertible fixed maturity and preferred investments |  | $ | 19.1 |  |  | $ | .9 |  |  | $ | (.2 | ) |  | $ | .7 |  |  | $ | 20.5 |
Other long-term investments |  | $ | 343.3 |  |  | $ | 73.0 |  |  | $ | (10.9 | ) |  | $ | 1.6 |  |  | $ | 407.0 |
Other Long-term Investments Other long-term investments consist of the following as of March 31, 2015 and December 31, 2014:
|  | Carrying Value at
Millions |  | March 31, 2015 |  | December 31, 2014
Hedge funds and private equity funds, at fair value(1) |  | $ | 242.5 |  |  | $ | 242.9 |
Surplus notes investments, at fair value(1) |  | 68.0 |  |  | 65.1 |
Private equity securities and limited liability companies, at fair value(1) |  | 66.6 |  |  | 69.7 |
Tax advantaged federal affordable housing development fund(2) |  | 16.2 |  |  | 16.8 |
Partnership investments accounted for under the equity method |  | 3.8 |  |  | 5.2 |
Other(1) |  | 5.5 |  |  | 7.3 |
Total other-long term investments |  | $ | 402.6 |  |  | $ | 407.0 |
(1) See Fair Value Measurements by Level table. (2) Fund accounted for using the proportional amortization method. Hedge Funds and Private Equity Funds White Mountains holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments has been estimated using the net asset value of the funds. As of March 31, 2015, White Mountains held investments in 12 hedge funds and 31 private equity funds. The largest investment in a single fund was $29.4 million as of March 31, 2015. The following table summarizes investments in hedge funds and private equity funds by investment objective and sector as of March 31, 2015 and December 31, 2014:
|  | March 31, 2015 |  | December 31, 2014
Millions |  | Fair Value |  | Unfunded Commitments |  | Fair Value |  | Unfunded Commitments
Hedge funds |  |  |  |  |  |  |  |  |  |  |  |
Long/short equity |  | $ | 44.3 |  |  | $ | — |  |  | $ | 43.9 |  |  | $ | — |
Long/short equity REIT |  | 21.0 |  |  | — |  |  | 20.3 |  |  | — |
Long/short credit & distressed |  | 20.0 |  |  | — |  |  | 21.4 |  |  | — |
Long/short equity activist |  | 6.6 |  |  | — |  |  | 6.2 |  |  | — |
Long bank loan |  | .2 |  |  | — |  |  | .2 |  |  | — |
Total hedge funds |  | 92.1 |  |  | — |  |  | 92.0 |  |  | — |
Private equity funds |  |  |  |  |  |  |  |  |  |  |  |
Energy infrastructure & services |  | 51.3 |  |  | 10.0 |  |  | 59.6 |  |  | 11.0 |
Manufacturing/Industrial |  | 30.5 |  |  | 2.9 |  |  | 23.2 |  |  | 7.3 |
Multi-sector |  | 24.3 |  |  | 4.4 |  |  | 24.2 |  |  | 5.3 |
Aerospace/Defense/Government |  | 20.9 |  |  | 5.1 |  |  | 20.7 |  |  | 5.1 |
Healthcare |  | 8.7 |  |  | 1.3 |  |  | 6.1 |  |  | 2.8 |
Private equity secondaries |  | 8.0 |  |  | 3.2 |  |  | 8.5 |  |  | 3.1 |
Insurance |  | 2.1 |  |  | 41.3 |  |  | 2.1 |  |  | 41.2 |
Real estate |  | 2.0 |  |  | .1 |  |  | 3.6 |  |  | 3.3 |
Venture capital |  | 1.4 |  |  | .3 |  |  | 1.4 |  |  | .3 |
International multi-sector, Europe |  | 1.2 |  |  | 2.1 |  |  | 1.5 |  |  | 2.3 |
Total private equity funds |  | 150.4 |  |  | 70.7 |  |  | 150.9 |  |  | 81.7 |
Total hedge funds and private equity funds included in other long-term investments |  | $ | 242.5 |  |  | $ | 70.7 |  |  | $ | 242.9 |  |  | $ | 81.7 |
Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the March 31, 2015 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
|  | Notice Period
Millions Redemption frequency |  | 30-59 days notice |  | 60-89 days notice |  | 90-119 days notice |  | 120+ days notice |  | Total
Monthly |  | $ | 4.5 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 4.5 |
Quarterly |  | 31.8 |  |  | 20.1 |  |  | — |  |  | 7.9 |  |  | 59.8 |
Semi-annual |  | — |  |  | 22.9 |  |  | — |  |  | — |  |  | 22.9 |
Annual |  | — |  |  | — |  |  | 4.7 |  |  | .2 |  |  | 4.9 |
Total |  | $ | 36.3 |  |  | $ | 43.0 |  |  | $ | 4.7 |  |  | $ | 8.1 |  |  | $ | 92.1 |
Certain of the hedge fund investments in which White Mountains is invested are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund’s underlying investments are liquidated. As of March 31, 2015, distributions of $2.1 million were outstanding from these investments. The actual amount of the final distribution remittances remain subject to market fluctuations. The date at which such remittances will be received is not determinable as of March 31, 2015. White Mountains has also submitted redemption requests for certain of its investments in active hedge funds. As of March 31, 2015, redemptions of $6.9 million are outstanding and are subject to market fluctuations. The date at which such redemptions will be received is not determinable as of March 31, 2015. Redemptions are recorded as receivables when the investment is no longer subject to market fluctuations. Investments in private equity funds are generally subject to a “lock-up” period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. As of March 31, 2015, investments in private equity funds were subject to lock-up periods as follows:
Millions |  | 1-3 years |  | 3 – 5 years |  | 5 – 10 years |  | >10 years |  | Total
Private Equity Funds — expected lock-up period remaining |  | $29.7 |  | $32.4 |  | $84.1 |  | $4.2 |  | $150.4
White Mountains also owns 68% of the limited partnership interests in the Prospector Offshore Fund. As of March 31, 2015 and December 31, 2014, White Mountains’s investment in the Prospector Offshore Fund was $64.7 million and $64.9 million. The Prospector Offshore Fund is a hedge fund that pursues investment opportunities in a variety of equity and equity-related instruments, with a principle focus on the financial services sector and a special emphasis on the insurance industry. White Mountains has determined that the Prospector Offshore Fund is a VIE and is required to consolidate. As of March 31, 2015 and December 31, 2014, White Mountains consolidated total assets of $136.1 million and $135.8 million and total liabilities of $40.4 million and $39.8 million of the Prospector Offshore Fund. As of March 31, 2015 and December 31, 2014, White Mountains also recorded non-controlling interest of $31.0 million and $31.1 million in the Prospector Offshore Fund. Fair value measurements as of March 31, 2015 White Mountains’s invested assets that are measured at fair value include fixed maturity investments, common equity securities, convertible fixed maturity and preferred investments and other long-term investments, such as interests in hedge funds and private equity funds. Fair value measurements reflect management’s best estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements fall into a hierarchy with three levels based on the nature of the inputs. Fair value measurements based on quoted prices in active markets for identical assets are at the top of the hierarchy (“Level 1”), followed by fair value measurements based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar, but not identical instruments (“Level 2”). Measurements based on unobservable inputs, including a reporting entity’s estimates of the assumptions that market participants would use are at the bottom of the hierarchy (“Level 3”). White Mountains uses quoted market prices or other observable inputs to determine fair value for the vast majority of its investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, common equity securities and short-term investments, which include U.S. Treasury Bills. Investments valued using Level 2 inputs consist of fixed maturity investments including corporate debt, state and other governmental debt, convertible fixed maturity and preferred securities and mortgage and asset-backed securities. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Level 3 fair value estimates based upon unobservable inputs include White Mountains’s investments in hedge funds and private equity funds, as well as investments in certain debt and equity securities where quoted market prices are unavailable. White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services used by White Mountains have indicated that if no observable inputs are available for a security, they will not provide a price. In those circumstances, White Mountains estimates the fair value using industry standard pricing models and observable inputs such as benchmark interest rates, matrix pricing, market comparables, broker quotes, issuer spreads, bids, offers, credit rating, prepayment speeds and other relevant inputs. White Mountains performs procedures to validate the market prices obtained from the outside pricing sources. Such procedures, which cover substantially all of its fixed maturity investments include, but are not limited to, evaluation of model pricing methodologies and review of the pricing services’ quality control processes and procedures on at least an annual basis, comparison of market prices to prices obtained from different independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices, and review of assumptions utilized by the pricing service for selected measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1.0 million from the expected price based on these procedures are considered outliers. In circumstances where the results of White Mountains’s review process do not appear to support the market price provided by the pricing services, White Mountains challenges the price. If White Mountains cannot gain satisfactory evidence to support the challenged price, it relies upon its own pricing methodologies to estimate the fair value of the security in question. The fair values of such securities are considered to be Level 3 measurements. White Mountains’s fixed maturity investments are generally valued using matrix and other pricing models. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage-backed and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized or accreted prospectively over the remaining economic life. White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of each hedge fund and private equity fund and periodically discussing each fund’s pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. Accordingly, the fair values of White Mountains’s investments in hedge funds and private equity funds have been classified as Level 3 measurements. The fair value of White Mountains’s investments in hedge funds and private equity funds has been determined using net asset value. In addition to the investments described above, White Mountains has $38.8 million and $38.0 million of investment-related liabilities recorded at fair value and included in other liabilities as of March 31, 2015 and December 31, 2014. These liabilities relate to securities that have been sold short by limited partnerships in which White Mountains has investments and is required to consolidate under GAAP. These liabilities have a Level 1 designation. Fair Value Measurements by Level The following tables summarize White Mountains’s fair value measurements for investments as of March 31, 2015 and December 31, 2014, by level:
|  | March 31, 2015
Millions |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Fixed maturity investments: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and agency obligations |  | $ | 165.7 |  |  | $ | 110.8 |  |  | $ | 54.9 |  |  | $ | — |
Debt securities issued by corporations: |  |  |  |  |  |  |  |  |
Consumer |  | 538.6 |  |  | — |  |  | 538.6 |  |  | — |
Financials |  | 398.5 |  |  | — |  |  | 398.5 |  |  | — |
Health Care |  | 267.3 |  |  |  |  |  | 267.3 |  |  |  |
Industrial |  | 252.0 |  |  | — |  |  | 252.0 |  |  | — |
Communications |  | 203.9 |  |  | — |  |  | 203.9 |  |  | — |
Energy |  | 193.7 |  |  | — |  |  | 193.7 |  |  | — |
Utilities |  | 159.9 |  |  | — |  |  | 159.9 |  |  | — |
Technology |  | 106.7 |  |  | — |  |  | 106.7 |  |  | — |
Materials |  | 95.1 |  |  | — |  |  | 95.1 |  |  | — |
Other |  | — |  |  | — |  |  | — |  |  | — |
Total debt securities issued by corporations: |  | 2,215.7 |  |  | — |  |  | 2,215.7 |  |  | — |
Municipal obligations |  | 97.6 |  |  | — |  |  | 97.6 |  |  | — |
Mortgage-backed and asset-backed securities |  | 2,098.1 |  |  | — |  |  | 2,030.4 |  |  | 67.7 |
Foreign government, agency and provincial obligations |  | 108.8 |  |  | 18.5 |  |  | 90.3 |  |  | — |
Preferred stocks |  | 86.0 |  |  | — |  |  | 14.6 |  |  | 71.4 |
Total fixed maturity investments |  | 4,771.9 |  |  | 129.3 |  |  | 4,503.5 |  |  | 139.1 |
Short-term investments |  | 929.2 |  |  | 926.8 |  |  | 2.4 |  |  | — |
Common equity securities: |  |  |  |  |  |  |  |  |  |  |  |
Financials |  | 226.8 |  |  | 194.2 |  |  | — |  |  | 32.6 |
Consumer |  | 170.0 |  |  | 170.0 |  |  | — |  |  | — |
Health Care |  | 89.7 |  |  | 89.7 |  |  |  |  |  |  |
Industrial |  | 70.0 |  |  | 70.0 |  |  | — |  |  | — |
Technology |  | 54.9 |  |  | 54.9 |  |  | — |  |  | — |
Communications |  | 28.4 |  |  | 28.4 |  |  | — |  |  | — |
Energy |  | 27.7 |  |  | 27.7 |  |  | — |  |  | — |
Materials |  | 21.7 |  |  | 21.7 |  |  | — |  |  | — |
Utilities |  | 9.4 |  |  | 9.4 |  |  | — |  |  | — |
Other |  | 88.3 |  |  | 9.8 |  |  | 78.5 |  |  | — |
Total common equity securities |  | 786.9 |  |  | 675.8 |  |  | 78.5 |  |  | 32.6 |
Convertible fixed maturity and preferred investments |  | 15.8 |  |  | — |  |  | 11.9 |  |  | 3.9 |
Other long-term investments (1) |  | 382.6 |  |  | — |  |  | — |  |  | 382.6 |
Total investments |  | $ | 6,886.4 |  |  | $ | 1,731.9 |  |  | $ | 4,596.3 |  |  | $ | 558.2 |
(1) Excludes carrying value of $3.8 associated with other long-term investment limited partnerships accounted for using the equity method. Excludes carrying value of $16.2 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method.
|  | December 31, 2014
Millions |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Fixed maturity investments: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and agency obligations |  | $ | 188.1 |  |  | $ | 134.1 |  |  | $ | 54.0 |  |  | $ | — |
Debt securities issued by corporations: |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  | 575.3 |  |  | — |  |  | 575.3 |  |  | — |
Financials |  | 431.4 |  |  | — |  |  | 431.4 |  |  | — |
Health Care |  | 284.2 |  |  | — |  |  | 284.2 |  |  |  |
Industrial |  | 225.4 |  |  |  |  |  | 219.8 |  |  | 5.6 |
Communications |  | 214.3 |  |  | — |  |  | 214.3 |  |  | — |
Energy |  | 177.9 |  |  | — |  |  | 177.9 |  |  | — |
Utilities |  | 173.6 |  |  | — |  |  | 173.6 |  |  | — |
Technology |  | 118.0 |  |  | — |  |  | 118.0 |  |  | — |
Materials |  | 103.0 |  |  | — |  |  | 103.0 |  |  |  |
Other |  | 8.1 |  |  | — |  |  | 8.1 |  |  | — |
Total debt securities issued by corporations: |  | 2,311.2 |  |  | — |  |  | 2,305.6 |  |  | 5.6 |
Municipal obligations |  | 83.2 |  |  | — |  |  | 83.2 |  |  | — |
Mortgage-backed and asset-backed securities |  | 1,840.9 |  |  | — |  |  | 1,840.9 |  |  | — |
Foreign government, agency and provincial obligations |  | 275.1 |  |  | 21.3 |  |  | 253.8 |  |  | — |
Preferred stocks |  | 85.8 |  |  | — |  |  | 14.7 |  |  | 71.1 |
Total fixed maturity investments |  | 4,784.3 |  |  | 155.4 |  |  | 4,552.2 |  |  | 76.7 |
Short-term investments |  | 871.7 |  |  | 868.8 |  |  | 2.9 |  |  | — |
Common equity securities: |  |  |  |  |  |  |  |  |  |  |  |
Financials |  | 237.5 |  |  | 197.3 |  |  | — |  |  | 40.2 |
Consumer |  | 161.2 |  |  | 161.1 |  |  | .1 |  |  | — |
Health Care |  | 101.9 |  |  | 101.9 |  |  | — |  |  | — |
Industrial |  | 67.5 |  |  | 67.5 |  |  |  |  |  |  |
Technology |  | 54.3 |  |  | 54.3 |  |  | — |  |  | — |
Communications |  | 32.9 |  |  | 32.9 |  |  | — |  |  | — |
Energy |  | 32.6 |  |  | 32.6 |  |  | — |  |  | — |
Materials |  | 21.2 |  |  | 21.2 |  |  | — |  |  | — |
Utilities |  | 9.5 |  |  | 9.4 |  |  | .1 |  |  | — |
Other |  | 83.0 |  |  | 9.7 |  |  | 73.3 |  |  | — |
Total common equity securities |  | 801.6 |  |  | 687.9 |  |  | 73.5 |  |  | 40.2 |
Convertible fixed maturity and preferred investments |  | 20.5 |  |  | — |  |  | 12.3 |  |  | 8.2 |
Other long-term investments (1) |  | 385.0 |  |  | — |  |  | — |  |  | 385.0 |
Total investments |  | $ | 6,863.1 |  |  | $ | 1,712.1 |  |  | $ | 4,640.9 |  |  | $ | 510.1 |
(1) Excludes carrying value of $5.2 associated with other long-term investment limited partnerships accounted for using the equity method. Excludes carrying value of $16.8 associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method. Debt securities issued by corporations The following table summarizes the ratings of the corporate debt securities held in White Mountains’s investment portfolio as of March 31, 2015 and December 31, 2014:
|  | Fair Value at
Millions |  | March 31, 2015 |  | December 31, 2014
AAA |  | $ | — |  |  | $ | — |
AA |  | 194.1 |  |  | 236.9 |
A |  | 818.2 |  |  | 957.8 |
BBB |  | 1,188.8 |  |  | 1,105.9 |
BB |  | 6.2 |  |  | — |
Other |  | 8.4 |  |  | 10.6 |
Debt securities issued by corporations(1) |  | $ | 2,215.7 |  |  | $ | 2,311.2 |
(1) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's Financial Services LLC ("Standard & Poor’s") and 2) Moody’s Investor Service ("Moody's"). Mortgage-backed, Asset-backed Securities White Mountains purchases commercial and residential mortgage-backed securities with the goal of maximizing risk adjusted returns in the context of a diversified portfolio. White Mountains’s investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities as of March 31, 2015. White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics). White Mountains categorizes mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’s review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. The following table summarizes mortgage and asset-backed securities as of March 31, 2015 and December 31, 2014:
|  | March 31, 2015 |  | December 31, 2014
Millions |  | Fair Value |  | Level 2 |  | Level 3 |  | Fair Value |  | Level 2 |  | Level 3
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
GNMA |  | $ | 373.0 |  |  | $ | 373.0 |  |  | $ | — |  |  | $ | 411.2 |  |  | $ | 411.2 |  |  | $ | — |
FNMA |  | 35.2 |  |  | 35.2 |  |  | — |  |  | 36.6 |  |  | 36.6 |  |  | — |
FHLMC |  | 38.9 |  |  | 38.9 |  |  | — |  |  | 49.6 |  |  | 49.6 |  |  | — |
Total Agency(1) |  | 447.1 |  |  | 447.1 |  |  | — |  |  | 497.4 |  |  | 497.4 |  |  | — |
Non-agency: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | 194.3 |  |  | 147.2 |  |  | 47.1 |  |  | 131.2 |  |  | 131.2 |  |  | — |
Commercial |  | 292.2 |  |  | 271.6 |  |  | 20.6 |  |  | 236.9 |  |  | 236.9 |  |  | — |
Total Non-agency |  | 486.5 |  |  | 418.8 |  |  | 67.7 |  |  | 368.1 |  |  | 368.1 |  |  | — |
Total mortgage-backed securities |  | 933.6 |  |  | 865.9 |  |  | 67.7 |  |  | 865.5 |  |  | 865.5 |  |  | — |
Other asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit card receivables |  | 472.9 |  |  | 472.9 |  |  | — |  |  | 522.2 |  |  | 522.2 |  |  | — |
Vehicle receivables |  | 537.2 |  |  | 537.2 |  |  | — |  |  | 289.4 |  |  | 289.4 |  |  | — |
Other |  | 154.4 |  |  | 154.4 |  |  | — |  |  | 163.8 |  |  | 163.8 |  |  | — |
Total other asset-backed securities |  | 1,164.5 |  |  | 1,164.5 |  |  | — |  |  | 975.4 |  |  | 975.4 |  |  | — |
Total mortgage and asset-backed securities |  | $ | 2,098.1 |  |  | $ | 2,030.4 |  |  | $ | 67.7 |  |  | $ | 1,840.9 |  |  | $ | 1,840.9 |  |  | $ | — |
(1) Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC). Non-agency Mortgage-backed Securities The security issuance years of White Mountains’s investments in non-agency residential mortgage-backed securities ("RMBS") and non-agency commercial mortgage-backed securities (“CMBS”) as of March 31, 2015 are as follows:
|  |  |  |  |  | Security Issuance Year |  |  |  |  |  |
Millions |  | Fair Value |  | 2004 |  | 2005 |  | 2006 |  | 2007 |  | 2008 |  | 2009 |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015
Non-agency RMBS |  | $ | 194.3 |  |  | $ | 35.0 |  |  | $ | 13.7 |  |  | $ | 9.3 |  |  | $ | — |  |  | $ | 15.8 |  |  | $ | — |  |  | $ | 57.7 |  |  | $ | 20.1 |  |  | $ | 4.6 |  |  | $ | 28.2 |  |  | $ | 9.9 |  |  | $ | — |
Non-agency CMBS |  | 292.2 |  |  | — |  |  | — |  |  | 8.4 |  |  | — |  |  | — |  |  | — |  |  | 11.2 |  |  | — |  |  | 26.1 |  |  | 88.6 |  |  | 122.3 |  |  | 35.6 |
Total |  | $ | 486.5 |  |  | $ | 35.0 |  |  | $ | 13.7 |  |  | $ | 17.7 |  |  | $ | — |  |  | $ | 15.8 |  |  | $ | — |  |  | $ | 68.9 |  |  | $ | 20.1 |  |  | $ | 30.7 |  |  | $ | 116.8 |  |  | $ | 132.2 |  |  | $ | 35.6 |
Non-agency Residential Mortgage-backed Securities White Mountains’s non-agency RMBS portfolio is generally of moderate-term and structurally senior. White Mountains does not own any collateralized loan obligations. White Mountains does not own any collateralized debt obligations, with the exception of $85.4 million of non-agency RMBS resecuritization tranches, each a senior tranche in its own right and each collateralized by a single earlier vintage Super Senior or Senior non-agency residential mortgage backed security. The classification of the underlying collateral quality and the tranche levels of White Mountains’s non-agency RMBS securities are as follows as of March 31, 2015:
Millions |  | Fair Value |  | Super Senior (1) |  | Senior (2) |  | Subordinate (3)
Prime |  | $ | 186.4 |  |  | $ | 48.3 |  |  | $ | 138.1 |  |  | $ | — |
Non-prime |  | 6.9 |  |  | — |  |  | 6.9 |  |  | — |
Sub-prime |  | 1.0 |  |  | 1.0 |  |  | — |  |  | — |
Total |  | $ | 194.3 |  |  | $ | 49.3 |  |  | $ | 145.0 |  |  | $ | — |
(1) At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch Ratings ("Fitch") and were senior to other "AAA" or "Aaa" securities. (2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch and were senior to non-"AAA" or non-"Aaa" securities. (3) At issuance, Subordinate were not rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch and were junior to "AAA" or "Aaa" securities. Non-agency Commercial Mortgage-backed Securities White Mountains’s non-agency CMBS portfolio is generally short-term and structurally subordinate, with more than 25 points of subordination on average for both fixed rate CMBS and floating rate CMBS as of March 31, 2015. In general, subordination represents the percentage principal loss on the underlying collateral that would be absorbed by other securities lower in the capital structure before the more senior security incurs a loss. As of March 31, 2015, on average less than 1% of the underlying loans were reported as non-performing for all non-agency CMBS held by White Mountains. The amount of fixed and floating rate securities and their tranche levels of White Mountains’s non-agency CMBS securities are as follows as of March 31, 2015:
Millions |  | Fair Value |  | Super Senior (1) |  | Senior (2) |  | Subordinate (3)
Fixed rate CMBS |  | $ | 165.6 |  |  | $ | 18.6 |  |  | $ | 76.2 |  |  | $ | 70.8 |
Floating rate CMBS |  | 126.6 |  |  | — |  |  | — |  |  | 126.6 |
Total |  | $ | 292.2 |  |  | $ | 18.6 |  |  | $ | 76.2 |  |  | $ | 197.4 |
(1) At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch and were senior to other "AAA" or "Aaa" securities. (2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch and were senior to non-"AAA" or non-"Aaa" securities. (3) At issuance, Subordinate were not rated "AAA" by Standard & Poor’s, "Aaa" by Moody’s or "AAA" by Fitch and were junior to "AAA" or "Aaa" securities. Rollforward of Fair Value Measurements by Level White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities, convertible fixed maturity and preferred investments and other long-term investments as of March 31, 2015 and 2014 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities. The following tables summarize the changes in White Mountains’s fair value measurements by level for the three months ended March 31, 2015 and 2014:
|  |  | Level 3 Investments |  |  |
Millions | Level 1 investments | Level 2 investments | Fixed maturity investments | Common equity securities | Convertible fixed maturity and preferred investments | Other long-term investments |  | Total |
Balance at January 1, 2015 | $ | 843.3 |  | $ | 4,638.0 |  | $ | 76.7 |  | $ | 40.2 |  | $ | 8.2 |  | $ | 385.0 |  |  | $ | 5,991.4 |  | (1)(2)
Total realized and unrealized gains (losses) | 18.3 |  | 87.3 |  | .3 |  | 1.8 |  | (4.3 | ) | (2.0 | ) |  | 101.4 |  | (3)
Foreign currency losses through OCI | (9.6 | ) | (115.6 | ) | (.9 | ) | — |  | — |  | (3.5 | ) |  | (129.6 | ) |
Amortization/Accretion | (.1 | ) | (10.0 | ) | — |  | — |  | — |  | — |  |  | (10.1 | ) |
Purchases | 222.9 |  | 1,047.7 |  | 68.6 |  | — |  | — |  | 9.3 |  |  | 1,348.5 |  |
Sales | (269.8 | ) | (1,059.0 | ) | — |  | (9.4 | ) | — |  | (6.2 | ) |  | (1,344.4 | ) |
Transfers in | — |  | 5.6 |  | — |  | — |  | — |  | — |  |  | 5.6 |  |
Transfers out | — |  | — |  | (5.6 | ) | — |  | — |  | — |  |  | (5.6 | ) |
Balance at March 31, 2015 | $ | 805.0 |  | $ | 4,594.0 |  | $ | 139.1 |  | $ | 32.6 |  | $ | 3.9 |  | $ | 382.6 |  |  | $ | 5,957.2 |  | (1)(2)
(1) Excludes carrying value of $5.2 and $3.8 at January 1, 2015 and March 31, 2015 associated with other long-term investments accounted for using the equity method. Excludes carrying value of $16.8 and $16.2 at January 1, 2015 and March 31, 2015 million associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method. (2) Excludes carrying value of $871.7 and $929.2 at January 1, 2015 and March 31, 2015 associated with short-term investments. (3) Excludes $1.0 realized and unrealized losses associated with the Prospector Offshore Fund consolidation of investment-related liabilities and realized and unrealized loss for the period of $3.5 associated with short-term investments.
|  |  | Level 3 Investments |  |  |
Millions | Level 1 investments | Level 2 investments | Fixed maturity investments | Common equity securities | Convertible fixed maturity and preferred investments | Other long-term investments |  | Total |
Balance at January 1, 2014 | $ | 1,376.7 |  | $ | 4,982.2 |  | $ | 93.0 |  | $ | 46.1 |  | $ | 6.1 |  | $ | 262.4 |  |  | $ | 6,766.5 |  | (1)(2)(3)
Total realized and unrealized gains | 22.2 |  | 34.7 |  | .4 |  | .8 |  | — |  | 6.3 |  |  | 64.4 |  | (4)
Foreign currency gains through OCI | (2.9 | ) | (10.5 | ) | (.1 | ) | — |  | — |  | (.3 | ) |  | (13.8 | ) |
Amortization/Accretion | (.2 | ) | (11.1 | ) | — |  | — |  | — |  | — |  |  | (11.3 | ) |
Purchases | 352.6 |  | 840.4 |  | 19.6 |  | .3 |  | — |  | 12.7 |  |  | 1,225.6 |  |
Sales | (180.1 | ) | (1,115.5 | ) | — |  | — |  | — |  | (3.7 | ) |  | (1,299.3 | ) |
Net change in investments related to purchases of consolidated affiliates | (2.7 | ) | 7.3 |  | — |  | — |  | — |  | — |  |  | 4.6 |  |
Transfers in | — |  | — |  | — |  | — |  | — |  | — |  |  | — |  |
Transfers out | — |  | — |  | — |  | — |  | — |  | — |  |  | — |  |
Balance at March 31, 2014 | $ | 1,565.6 |  | $ | 4,727.5 |  | $ | 112.9 |  | $ | 47.2 |  | $ | 6.1 |  | $ | 277.4 |  |  | $ | 6,736.7 |  | (1)(2)(3)
(1) Excludes carrying value of $6.8 and $5.7 at January 1, 2014 and March 31, 2014 associated with other long-term investment limited partnerships accounted for using the equity method and $(0.1) and $(0.1) at January 1, 2014 and March 31, 2014 related to forward contracts. Excludes carrying value of $19.1 and $18.5 at January 1, 2014 and March 31, 2014 million associated with a tax advantaged federal affordable housing development fund accounted for using the proportional amortization method. (2) Carrying value includes $236.3 and 222.2 at January 1, 2014 and March 31, 2014 that is classified as assets held for sale relating to discontinued operations. (3) Excludes carrying value of $635.9 and $674.0 at January 1, 2014 and March 31, 2014 associated with short-term investments. (4) Excludes $0.7 realized and unrealized losses associated with the Prospector Offshore Fund and Prospector Turtle Fund consolidation of investment-related liabilities. The Prospector Turtle Fund was liquidated as of December 31, 2014. Fair Value Measurements — transfers between levels - Three-month period ended March 31, 2015 and 2014 During the first three months of 2015, one fixed maturity investment classified as a Level 3 measurement in the prior period was recategorized as a Level 2 measurement because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available as of March 31, 2015. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $5.6 million for the period March 31, 2015. During the first three months of 2014, no fixed maturity investments classified as Level 3 measurements in the prior period were recategorized as Level 2 measurements. Significant Unobservable Inputs The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3 other than hedge funds and private equity funds as of March 31, 2015 and December 31, 2014. The fair value of investments in hedge funds and private equity funds, which are classified within Level 3, are estimated using the net asset value of the funds.
($ in millions) |  |  |  |  |  | March 31, 2015 |  | December 31, 2014
Description |  | Rating(2) |  | Valuation Technique(s) |  | Fair Value(7) |  | Unobservable Input |  | Fair Value(7) |  | Unobservable Input
Preferred Stock(1) |  | NR |  | Discounted cash flow |  | $71.4 |  | Discount yield | - | 7.1% |  | $71.1 |  | Discount yield | - | 7.1%
Private equity security(1) |  | NR |  | Multiple of GAAP book value |  | $32.6 |  | Book value multiple | - | 1.10 |  | $40.2 |  | Book value multiple | - | 1.10
Private equity security(1) |  | NR |  | Share price of recent transaction |  | $20.1 |  | Share price | - | $1.06 |  | $20.1 |  | Share price | - | $1.06
Private equity security(1) |  | NR |  | Share price of recent transaction |  | $9.2 |  | Share price | - | $290.96 |  | $10.4 |  | Share price | - | $290.96
Private equity security(1) |  | NR |  | Share price of recent transaction |  | $14.2 |  | Share price | - | $0.13 |  | $15.8 |  | Share price | - | $0.13
Convertible preferred security(1) |  | NR |  | Multiple of EBITDA |  | $3.9 |  | EBITDA multiple | - | 6.00 |  | $3.8 |  | EBITDA multiple | - | 6.00
Convertible preferred security(1) |  | NR |  | Share price of recent transaction |  | N/A |  | N/A |  | N/A |  | $4.5 |  | Share price | - | $0.71
Debt security issued by corporation(1) |  | NR |  | Discounted cash flow |  | N/A |  | N/A |  | N/A |  | $5.6 |  | Illiquidity discount(3) | - | 10%
Non-agency commercial mortgage backed security(1) |  | A- |  | Broker pricing |  | $20.6 |  | Broker quote |  | N/A |  | N/A |  | N/A |  | N/A
Non-agency residential mortgage backed securities |  | NR |  | Discounted cash flow |  | $47.1 |  | Prepayment |  | 12 CPR(8) |  | N/A |  | N/A |  | N/A
|  |  |  |  |  | Default Rate |  | 2.5-8.75 CDR(9) |  | N/A |  | N/A |  | N/A
|  |  |  |  |  | Discount spread/swap |  | 45-180 bps |  | N/A |  | N/A |  | N/A
|  |  |  |  |  | Loss severity(10) |  | 50.0% |  | N/A |  | N/A |  | N/A
Surplus notes: |  | NR |  |  |  | Discount yield |  | 11.3% |  | Discount yield |  | 11.0%
- Seller priority |  |  |  | Discounted cash flow |  | $46.5 |  | Discount rate (4) | - | 9.4% |  | $44.0 |  | Discount rate (4) | - | 9.3%
|  |  |  |  |  | Timing of interest payments(5) | - | 5 years |  | Timing of interest payments(5) | - | 5 years
|  |  |  |  |  | Timing of principal payments(5) | - | 10 years |  | Timing of principal payments(5) | - | 10 years
- Pari passu |  |  |  | Discounted cash flow |  | $21.6 |  | Discount rate(5) | - | 14.4% |  | $21.1 |  | Discount rate(5) | - | 13.5%
|  |  |  |  |  | Timing of interest payments(6) | - | 5 years |  | Timing of interest payments(6) | - | 5 years
|  |  |  |  |  | Timing of principal payments(6) | - | 15 years |  | Timing of principal payments(6) | - | 10 years
(1) As of March 31, 2015, consists of 1 security. (2) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's and 2) Moody’s. (3) Judgmentally determined based on the Company’s limited trading ability of the issuer. (4) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the seller priority note is roughly equivalent to that of a conventional debt security with a credit rating of ‘B’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note. (5) Stochastic modeling supporting the fair value estimation indicates that the average percentage of discounted payments missed on the pari passu note is roughly equivalent to that of a conventional debt security with a credit rating of ‘CCC’. The corresponding credit spread increased by an additional 250 bps to reflect both a liquidity discount for a private debt instrument and regulatory payment approval uncertainty, was added to the treasury rate to determine the discount rate for the seller priority note. (6) For estimated value purposes, the assumption has been made that interest payouts begin in year five and principal repayments begin on a graduated basis in year ten for the seller priority note and year fifteen for the pari passu note. (7) Includes the unrealized gains and losses associated with foreign currency; foreign currency effects based on observable inputs. (8) Conditional Prepayment Rate (CPR) is an annualized percentage of the existing mortgage pool that is expected to be prepaid in a year. (9) Constant Default Rate (CDR) is an annualized rate of default of on a pool of mortgage loans, expressed in percentage terms. (10) Loss severity represents the expected total lifetime losses (both interest and principal losses) as a percentage of the loan principal balance. The assumed prepayment rate is a significant unobservable input used to estimate the fair value of investments in mortgage backed securities. Generally for bonds priced at a premium, increased in prepayment speeds will result in a lower fair value, while decreases in prepayment speed may result in a higher fair value.

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