XML 30 R16.htm IDEA: XBRL DOCUMENT
v3.4.0.3

Derivatives | 3 Months Ended
--- | ---
Mar. 31, 2016
Derivatives | Derivatives
Variable Annuity |
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 March 31, 2016 and December 31, 2015, the total guarantee value was approximately ¥21.2 billion ($188.9 million at exchange rates on that date) and ¥50.7 billion (approximately $421.1 million at exchange rates on that date), respectively. The collective account values of the underlying variable annuities were approximately 107% and 109% of the guarantee value at March 31, 2016 and December 31, 2015. During the second quarter of 2015, the variable annuity contracts reinsured by WM Life Re began to mature and will fully runoff by June 30, 2016. The following table summarizes the pre-tax operating results of WM Life Re for the three months ended March 31, 2016 and 2015.
|  | Three Months Ended
|  | March 31,
Millions |  | 2016 |  | 2015
Fees, included in other revenue |  | $ | 1.0 |  |  | $ | 3.0 |
Change in fair value of variable annuity liability, included in other revenue |  | (.4 | ) |  | .4 |
Change in fair value of derivatives, included in other revenue |  | (1.7 | ) |  | (5.5 | )
Foreign exchange, included in other revenue |  | .9 |  |  | (1.1 | )
Other investment income and (losses) gains |  | — |  |  | — |
Total revenue |  | (.2 | ) |  | (3.2 | )
Change in fair value of variable annuity death benefit liabilities, included in other general and administrative expenses |  | — |  |  | — |
Death benefit claims paid, included in general and administrative expenses |  | (.1 | ) |  | — |
General and administrative expenses |  | (.8 | ) |  | (1.4 | )
Pre-tax income (loss) |  | $ | (1.1 | ) |  | $ | (4.6 | )
The following summarizes realized and unrealized derivative gains (losses) recognized in other revenue for the three months ended March 31, 2016 and 2015 and the carrying values, included in other assets, at March 31, 2016 and December 31, 2015 by type of instrument:
|  | Gains (losses) | Carrying Value
|  | Three Months Ended |  | As of
|  | March 31, |  | March 31, 2016 |  | December 31, 2015
Millions |  | 2016 |  | 2015 |  |
Fixed income/interest rate |  | $ | 1.8 |  |  | $ | 9.3 |  |  | $ | (.4 | ) |  | $ | .5 |
Foreign exchange |  | (4.2 | ) |  | (12.1 | ) |  | 12.5 |  |  | 14.8 |
Equity |  | .7 |  |  | (2.7 | ) |  | 1.0 |  |  | 4.8 |
Total |  | $ | (1.7 | ) |  | $ | (5.5 | ) |  | $ | 13.1 |  |  | $ | 20.1 |
The following tables summarize the changes in White Mountains’s variable annuity reinsurance liabilities and derivative instruments for the three months ended March 31, 2016 and 2015:
|  | Three Months Ended March 31, 2016
|  | Variable Annuity Assets (Liabilities) |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Beginning of period |  | $ | .3 |  |  | $ | 2.7 |  |  | $ | 16.5 |  |  | $ | .9 |  |  | $ | 20.1 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized gains (losses) |  | (.4 | ) |  | 1.2 |  |  | 1.1 |  |  | (4.0 | ) |  | (1.7 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (1.3 | ) |  | (7.3 | ) |  | 3.3 |  |  | (5.3 | )
End of period |  | $ | (.1 | ) |  | $ | 2.6 |  |  | $ | 10.3 |  |  | $ | .2 |  |  | $ | 13.1 |
|  | Three Months Ended March 31, 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) |  | .4 |  |  | (.6 | ) |  | (6.5 | ) |  | 1.6 |  |  | (5.5 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (1.3 | ) |  | 3.9 |  |  | (6.5 | ) |  | (3.9 | )
End of period |  | $ | 1.1 |  |  | $ | 17.0 |  |  | $ | 31.2 |  |  | $ | (1.2 | ) |  | $ | 47.0 |
(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. 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 |  | March 31, 2016 |  | December 31, 2015 |  | March 31, 2015
Cash |  | $ | 8.4 |  |  | $ | 5.8 |  |  | $ | 29.0 |
Fixed maturity investments |  | — |  |  | — |  |  | 4.5 |
Total |  | $ | 8.4 |  |  | $ | 5.8 |  |  | $ | 33.5 |
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’s variable annuity reinsurance liabilities were classified as Level 3 measurements at March 31, 2016 and 2015. The fair value of White Mountains’s 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. Actuarial 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) |  | March 31, 2016
Description |  | Fair Value |  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average
Variable annuity benefit guarantee liabilities |  | $ | (.1 | ) |  | Discounted cash flows |  | Surrenders |  |  |  |  |  |
|  |  |  | 0-1 year |  | 0.1 | % | - | 40.0% |  | 40.0 | %
|  |  |  |  | Mortality |  | 0.0 | % | - | 6.4% |  | 1.1 | %
|  |  |  |  | Foreign exchange volatilities |  |  |  |  |  |
|  |  |  |  |  | 0-1 year |  | 12.0 | % | - | 18.4% |  | 13.5 | %
|  |  |  |  |  | Index volatilities |  |  |  |  |  |
|  |  |  |  |  | 0-1 year |  | 25.5 | % | - | 28.8% |  | 26.2 | %
Foreign exchange options |  | $ | 1.1 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | (4.3 | )% | - | (7.3)% |  | (5.9 | )%
Equity index options | $ | 1.5 |  |  | Counterparty valuations, adjusted for unwind quote discount |  | Adjustment to counterparty valuations |  | (0.6 | )% | - | (5.7)% |  | (5.6 | )%
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:
|  | March 31, 2016 |  | December 31, 2015
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 |  | $ | 2.2 |  |  | $ | (2.5 | ) |  | $ | (.3 | ) |  | $ | 2.4 |  |  | $ | (2.1 | ) |  | $ | .3 |
Exchange traded |  | — |  |  | — |  |  | — |  |  | .1 |  |  | (.1 | ) |  | — |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 12.7 |  |  | — |  |  | 12.7 |  |  | 15.0 |  |  | — |  |  | 15.0 |
Exchange traded |  | — |  |  | (.1 | ) |  | (.1 | ) |  | .1 |  |  | (.3 | ) |  | (.2 | )
Equity contracts |  |  |  |  |  |  |  |  |  |  |  |
OTC |  | 1.5 |  |  | (.9 | ) |  | .6 |  |  | 4.4 |  |  | (.6 | ) |  | 3.8 |
Exchange traded |  | .3 |  |  | (.1 | ) |  | .2 |  |  | 1.2 |  |  | — |  |  | 1.2 |
Total(2) |  | $ | 16.7 |  |  | $ | (3.6 | ) |  | $ | 13.1 |  |  | $ | 23.2 |  |  | $ | (3.1 | ) |  | $ | 20.1 |
(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:
|  | March 31, 2016
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 |  | $ | 1.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 1.4 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1.4 |  |  | A |
JP Morgan |  | 6.5 |  |  | — |  |  | — |  |  | 6.5 |  |  | — |  |  | — |  |  | 5.4 |  |  | 1.1 |  |  | A | +
Citigroup - OTC |  | 5.0 |  |  | — |  |  | — |  |  | 5.0 |  |  | — |  |  | — |  |  | .5 |  |  | 4.5 |  |  | A |
Citigroup - Exchange Traded |  | .2 |  |  | — |  |  | — |  |  | .2 |  |  | 7.9 |  |  | — |  |  | — |  |  | 8.1 |  |  | A |
Total |  | $ | 13.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 13.1 |  |  | $ | 7.9 |  |  | $ | — |  |  | $ | 5.9 |  |  | $ | 15.1 |  |  |  |
|  | December 31, 2015 |
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 |  | $ | .7 |  |  | $ | — |  |  | $ | — |  |  | $ | .7 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | .7 |  |  | A |
JP Morgan |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |  |  | — |  |  | — |  |  | 5.5 |  |  | 3.0 |  |  | A | +
Citigroup - OTC |  | 9.9 |  |  | — |  |  | — |  |  | 9.9 |  |  | — |  |  | — |  |  | 1.4 |  |  | 8.5 |  |  | A |
Citigroup - Exchange Traded |  | 1.0 |  |  | — |  |  | — |  |  | 1.0 |  |  | 5.8 |  |  | — |  |  | — |  |  | 6.8 |  |  | A |
Total |  | $ | 20.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 20.1 |  |  | $ | 5.8 |  |  | $ | — |  |  | $ | 6.9 |  |  | $ | 19.0 |  |  |  |
(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).
Tranzact Interest Rate Swap |
Derivatives | Tranzact Interest Rate Swap Tranzact has a $101.0 million term loan facility that carries a variable rate equal to the U.S. dollar LIBOR rate, plus an applicable margin. At March 31, 2016, the variable interest rate on the term loan was 4.94%, including a margin over LIBOR of 4.50%. Effective October 10, 2014, to effectively fix the rate it pays on this term loan, Tranzact entered into an interest rate swap agreement with an initial notional amount of $70.0 million. The notional amount decreases over the term of the swap by amounts equivalent to scheduled principal repayments made on Tranzact’s term loan. Under the terms of the swap agreement, Tranzact pays a fixed rate of 1.34% and receives a variable rate, which is reset monthly, based on the then-current U.S. dollar LIBOR rate. The variable rate received by Tranzact under the swap agreement was 0.15% at inception and 0.439% at March 31, 2016. The total current effective rate on Tranzact’s debt was 6.28% at March 31, 2016. The swap is measured at fair value with changes therein recognized within other revenues and is accounted for as a non-hedge derivative instrument. As of March 31, 2016, the estimated fair value of the swap was $(0.8) million. There are no collateral arrangements associated with the swap.

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- Details
Name: | us-gaap_DerivativeByNatureAxis=us-gaap_VariableAnnuityMember
Namespace Prefix: |
Data Type: | na
Balance Type: |
Period Type: |

X
- Details
Name: | us-gaap_DerivativeByNatureAxis=wtm_TranzactInterestRateSwapMember
Namespace Prefix: |
Data Type: | na
Balance Type: |
Period Type: |