White Mountains Insurance Group, Ltd. WTM

HAMILTON, Bermuda, Aug. 8, 2022 /PRNewswire/ -- White Mountains Insurance Group, Ltd. (NYSE: WTM) reported book value per share of $1,129 and adjusted book value per share of $1,152 as of June 30, 2022.  Book value per share and adjusted book value per share decreased 5% and 4% in the second quarter of 2022 and 4% and 3% in the first six months of 2022, including dividends. 

On August 1, 2022, White Mountains closed the previously announced sale of 100% of its equity interest in NSM for cash to an affiliate of The Carlyle Group, Inc. (the "NSM Transaction").  Including the estimated net gain of $300 per share from the NSM Transaction, book value per share would be approximately $1,429 and adjusted book value per share would be approximately $1,452 as of June 30, 2022.  NSM's results have been presented as discontinued operations beginning in the second quarter of 2022.

Manning Rountree, CEO, commented, "ABVPS was down 4% in the quarter.  The main drivers were mark-to-market losses in our fixed income portfolios and the decline in MediaAlpha's share price.  On the other hand, our operating businesses produced good results.  BAM produced record levels of par insured.  Ark produced an 87% combined ratio while growing premiums 23% year-over-year.  The fair value of Kudu's existing participation contracts declined 2.5% in the quarter, holding up well in a tough quarter for investment markets.  Kudu grew adjusted EBITDA year-over-year and closed one new transaction.  During the quarter, we signed and announced an agreement to sell NSM, and that transaction subsequently closed on August 1.  This deal adds roughly $300 to ABVPS.  During the quarter, we repurchased $63 million of shares.  Including the proceeds from the NSM Transaction, undeployed capital now stands at roughly $1.6 billion."

Comprehensive income (loss) attributable to common shareholders was $(174) million and $(143) million in the second quarter and first six months of 2022 compared to $139 million and $66 million in the second quarter and first six months of 2021.  Results in the second quarter and first six months of 2022 included $114 million and $95 million of unrealized investment losses from White Mountains's investment in MediaAlpha.  Results in the second quarter and first six months of 2021 included $113 million and $71 million of net realized and unrealized investment gains from White Mountains's investment in MediaAlpha. 

BAM's gross written premiums and member surplus contributions (MSC) collected were $41 million and $63 million in the second quarter and first six months of 2022 compared to $30 million and $56 million in the second quarter and first six months of 2021.  BAM insured municipal bonds with par value of $5.9 billion and $9.3 billion in the second quarter and first six months of 2022 compared to $5.1 billion and $8.7 billion in the second quarter and first six months of 2021.  Total pricing was 70 and 67 basis points in the second quarter and first six months of 2022 compared to 59 and 65 basis points in the second quarter and first six months of 2021.  BAM's total claims paying resources were $1,228 million at June 30, 2022 compared to $1,192 million at December 31, 2021 and $1,165 million at June 30, 2021. 

Seán McCarthy, CEO of BAM, said, "BAM completed a record first half for direct par insured and premiums.  Volatile market conditions and rising interest rates helped drive strong investor demand for insurance, including on larger and higher-rated transactions.  During the quarter, BAM insured its largest transaction to date: $667 million for the New York State Dormitory Authority's school revenue bond financing program.  Pricing improved quarter over quarter and year over year.  In mid-June, S&P Global Ratings completed its annual review and affirmed BAM's AA rating and Stable outlook."

All BAM-insured bond payments due through August 1, 2022 have been made by insureds, and there are no credits on BAM's watchlist.

HG Global reported pre-tax income (loss) of $(8) and $(23) million in the second quarter and first six months of 2022 compared to $11 million and $9 million in the second quarter and first six months of 2021.  The increase in HG Global's pre-tax income (loss) in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 was driven primarily by net unrealized investment losses on the HG Global fixed income portfolio.

On April 29, 2022, HG Global received the proceeds of its new $150 million, 10-year term loan credit facility.  In turn, HG Global paid a $120 million cash dividend to shareholders, of which $116 million was paid to White Mountains.

White Mountains reported pre-tax loss related to BAM of $31 and $66 million in the second quarter and first six months of 2022 compared to $9 million and $32 million in the second quarter and first six months of 2021.  The increase in pre-tax loss related to BAM in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 was driven primarily by net unrealized investment losses on the BAM fixed income portfolio.

BAM is a mutual insurance company that is owned by its members.  BAM's results are consolidated into White Mountains's GAAP financial statements and attributed to non-controlling interests.

Ark's GAAP combined ratio was 87% and 93% in the second quarter and first six months of 2022 compared to 90% and 99% in the second quarter and first six months of 2021.  Ark's adjusted combined ratio, which adds back amounts attributable to third-party capital providers, was 86% and 93% in the second quarter and first six months of 2022 compared to 84% and 96% in the second quarter and first six months of 2021.  The adjusted combined ratio for the second quarter and first six months of 2022 included 11 points and 14 points of catastrophe losses compared to six points and 12 points in the second quarter and first six months of 2021.  Catastrophe losses for the second quarter and first six months of 2022 included an estimate of incurred losses emanating from the conflict in Ukraine of seven points and nine points.  The adjusted combined ratio in the second quarter and first six months of 2022 also included 12 points and seven points of favorable prior year development compared to 10 points and five points in the second quarter and first six months of 2021. 

Ark reported gross written premiums of $404 million and $1,037 million, net written premiums of $270 million and $814 million and net earned premiums of $217 million and $412 million in the second quarter and first six months of 2022 compared to gross written premiums of $328 million and $733 million, net written premiums of $262 million and $605 million and net earned premiums of $118 million and $222 million and in the second quarter and first six months of 2021.  Ark reported pre-tax income (loss) of $(21) million and $(45) million in the second quarter and first six months of 2022 compared to $18 million and $(15) million in second quarter and first six months of 2021.   Ark's results included net realized and unrealized investment gains (losses) of $(45) million and $(62) million in the second quarter and first six months of 2022 compared to $9 million and $10 million in the second quarter and first six months of 2021.  Ark's pre-tax loss for the first six months of 2021 also included $25 million of transaction expenses related to White Mountains's transaction with Ark.

Ian Beaton, CEO of Ark, said, "Ark had a solid second quarter.  The adjusted combined ratio was 86% in the quarter, reflecting 12 points of favorable prior year development and seven points for incurred losses tied to Ukraine.  Driven by strong April and June renewals, gross written premiums were $404 million in the quarter, up 23% from 2021 levels, with risk-adjusted rate change up 9%.  Looking forward, market conditions remain attractive, and we are optimistic about continued profitable growth in the book."

NSM reported commission and other revenues of $103 million, pre-tax income of $13 million and adjusted EBITDA of $29 million in the second quarter of 2022 compared to commission and other revenues of $84 million, pre-tax income of $1 million and adjusted EBITDA of $19 million in the second quarter of 2021.  NSM reported commission and other revenues of $191 million, pre-tax loss of $16 million and adjusted EBITDA of $47 million in the first six months of 2022, compared to commission and other revenues of $159 million, pre-tax loss of $32 million, adjusted EBITDA of $33 million in the first six months of 2021. 

Geof McKernan, CEO of NSM, said, "NSM delivered a strong quarter, achieving new highs for premiums and profitability.  Trailing 12 months pro forma controlled premiums grew 3% quarter over quarter to $1,281 million, while pro forma adjusted EBITDA increased 7% quarter over quarter to a record $85 million.  In partnership with the White Mountains team over the past four years, NSM achieved strong organic growth, completed six strategic acquisitions, added high-quality talent and built an industry-leading specialized insurance distribution platform.  We are looking forward to our next phase of growth with Carlyle."

Kudu reported total revenues of $(4) million, pre-tax loss of $10 million and adjusted EBITDA of $11 million in the second quarter of 2022 compared to total revenues of $36 million, pre-tax income of $31 million and adjusted EBITDA of $5 million in the second quarter of 2021.  Total revenues and pre-tax income in the second quarter of 2022 included $18 million of net unrealized investment losses on Kudu's participation contracts compared to $28 million of net unrealized investment gains on Kudu's participation contracts in the second quarter of 2021. 

Kudu reported total revenues of $31 million, pre-tax income of $19 million and adjusted EBITDA of $21 million in the first six months of 2022 compared to total revenues of $60 million, pre-tax income of $47 million and adjusted EBITDA of $11 million in the first six months of 2021.  Total revenues and pre-tax income in the first six months of 2022 included $5 million of unrealized gains on Kudu's participation contracts, compared to $44 million in the first six months of 2021.

Rob Jakacki, CEO of Kudu, said, "The fair value of Kudu's existing participation contracts was down 2.5% in the quarter, impacted by declines in equity, fixed income and foreign currency markets.  However, this result compares favorably to broader market indices, reflecting Kudu's portfolio construction and diversification.  Trailing 12 months revenues from participation contracts increased 11% quarter over quarter to $54 million, while adjusted EBITDA increased 15% quarter over quarter to $43 million.  Annualized revenues finished the quarter at $60 million, implying a cash revenue yield of 10%, while annualized adjusted EBITDA reached $48 million.  We were pleased to close our investment in Gramercy, a leading emerging markets investment firm.  We continue to seek out specialized and high-quality asset managers worldwide, and we expect further capital deployments throughout the year."

White Mountains owns 16.9 million shares of MediaAlpha, representing a 28% basic ownership interest (25% on a fully-diluted/fully-converted basis).  As of June 30, 2022, the closing price was $9.85 per share, which decreased from $16.55 per share at March 31, 2022.  As of June 30, 2022, the value of White Mountains's investment in MediaAlpha was $167 million, which decreased from $280 million at March 31, 2022.  At our current level of ownership, each $1.00 per share increase or decrease in the share price of MediaAlpha will result in an approximate $5.80 per share increase or decrease in White Mountains's book value per share and adjusted book value per share.  Our focus remains on MediaAlpha's intrinsic value, not on fluctuations in its share price.  We encourage you to read MediaAlpha's second quarter earnings release and related shareholder letter, which is available on MediaAlpha's investor relations website at www.investors.mediaalpha.com.

White Mountains's Other Operations reported pre-tax income (loss) of $(162) million and $(133) million in the second quarter and first six months of 2022 compared to $110 million and $47 million in the second quarter and first six months of 2021.  Results for Other Operations in the second quarter and first six months of 2022 and 2021 were driven primarily by net realized and unrealized investment gains (losses) from White Mountains's investment in MediaAlpha.  Unrealized investment losses from White Mountains's investment in MediaAlpha were $114 million and $95 million in the second quarter and first six months of 2022 compared to net realized and unrealized investment gains from White Mountains's investment in MediaAlpha of $113 million and $71 million in the second quarter and first six months of 2021. 

Excluding MediaAlpha, net realized and unrealized investment gains (losses) were $(12) million and $20 million in the second quarter and first six months of 2022 compared to $17 million and $19 million in the second quarter and first six months of 2021.  Net investment income was $3 million and $5 million in the second quarter and first six months of 2022 compared to $4 million and $11 million in the second quarter and first six months of 2021. 

White Mountains's Other Operations reported general and administrative expenses of $50 million and $79 million in the second quarter and first six months of 2022 compared to $29 million and $65 million in the second quarter and first six months of 2021.  The increases in general and administrative expenses in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 were driven by higher incentive compensation costs, primarily in connection with the NSM Transaction.

In the second quarter of 2022, White Mountains repurchased and retired 53,100 of its common shares for $63 million at an average share price of $1,179.96.  In the first six months of 2022, White Mountains repurchased and retired 90,535 of its common shares for $102 million at an average share price of $1,121.60.

In the first six months of 2021, White Mountains repurchased and retired 7,161 of its common shares for $7 million at an average share price of $1,038.96.  White Mountains did not repurchase any of its common shares in the second quarter of 2021.

The total consolidated portfolio return was -4.7% in the second quarter of 2022.  Excluding MediaAlpha, the total consolidated portfolio return was -2.1% in the second quarter of 2022.  The total consolidated portfolio return was 5.0% in the second quarter of 2021.  Excluding MediaAlpha, the total consolidated portfolio return was 2.4% in the second quarter of 2021.

The total consolidated portfolio return was -4.0% in the first six months of 2022. Excluding MediaAlpha, the total consolidated portfolio return was -1.9% in the first six months of 2022. The total consolidated portfolio return was 4.7% in the first six months of 2021. Excluding MediaAlpha, the total consolidated portfolio return was 3.1% in the first six months of 2021.

Mark Plourde, President of White Mountains Advisors, said, "Excluding MediaAlpha, the total portfolio was down -2.1% in the quarter, driven primarily by the impact of rising interest rates.  The fixed income portfolio returned -2.4%, outperforming the longer duration BBIA Index return of -2.9%.  The equity portfolio, excluding MediaAlpha, returned -1.8%, well ahead of the S&P 500 Index return of -16.1%."

White Mountains is a Bermuda-domiciled financial services holding company traded on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol WTM.  Additional financial information and other items of interest are available at the Company's website located at www.whitemountains.com.  White Mountains expects to file its Form 10-Q today with the Securities and Exchange Commission and urges shareholders to refer to that document for more complete information concerning its financial results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This earnings release includes non-GAAP financial measures that have been reconciled from their most comparable GAAP financial measures.

• Adjusted book value per share is a non-GAAP financial measure which is derived by adjusting (i) the GAAP book value per share numerator and (ii) the common shares outstanding denominator, as described below.
  
  The GAAP book value per share numerator is adjusted (i) to include a discount for the time value of money arising from the modeled timing of cash payments of principal and interest on the BAM surplus notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global.
  
  Under GAAP, White Mountains is required to carry the BAM surplus notes, including accrued interest, at nominal value with no consideration for time value of money. Based on a debt service model that forecasts operating results for BAM through maturity of the surplus notes, the present value of the BAM surplus notes, including accrued interest and using an 8% discount rate, was estimated to be $120 million, $125 million, $130 million and $137 million less than the nominal GAAP carrying values as of June 30, 2022, March 31, 2022, December 31, 2021 and June 30, 2021, respectively.
  
  The value of HG Global's unearned premium reserve, net of deferred acquisition costs, was $164 million, $160 million, $159 million and $150 million as of June 30, 2022, March 31, 2022, December 31, 2021 and June 30, 2021, respectively.
  
  White Mountains believes these adjustments are useful to management and investors in analyzing the intrinsic value of HG Global, including the value of the BAM surplus notes and the value of the in-force business at HG Re, HG Global's reinsurance subsidiary.
  
  The denominator used in the calculation of adjusted book value per share equals the number of common shares outstanding adjusted to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized. Restricted common shares are earned on a straight-line basis over their vesting periods. The reconciliation of GAAP book value per share to adjusted book value per share is included on page 8.
  
  
• BAM's gross written premiums and MSC from new business is a non-GAAP financial measure, which is derived by adjusting gross written premiums and MSC collected (i) to include the present value of future installment MSC not yet collected and (ii) to exclude the impact of gross written premium adjustments related to policies closed in prior periods. White Mountains believes these adjustments are useful to management and investors in evaluating the volume and pricing of new business closed during the period. The reconciliation from GAAP gross written premiums to gross written premiums and MSC from new business is included on page 17.
  
  
• Ark's adjusted loss and loss adjustment expense ratio, adjusted insurance acquisition expense ratio, adjusted other underwriting expense ratio and adjusted combined ratio are non-GAAP financial measures, which are derived by adjusting the GAAP ratios to add back the impact of whole-account quota-share reinsurance arrangements attributable to third-party capital providers for Ark's Lloyd's syndicates. The impact of these reinsurance arrangements relates to years of account prior to White Mountains's transaction with Ark. White Mountains believes these adjustments are useful to management and investors in evaluating Ark's results on a fully aligned basis (i.e., 100% of the syndicates' results). The reconciliation from the GAAP ratios to the adjusted ratios is included on page 18.
  
  
• NSM's EBITDA, adjusted EBITDA and pro forma adjusted EBITDA are non-GAAP financial measures.
  
  EBITDA is a non-GAAP financial measure that excludes interest expense on debt, income tax (expense) benefit, depreciation and amortization of other intangible assets from GAAP net income (loss).
  
  Adjusted EBITDA is a non-GAAP financial measure that excludes certain other items in GAAP net income (loss) in addition to those excluded from EBITDA. The adjustments relate to (i) change in fair value of contingent consideration, (ii) non-cash equity-based compensation expense, (iii) impairments of intangible assets, (iv) loss on assets held for sale, (v) transaction expenses, (vi) investments made in the development of new business lines, (vii) restructuring expenses and (viii) legal settlements. A description of each follows:
• Change in fair value of contingent consideration - Contingent consideration consists of amounts payable to the sellers of businesses purchased by NSM that are contingent on the earnings of such businesses in periods subsequent to their acquisition. Under GAAP, contingent consideration amounts are initially recorded as liabilities at fair value as part of purchase accounting, with the periodic change in the fair value of these liabilities recorded as income or an expense.
• Non-cash equity-based compensation expense - Represents non-cash expenses related to NSM's management compensation emanating from the grants of equity units.
• Impairments of intangible assets - Represents expense related to NSM's write-off of intangible assets. For the periods presented, the impairments related primarily to NSM's write-off of intangible assets in its U.K. vertical. The impairments related to lower premium volumes, including due to the impact of the COVID-19 pandemic, and certain reorganization initiatives in the U.K. vertical.
• Loss on assets held for sale - Represents the loss on net assets held for sale related to the Fresh Insurance motor business.
• Transaction expenses - Represents costs directly related to NSM's mergers and acquisitions activity, such as transaction-related compensation, banking, accounting and external lawyer fees, which are not capitalized and are expensed under GAAP.
• Investments made in the development of new business lines - Represents the net loss related to the start-up of newly established lines of business, which NSM views as investments.
• Restructuring expenses - Represents expenses associated with eliminating redundant work force and facilities that often arise as a result of NSM's post-acquisition integration strategies. For the periods presented, this adjustment relates primarily to NSM's expenses incurred in certain reorganization initiatives in the U.K. vertical.
• Legal settlements - Represents amounts recognized from legal settlements.

Pro forma adjusted EBITDA is a non-GAAP financial measure that starts with adjusted EBITDA and also (i) includes the earnings (losses) of acquired businesses for the period of time over the previous 12 months that the businesses were not owned by NSM and (ii) removes the earnings (losses) for the previous 12 months related to businesses sold by NSM.

White Mountains believes that these non-GAAP financial measures are useful to management and investors in evaluating NSM's performance. White Mountains also believes that pro forma adjusted EBITDA is useful to management and investors in understanding the full earnings profile of NSM's business as of the end of any 12-month period. See page 20 for the reconciliation of NSM's GAAP net income (loss) to EBITDA, adjusted EBITDA and pro forma adjusted EBITDA.

• Kudu's EBITDA, adjusted EBITDA, annualized adjusted EBITDA and annualized revenue are non-GAAP financial measures.
  
  EBITDA is a non-GAAP financial measure that excludes interest expense on debt, income tax (expense) benefit, depreciation and amortization of other intangible assets from GAAP net income (loss).
  
  Adjusted EBITDA is a non-GAAP financial measure that excludes certain other items in GAAP net income (loss) in addition to those excluded from EBITDA. The adjustments relate to (i) net realized and unrealized investment gains (losses) on Kudu's revenue and earnings participation contracts, (ii) non-cash equity-based compensation expense and (iii) transaction expenses. A description of each adjustment follows:
• Net realized and unrealized investment gains (losses) - Represents net unrealized investment gains and losses recorded on Kudu's revenue and earnings participation contracts, which are recorded at fair value under GAAP, and realized investment gains and losses from participation contracts sold during the period.
• Non-cash equity-based compensation expense - Represents non-cash expenses related to Kudu's management compensation that are settled with equity units in Kudu.
• Transaction expenses - Represents costs directly related to Kudu's mergers and acquisitions activity, such as external lawyer, banker, consulting and placement agent fees, which are not capitalized and are expensed under GAAP.

Annualized adjusted EBITDA is a non-GAAP financial measure that (i) annualizes partial year revenues related to Kudu's revenue and earnings participation contracts acquired during the previous 12-month period and (ii) removes revenues related to revenue and earnings participation contracts sold during the previous 12-month period.

Annualized revenue is a non-GAAP financial measure that adds the adjustments for annualized adjusted EBITDA to GAAP net investment income revenue.

White Mountains believes that these non-GAAP financial measures are useful to management and investors in evaluating Kudu's performance. White Mountains also believes that annualized adjusted EBITDA is useful to management and investors in understanding the full earnings profile of Kudu's business as of the end of any 12-month period. See page 21 for the reconciliation of Kudu's GAAP net income (loss) to EBITDA, adjusted EBITDA and annualized adjusted EBITDA.

• Total consolidated portfolio return excluding MediaAlpha and total equity portfolio return excluding MediaAlpha are non-GAAP financial measures that remove the net investment income and net realized and unrealized investment gains (losses) from White Mountains's investment in MediaAlpha. White Mountains believes these measures to be useful to management and investors by showing the underlying performance of White Mountains's investment portfolio and equity portfolio without regard to White Mountains's investment in MediaAlpha. The following tables present reconciliations from GAAP to the reported percentages:

 

This earnings release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  All statements, other than statements of historical facts, included or referenced in this release which address activities, events or developments which White Mountains expects or anticipates will or may occur in the future are forward-looking statements.  The words "could", "will", "believe", "intend", "expect", "anticipate", "project", "estimate", "predict" and similar expressions are also intended to identify forward-looking statements.  These forward-looking statements include, among others, statements with respect to White Mountains's:

• change in book value per share, adjusted book value per share or return on equity;
• business strategy;
• financial and operating targets or plans;
• incurred loss and loss adjustment expenses and the adequacy of its loss and loss adjustment expense reserves and related reinsurance;
• projections of revenues, income (or loss), earnings (or loss) per share, EBITDA, adjusted EBITDA, dividends, market share or other financial forecasts of White Mountains or its businesses;
• expansion and growth of its business and operations; and
• future capital expenditures.

These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances.  However, whether actual results and developments will conform to its expectations and predictions is subject to risks and uncertainties that could cause actual results to differ materially from expectations, including:

• the risks that are described from time to time in White Mountains's filings with the Securities and Exchange Commission, including but not limited to White Mountains's Annual Report on Form 10-K for the fiscal year ended December 31, 2021;
• claims arising from catastrophic events, such as hurricanes, earthquakes, floods, fires, severe winter weather, public health crises, terrorist attacks, explosions, infrastructure failures, cyber-attacks or armed conflicts;
• recorded loss reserves subsequently proving to have been inadequate;
• the market value of White Mountains's investment in MediaAlpha;
• the trends and uncertainties from the COVID-19 pandemic, including judicial interpretations on the extent of insurance coverage provided by insurers for COVID-19 pandemic related claims;
• business opportunities (or lack thereof) that may be presented to it and pursued;
• actions taken by ratings agencies, such as financial strength or credit ratings downgrades or placing ratings on negative watch;
• the continued availability of capital and financing;
• deterioration of general economic, market or business conditions, including due to outbreaks of contagious disease (including the COVID-19 pandemic) and corresponding mitigation efforts;
• competitive forces, including the conduct of other insurers;
• changes in domestic or foreign laws or regulations, or their interpretation, applicable to White Mountains, its competitors or its customers; and
• other factors, most of which are beyond White Mountains's control.

Consequently, all of the forward-looking statements made in this earnings release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, White Mountains or its business or operations.  White Mountains assumes no obligation to publicly update any such forward-looking statements, whether as a result of new information, future events or otherwise.

CONTACT: Rob Seelig
(603) 640-2212

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SOURCE White Mountains Insurance Group, Ltd.