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Derivatives (Tables) - Variable Annuity | 9 Months Ended
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Sep. 30, 2015
Derivative Instruments and Hedging Activities Disclosures [Line Items] |
Pre-tax operating results of WM Life Re | The following table summarizes the pre-tax operating results of WM Life Re for the three and nine months ended September 30, 2015 and 2014.
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
Millions |  | 2015 |  | 2014 |  | 2015 |  | 2014
Fees, included in other revenue |  | $ | 2.1 |  |  | $ | 4.5 |  |  | $ | 7.7 |  |  | $ | 15.0 |
Change in fair value of variable annuity liability, included in other revenue |  | (2.8 | ) |  | 19.9 |  |  | (1.7 | ) |  | 40.5 |
Change in fair value of derivatives, included in other revenue |  | 1.5 |  |  | (23.8 | ) |  | (6.3 | ) |  | (56.5 | )
Foreign exchange, included in other revenue |  | .4 |  |  | (1.7 | ) |  | (.8 | ) |  | (1.2 | )
Other investment income and (losses) gains |  | (.2 | ) |  | (.9 | ) |  | (.3 | ) |  | (.4 | )
Total revenue |  | 1.0 |  |  | (2.0 | ) |  | (1.4 | ) |  | (2.6 | )
Change in fair value of variable annuity death benefit liabilities, included in other general and administrative expenses |  | — |  |  | .2 |  |  | — |  |  | .6 |
Death benefit claims paid, included in general and administrative expenses |  | — |  |  | — |  |  | — |  |  | (.1 | )
General and administrative expenses |  | (.8 | ) |  | (.9 | ) |  | (3.1 | ) |  | (3.3 | )
Pre-tax income (loss) |  | $ | .2 |  |  | $ | (2.7 | ) |  | $ | (4.5 | ) |  | $ | (5.4 | )
Realized and unrealized derivative gains (losses) recognized in other revenues and carrying values, by the type of instrument | The following summarizes realized and unrealized derivative gains (losses) recognized in other revenue for the three and nine months ended September 30, 2015 and 2014 and the carrying values, included in other assets, at September 30, 2015 and December 31, 2014 by type of instrument:
|  | Gains (losses) |  | Carrying Value
|  | Three Months Ended |  | Nine Months Ended |  | As of
|  | September 30, |  | September 30, |  | September 30, 2015 |  | December 31, 2014
Millions |  | 2015 |  | 2014 |  | 2015 |  | 2014 |  |
Fixed income/interest rate |  | $ | 2.6 |  |  | $ | (8.4 | ) |  | $ | 6.0 |  |  | $ | (20.4 | ) |  | $ | — |  |  | $ | (1.7 | )
Foreign exchange |  | (3.1 | ) |  | (.4 | ) |  | (6.0 | ) |  | (13.3 | ) |  | 27.9 |  |  | 44.1 |
Equity |  | 2.0 |  |  | (15.0 | ) |  | (6.3 | ) |  | (22.8 | ) |  | 9.1 |  |  | 14.0 |
Total |  | $ | 1.5 |  |  | $ | (23.8 | ) |  | $ | (6.3 | ) |  | $ | (56.5 | ) |  | $ | 37.0 |  |  | $ | 56.4 |
Fair Value of Assets and Liabilities Measured on Recurring and Non-recurring Basis Table | The following tables summarize the changes in White Mountains’s variable annuity reinsurance liabilities and derivative instruments for the three and nine months ended September 30, 2015 and 2014:
|  | Three Months Ended September 30, 2015
|  | Variable Annuity Assets |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Beginning of period |  | $ | 1.8 |  |  | $ | 8.3 |  |  | $ | 32.5 |  |  | $ | (5.1 | ) |  | $ | 35.7 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized gains (losses) |  | (2.8 | ) |  | 3.4 |  |  | 3.2 |  |  | (5.1 | ) |  | 1.5 |
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (.5 | ) |  | (7.8 | ) |  | 8.1 |  |  | (.2 | )
End of period |  | $ | (1.0 | ) |  | $ | 11.2 |  |  | $ | 27.9 |  |  | $ | (2.1 | ) |  | $ | 37.0 |
|  | Nine Months Ended September 30, 2015
|  | Variable Annuity Assets |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Beginning of period |  | $ | .7 |  |  | $ | 18.9 |  |  | $ | 33.8 |  |  | $ | 3.7 |  |  | $ | 56.4 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized gains (losses) |  | (1.7 | ) |  | (5.5 | ) |  | (2.7 | ) |  | 1.9 |  |  | (6.3 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (2.2 | ) |  | (3.2 | ) |  | (7.7 | ) |  | (13.1 | )
End of period |  | $ | (1.0 | ) |  | $ | 11.2 |  |  | $ | 27.9 |  |  | $ | (2.1 | ) |  | $ | 37.0 |
|  | Three Months Ended September 30, 2014
|  | Variable Annuity Assets |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Beginning of period |  | $ | (31.8 | ) |  | $ | 53.3 |  |  | $ | 22.3 |  |  | $ | (.8 | ) |  | $ | 74.8 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized gains (losses) |  | 20.1 |  |  | (17.4 | ) |  | (19.8 | ) |  | 13.4 |  |  | (23.8 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | — |  |  | 22.5 |  |  | (8.2 | ) |  | 14.3 |
End of period |  | $ | (11.7 | ) |  | $ | 35.9 |  |  | $ | 25.0 |  |  | $ | 4.4 |  |  | $ | 65.3 |
|  | Nine Months Ended September 30, 2014
|  | Variable Annuity (Liabilities) |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Beginning of period |  | $ | (52.8 | ) |  | $ | 63.4 |  |  | $ | 4.7 |  |  | $ | 1.1 |  |  | $ | 69.2 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized gains (losses) |  | 41.1 |  |  | (27.5 | ) |  | (42.1 | ) |  | 13.1 |  |  | (56.5 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | — |  |  | 62.4 |  |  | (9.8 | ) |  | 52.6 |
End of period |  | $ | (11.7 | ) |  | $ | 35.9 |  |  | $ | 25.0 |  |  | $ | 4.4 |  |  | $ | 65.3 |
(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.
Assets Held under Reinsurance Counterparty Trust Agreement | In addition to derivative instruments, WM Life Re held cash and fixed maturity investments posted as collateral to its variable annuity reinsurance counterparties. The total collateral includes the following:
Millions |  | September 30, 2015 |  | December 31, 2014 |  | September 30, 2014
Cash |  | $ | 16.8 |  |  | $ | 23.7 |  |  | $ | 23.8 |
Fixed maturity investments |  | — |  |  | 9.5 |  |  | 10.4 |
Total |  | $ | 16.8 |  |  | $ | 33.2 |  |  | $ | 34.2 |
Schedule of significant unobservable inputs associated with the fair value estimates for variable annuity reinsurance liabilities and derivative instruments | 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) |  | September 30, 2015
Description |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average
Variable annuity benefit guarantee liabilities |  | $ | 1.0 |  |  | Discounted cash flows |  | Surrenders |  |  |  |  |  |
|  |  |  | 0-1 year |  | 0.1 | % | - | 40.0% |  | 40.0 | %
|  |  |  |  | Mortality |  | 0.0 | % | - | 6.4% |  | 1.0 | %
|  |  |  |  | Foreign exchange volatilities |  |  |  |  |  |
|  |  |  |  |  | 0-1 year |  | 11.6 | % | - | 18.6% |  | 12.5 | %
|  |  |  |  |  | Index volatilities |  |  |  |  |  |
|  |  |  |  |  | 0-1 year |  | 26.2 | % | - | 29.9% |  | 28.2 | %
Foreign exchange options |  | $ | 2.6 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | 0.5 | % | - | 11.6% |  | 3.7 | %
Equity index options | $ | 8.6 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | (0.7 | )% | - | 6.5% |  | 2.0 | %
Exchange traded and OTC derivative instruments | The following summarizes amounts offset under master netting agreements:
|  | September 30, 2015 |  | December 31, 2014
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 |  | $ | .5 |  |  | $ | (.8 | ) |  | $ | (0.3 | ) |  | $ | 1.0 |  |  | $ | (5.4 | ) |  | $ | (4.4 | )
Exchange traded |  | .3 |  |  | (.1 | ) |  | .2 |  |  | 2.8 |  |  | (.1 | ) |  | 2.7 |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 27.9 |  |  | — |  |  | 27.9 |  |  | 45.5 |  |  | — |  |  | 45.5 |
Exchange traded |  | .1 |  |  | (.1 | ) |  | — |  |  | — |  |  | (1.4 | ) |  | (1.4 | )
Equity contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 11.5 |  |  | — |  |  | 11.5 |  |  | 11.7 |  |  | (.2 | ) |  | 11.5 |
Exchange traded |  | — |  |  | (2.3 | ) |  | (2.3 | ) |  | 3.4 |  |  | (.9 | ) |  | 2.5 |
Total(2) |  | $ | 40.3 |  |  | $ | (3.3 | ) |  | $ | 37.0 |  |  | $ | 64.4 |  |  | $ | (8.0 | ) |  | $ | 56.4 |
(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.
Net exposure to collateral | 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:
|  | September 30, 2015
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 WMLife Re - Cash |  | Net amount of exposure to counter-party |  | Standard & Poor's Rating(1)
Bank of America |  | $ | 3.2 |  |  | $ | — |  |  | $ | — |  |  | $ | 3.2 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3.2 |  |  | A |
Barclays |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | A | -
JP Morgan |  | 15.9 |  |  | — |  |  | — |  |  | 15.9 |  |  | — |  |  | — |  |  | 5.9 |  |  | 10.0 |  |  | A | +
Royal Bank of Scotland |  | 1.5 |  |  | — |  |  | — |  |  | 1.5 |  |  | — |  |  | — |  |  | — |  |  | 1.5 |  |  | BBB | +
Nomura |  | (.1 | ) |  | .1 |  |  | — |  |  | — |  |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |  |  | BBB | +
Citigroup - OTC |  | 18.6 |  |  | — |  |  | — |  |  | 18.6 |  |  | — |  |  | — |  |  | 5.3 |  |  | 13.3 |  |  | A |
Citigroup - Exchange Traded |  | (2.1 | ) |  | 2.1 |  |  | — |  |  | — |  |  | 12.8 |  |  | — |  |  | — |  |  | 12.8 |  |  | A |
Total |  | $ | 37.0 |  |  | $ | 2.2 |  |  | $ | — |  |  | $ | 39.2 |  |  | $ | 14.2 |  |  | $ | — |  |  | $ | 11.2 |  |  | $ | 42.2 |  |  |  |
|  | December 31, 2014 |
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 WMLife Re- Cash |  | Net amount of exposure to counter-party |  | Standard & Poor's Rating(1)
Bank of America |  | $ | 5.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 5.6 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5.6 |  |  | A |
Barclays |  | .1 |  |  | — |  |  | — |  |  | .1 |  |  | — |  |  | — |  |  | — |  |  | .1 |  |  | A |
JP Morgan |  | 24.3 |  |  | — |  |  | — |  |  | 24.3 |  |  | — |  |  | — |  |  | 8.8 |  |  | 15.5 |  |  | A | +
Royal Bank of Scotland |  | 4.0 |  |  | — |  |  | — |  |  | 4.0 |  |  | — |  |  | — |  |  | — |  |  | 4.0 |  |  | A | -
Nomura |  | (3.5 | ) |  | 3.5 |  |  | — |  |  | — |  |  | 1.7 |  |  | 9.5 |  |  | — |  |  | 11.2 |  |  | BBB | +
Citigroup - OTC |  | 22.2 |  |  | — |  |  | — |  |  | 22.2 |  |  | — |  |  | — |  |  | 1.1 |  |  | 21.1 |  |  | A |
Citigroup - Exchange Traded |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |  |  | 16.0 |  |  | — |  |  | — |  |  | 19.7 |  |  | A |
Total |  | $ | 56.4 |  |  | $ | 3.5 |  |  | $ | — |  |  | $ | 59.9 |  |  | $ | 17.7 |  |  | $ | 9.5 |  |  | $ | 9.9 |  |  | $ | 77.2 |  |  |  |
(1) Standard & Poor’s ratings as detailed above are: “A+” (Strong, which is the fifth highest of twenty-three creditworthiness ratings), “A” (Strong, which is the sixth highest of twenty-three creditworthiness ratings), “A-” (Strong, which is the seventh highest of twenty-three creditworthiness ratings) and “BBB+” (Adequate, which is the eighth highest of twenty-three creditworthiness ratings).

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