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Derivatives | 12 Months Ended
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Dec. 31, 2017
Derivative [Line Items] |
Derivatives | Derivatives
Variable Annuity Reinsurance |
Derivative [Line Items] |
Derivatives | Variable Annuity Reinsurance White Mountains entered into agreements to reinsure death and living benefit guarantees associated with certain variable annuities in Japan. During the third quarter of 2015, the variable annuity contracts reinsured by WM Life Re began to mature and were fully runoff by June 30, 2016. The reinsurance agreement was commuted in December 2016. WM Life Re was liquidated in the third quarter of 2017. The following table presents the pre-tax operating results of WM Life Re for the years ended December 31, 2016 and 2015:
|  | Year Ended December 31,
Millions |  | 2016 |  | 2015
Fees, included in other revenue |  | $ | 1.2 |  |  | $ | 9.3 |
Change in fair value of variable annuity liability, included in other revenue |  | (.3 | ) |  | (.4 | )
Change in fair value of derivatives, included in other revenue |  | (2.0 | ) |  | (8.8 | )
Foreign exchange, included in other revenue |  | 1.3 |  |  | (1.3 | )
Other investment loss |  | — |  |  | (.4 | )
Total revenues |  | .2 |  |  | (1.6 | )
Death benefit claims paid, included in general and administrative expenses |  | (.3 | ) |  | (.1 | )
General and administrative expenses |  | (2.6 | ) |  | (4.0 | )
Pre-tax loss |  | $ | (2.7 | ) |  | $ | (5.7 | )
The following table presents realized and unrealized derivative gains (losses) recognized in other revenue for the years ended December 31, 2016 and 2015 and the carrying values, included in other assets, as of December 31, 2016 by type of instrument:
|  | Gains (Losses) | Carrying Value as of
|  | Year Ended December 31, |  | December 31,
Millions |  | 2016 |  | 2015 |  | 2016
Fixed income/interest rate |  | $ | 1.8 |  |  | $ | 6.4 |  |  | $ | — |
Foreign exchange |  | (4.8 | ) |  | (7.3 | ) |  | — |
Equity |  | 1.0 |  |  | (7.9 | ) |  | — |
Total |  | $ | (2.0 | ) |  | $ | (8.8 | ) |  | $ | — |
The following tables present the changes in White Mountains’s variable annuity reinsurance liabilities and derivative instruments for the years ended December 31, 2016 and 2015:
|  | Variable Annuity Liabilities |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total
Balance at January 1, 2016 |  | $ | .3 |  |  | $ | 2.7 |  |  | $ | 16.5 |  |  | $ | .9 |  |  | $ | 20.1 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized (losses) gains |  | (.3 | ) |  | 2.9 |  |  | (.7 | ) |  | (4.2 | ) |  | (2.0 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (5.6 | ) |  | (15.8 | ) |  | 3.3 |  |  | (18.1 | )
Balance at December 31, 2016 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
(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.
|  | Variable Annuity Liabilities |  | Derivative Instruments
Millions |  | Level 3 |  | Level 3 (1) |  | Level 2 (1)(2) |  | Level 1 (3) |  | Total (4)
Balance at January 1, 2015 |  | $ | .7 |  |  | $ | 18.9 |  |  | $ | 33.8 |  |  | $ | 3.7 |  |  | $ | 56.4 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Realized and unrealized (losses) gains |  | (.4 | ) |  | (9.7 | ) |  | (7.5 | ) |  | 8.4 |  |  | (8.8 | )
Transfers in |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/settlements |  | — |  |  | (6.5 | ) |  | (9.8 | ) |  | (11.2 | ) |  | (27.5 | )
Balance at December 31, 2015 |  | $ | .3 |  |  | $ | 2.7 |  |  | $ | 16.5 |  |  | $ | .9 |  |  | $ | 20.1 |
(1) | Consists of over-the-counter instruments.
(2) | Consists of interest rate swaps, total return swaps, foreign currency forward contracts, and bond forwards. Fair value measurement based upon bid/ask pricing quotes for similar instruments that are actively traded, where available. Swaps for which an active market does not exist have been priced using observable inputs including the swap curve and the underlying bond index.
(3) | Consists of exchange traded equity index, foreign currency and interest rate futures. Fair value measurements based upon quoted prices for identical instruments that are actively traded.
(4) | In addition to derivative instruments, WM Life Re held cash, short-term and fixed maturity investments of $5.8 as of December 31, 2015 posted as collateral to its reinsurance counterparties.
All of White Mountains’s variable annuity reinsurance liabilities were classified as Level 3 measurements. The fair value of White Mountains’s variable annuity reinsurance liabilities were 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, were generally unobservable inputs and significantly impacted the fair value estimates. White Mountains used derivative instruments 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, were generally the same as those used to estimate the fair value of variable annuity liabilities.
Forward Contracts |
Derivative [Line Items] |
Derivatives | Forward Contracts White Mountains’s investment portfolio includes certain investment grade fixed maturity investments denominated in GBP and common equity securities denominated in Japanese Yen, Euros, GBP and other foreign currencies. White Mountains entered into foreign currency forward contracts to manage its foreign currency exposure related to these investments. The foreign currency forward contracts do not meet the criteria to be accounted for as a hedge. White Mountains actively manages its net foreign currency exposure and adjusts its foreign currency positions within ranges established by senior management. Mismatches between currency driven movements in foreign denominated investments and foreign currency forward contracts may result in net foreign currency positions being outside pre-defined ranges and/or may result in net foreign currency gains (losses). During the fourth quarter of 2017, White Mountains closed the foreign currency forward contracts associated with its common equity securities. As of December 31, 2017, White Mountains held $206.3 million (GBP 152.0 million) total gross notional value of a foreign currency forward contract. White Mountains’s foreign currency forward contract is traded over-the-counter. The fair value of the foreign currency forward contract is estimated using OTC quotes for similar instruments and accordingly, the measurements are classified as Level 2 measurements as of December 31, 2017. The derivative gains (losses) recognized in net realized and unrealized investment gains (losses) for the years ended December 31, 2017 and 2016 were $(23.8) million and $(1.2) million. White Mountains’s foreign currency forward contract is subject to a master netting agreement. As of December 31, 2017 and 2016, the gross liability amount offset under the master netting agreement and the net amount recognized in other long-term investments was $(3.7) million and $(1.2) million. White Mountains does not hold or provide any collateral under its foreign currency forward contract. The following table presents the gross notional amounts and carrying values associated with the foreign currency forward contracts as of December 31, 2017 and 2016:
|  | December 31, 2017 |  | December 31, 2016
Millions |  | Notional Amount |  | Carrying Value |  | Standard & Poor's Rating (1) |  | Notional Amount |  | Carrying Value |  | Standard & Poor's Rating (1)
Barclays Bank PLC |  | $ | 206.3 |  |  | $ | (3.7 | ) |  | A |  | $ | 184.6 |  |  | $ | (1.2 | ) |  | A-
(1) Standard & Poor’s ratings “A” (Strong, which is the sixth highest of twenty-three creditworthiness ratings) and “A-” (which is the seventh highest of twenty-three creditworthiness ratings.

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- 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 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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