White Mountains Reports Third Quarter Results

HAMILTON, Bermuda, Nov. 8, 2021 /PRNewswire/ — White Mountains Insurance Group, Ltd. (NYSE:WTM) reported book value per share of $1,162 and adjusted book value per share of $1,176 as of September 30, 2021.  Book value per share and adjusted book value per share both decreased 9% in the third quarter of 2021.  For the first nine months of 2021, book value per share decreased 8% and adjusted book value per share decreased 7%, including dividends.

Manning Rountree, CEO, commented, “ABVPS was down 9% in the third quarter, driven by the decrease in MediaAlpha’s share price.  Excluding the mark to market losses at MediaAlpha, ABVPS was up nicely, reflecting solid performance at our operating companies.  BAM produced $28 million of total premiums and member surplus contributions, as insured penetration remained high and pricing improved.  Ark produced an 89% adjusted combined ratio while increasing gross written premiums 79% year over year.  NSM posted record levels of both pro forma controlled premium and pro forma adjusted EBITDA, driven by solid growth in its existing verticals and the J.C. Taylor acquisition.  Kudu posted strong growth in adjusted EBITDA and $19 million of unrealized gains in the fair value of its portfolio, while deploying $130 million into new transactions.  Excluding MediaAlpha, our investment portfolio returned 1.4% in the quarter.  We completed $87 million of share repurchases during the quarter and finished the third quarter with roughly $450 million of undeployed capital.”

Comprehensive (loss) income attributable to common shareholders was $(373) million and $(308) million in the third quarter and first nine months of 2021 compared to $237 million and $220 million in the third quarter and first nine months of 2020.  Results in the third quarter and first nine months of 2021 were driven primarily by $397 million and $326 million of net realized and unrealized investment losses from White Mountains’s investment in MediaAlpha.  Results in the third quarter and first nine months of 2020 were driven primarily by $305 million and $355 million of net investment income and unrealized investment gains from White Mountains’s investment in MediaAlpha.

MediaAlpha

White Mountains owns 16.9 million shares of MediaAlpha, representing a 28% basic ownership interest (26% on a fully-diluted/fully-converted basis).  At the September 30 closing price of $18.68, which was down from $42.10 at June 30, the value of White Mountains’s investment in MediaAlpha was $316 million, which was down from $713 million at June 30, 2021.  This accounted for a decrease of $131 in book value per share and $132 in adjusted book value per share in the quarter.  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 $5.60 per share increase or decrease in White Mountains’s book value per share and adjusted book value per share.  At the October 2021 month-end closing price of $17.53 per share, the fair value of White Mountains’s investment in MediaAlpha was $297 million.  Our focus remains on MediaAlpha’s intrinsic value, not on fluctuations in its share price.  We encourage you to read MediaAlpha’s third quarter earnings release and related shareholder letter scheduled for November 10, 2021, which will be available on MediaAlpha’s investor relations website at www.investors.mediaalpha.com.

HG Global/BAM

BAM’s gross written premiums and member surplus contributions (MSC) collected were $28 million and $84 million in the third quarter and first nine months of 2021 compared to $30 million and $93 million in the third quarter and first nine months of 2020.  BAM insured municipal bonds with par value of $4.0 billion and $12.6 billion in the third quarter and first nine months of 2021 compared to $4.7 billion and $11.8 billion in the third quarter and first nine months of 2020.  Total pricing was 69 and 66 basis points in the third quarter and first nine months of 2021 compared to 63 and 79 basis points in the third quarter and first nine months of 2020.  BAM’s total claims paying resources were $1,181 million at September 30, 2021 compared to $987 million at December 31, 2020 and $968 million at September 30, 2020.  In the first quarter of 2021, BAM completed a reinsurance agreement with Fidus Re that increased BAM’s claims paying resources by $150 million. 

Seán McCarthy, CEO of BAM, said, “BAM had a good third quarter, driven by strong institutional investor demand for insurance on new issues.  Market-wide insured penetration remained above 8% for the third consecutive quarter, and we continued to see insurance utilized on larger and higher-rated transactions.  Pricing improved, driven in part by interest rate volatility.  In September, BAM surpassed $100 billion par insured since inception.”

The COVID-19 pandemic is negatively impacting the finances of municipalities to varying degrees, and, over time, financial stress could emerge.  To date, BAM’s portfolio continues to perform as expected.  All BAM-insured bond payments due through November 1, 2021 have been made by insureds, and there are no credits on BAM’s watchlist.  BAM continues to monitor the finances of its members and to work proactively with its members to prepare for any pandemic-related revenue challenges.

HG Global reported pre-tax income of $7 million and $16 million in the third quarter and first nine months of 2021 compared to pre-tax income of $10 million and $42 million in the third quarter and first nine months of 2020.  The decrease in HG Global’s results for the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020, were driven primarily by lower investment returns on the HG Global investment portfolio. 

White Mountains reported pre-tax loss related to BAM of $15 million and $47 million in the third quarter and first nine months of 2021 compared to pre-tax loss related to BAM of $11 million and $31 million in the third quarter and first nine months of 2020.  The decrease in BAM’s results for the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020, was driven primarily by lower investment returns on the BAM investment 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

Ark’s GAAP combined ratio was 92% and 95% in the third quarter and first nine months of 2021.  Ark’s adjusted combined ratio, which adds back amounts ceded to third-party capital providers, was 89% and 93% in the third quarter and first nine months of 2021.  The adjusted combined ratio in the third quarter and first nine months of 2021 included 21 points and 16 points of catastrophe losses and six points and five points of net favorable prior year reserve development. 

Ark reported gross written premiums of $162 million, net written premiums of $121 million and net earned premiums of $213 million in the third quarter of 2021.  Ark reported gross written premiums of $895 million, net written premiums of $726 million and net earned premiums of $436 million in the first nine months of 2021.  Ark reported pre-tax income (loss) of $11 million and $(4) million in the third quarter and first nine months of 2021.  Ark’s pre-tax loss for the first nine months of 2021 included $25 million of transaction expenses related to White Mountains’s transaction with Ark.

Ian Beaton, CEO of Ark, said, “Ark had a good third quarter notwithstanding global catastrophe activity.  The adjusted combined ratio was 89% in the quarter.  This included $50 million of cat losses, principally from the European floods and Hurricane Ida, and $15 million of favorable prior year development, principally in property lines.  Gross written premiums were $162 million in the quarter, up 79% from 2020 levels, with risk adjusted rate change up 7%.  Market conditions remain attractive.  We raised a total of $163 million in new subordinated debt during the quarter, completing our capital raise.”

NSM

NSM reported pre-tax loss of $2 million, adjusted EBITDA of $19 million, and commission and other revenues of $82 million in the third quarter of 2021 compared to pre-tax loss of $1 million, adjusted EBITDA of $15 million, and commission and other revenues of $71 million in the third quarter of 2020. 

NSM reported pre-tax loss of $34 million, adjusted EBITDA of $53 million, and commission and other revenues of $241 million in the first nine months of 2021 compared to pre-tax loss of $6 million, adjusted EBITDA of $44 million, and commission and other revenues of $212 million in the first nine months of 2020.  On April 12, 2021, NSM sold its Fresh Insurance motor business, which resulted in a loss of $29 million recorded in the first quarter of 2021.  Results in the third quarter and first nine months of 2021 include the results of J.C. Taylor, an MGA offering classic and antique collector car insurance, from August 6, 2021, the date of its acquisition.  Results in the third quarter and first nine months of 2021 and 2020 include the results of Kingsbridge Group Limited, a leading provider of commercial lines insurance and consulting services to the contingent workforce in the United Kingdom, from April 7, 2020, the date of its acquisition.

Geof McKernan, CEO of NSM, said, “NSM had a good third quarter. Trailing 12 months pro forma controlled premiums increased to a record $1,186 million, reflecting 4% quarter over quarter growth in our existing verticals and the J.C. Taylor acquisition.  Pro forma adjusted EBITDA increased to a record $75 million, reflecting 5% quarter over quarter growth in our existing verticals and the J.C. Taylor acquisition.  Growth in the quarter was led by the Pet, Social Services and Other U.S. verticals.  We also enjoyed improved results in the U.K. vertical following the broader reopening of the U.K. economy.”

Kudu

Kudu reported pre-tax income of $23 million, adjusted EBITDA of $7 million and total revenues of $29 million in the third quarter of 2021 compared to pre-tax income of $13 million, adjusted EBITDA of $5 million and total revenues of $16 million in the third quarter of 2020.  Pre-tax income and total revenues in the third quarter of 2021 included $19 million of unrealized gains on Kudu’s participation contracts compared to $10 million of unrealized gains on Kudu’s participation contracts in the third quarter of 2020. 

Kudu reported pre-tax income of $70 million, adjusted EBITDA of $19 million and total revenues of $89 million in the first nine months of 2021 compared to pre-tax loss of $9 million, adjusted EBITDA of $14 million and total revenues of $21 million in the first nine months of 2020.  Pre-tax income and total revenues in the first nine months of 2021 included $63 million of unrealized gains on Kudu’s participation contracts compared to $2 million of unrealized gains on Kudu’s participation contracts in the first nine months of 2020. 

As of September 30, 2021, Kudu had deployed $529 million in 15 asset and wealth management firms globally, which have combined assets under management of approximately $60 billion, spanning a range of asset classes. Kudu’s capital was deployed at an average gross cash yield at inception of 10.0%.

Rob Jakacki, CEO of Kudu, said, “Kudu had a strong third quarter.  Quarter over quarter, trailing 12 months revenues from participation contracts increased 9% to $36 million, while adjusted EBITDA increased 12% to $27 million.  Annualized adjusted EBITDA finished the quarter at $41 million, reflecting the full impact of new transactions.  We were pleased to close two transactions in the third quarter: Third Eye Capital, a leading Canadian private credit manager, and Douglass Winthrop Advisors, a New York-based registered investment advisor catering to ultra-high net worth clients and families.  We are evaluating a large number of opportunities in the US and abroad and we remain optimistic about deploying capital this year and into 2022.”

Other Operations

White Mountains’s Other Operations segment reported pre-tax (loss) income of $(387) million and $(340) million in the third quarter and first nine months of 2021 compared to $311 million and $274 million in the third quarter and first nine months of 2020.  The Other Operations segment results in the third quarter and first nine months of 2021 and 2020 were driven primarily by net realized and unrealized investment gains (losses) from White Mountains’s investment in MediaAlpha.  Net realized and unrealized investment losses from White Mountains’s investment in MediaAlpha were $397 million and $326 million in the third quarter and first nine months of 2021 compared to net unrealized investment gains from White Mountains’s investment in MediaAlpha of $250 million and $295 million in the third quarter and first nine months of 2020. 

Excluding MediaAlpha, net realized and unrealized investment gains were $15 million and $34 million in the third quarter and first nine months of 2021 compared to net realized and unrealized investment gains (losses) of $44 million and $(17) million in the third quarter and first nine months of 2020.  Net investment income was $5 million and $16 million in the third quarter and first nine months of 2021 compared to $60 million and $79 million in the third quarter and first nine months of 2020.  Net investment income in 2020 was driven primarily by $55 million of net proceeds received from a dividend recapitalization at MediaAlpha.

White Mountains’s Other Operations segment reported general and administrative expenses of $15 million and $80 million in the third quarter and first nine months of 2021 compared to $44 million and $87 million in the third quarter and first nine months of 2020.  The decrease in general and administrative expenses in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 was driven primarily by lower incentive compensation costs.

Share Repurchases

In the third quarter of 2021, White Mountains repurchased and retired 79,294 of its common shares for $87 million at an average share price of $1,098.82, or 93% of White Mountains’s September 30, 2021 adjusted book value per share.  In the first nine months of 2021, White Mountains repurchased and retired 86,512 of its common shares for $95 million at an average share price of $1,093.87, or 93% of White Mountains’s September 30, 2021 adjusted book value per share. 

In the first nine months of 2020, White Mountains repurchased and retired 99,087 of its common shares for $85 million at an average share price of $858.81, or 78% of White Mountains’s September 30, 2020 adjusted book value per share.  White Mountains did not repurchase any of its common shares in the third quarter of 2020. 

Investments

The total consolidated portfolio return was -8.0% in the third quarter of 2021.  Excluding MediaAlpha, the total consolidated portfolio return was 1.4% in the third quarter of 2021. The total consolidated portfolio return was 13.5% in the third quarter of 2020.  Excluding MediaAlpha, the total consolidated portfolio return was 2.8% in the third quarter of 2020.

The total consolidated portfolio return was -3.7% in the first nine months of 2021.  Excluding MediaAlpha, the total consolidated portfolio return was 4.6% in the first nine months of 2021. The total consolidated portfolio return was 15.4% in the first nine months of 2020.  Excluding MediaAlpha, the total consolidated portfolio return  was 2.8% in the first nine months of 2020.

Mark Plourde, Managing Director of White Mountains Advisors, said, “Excluding MediaAlpha, the total portfolio was up 1.4% in the quarter, a good result.  Excluding MediaAlpha, the equity portfolio returned 3.7%, well ahead of the S&P 500 Index return of 0.6%.  The fixed income portfolio was flat, in-line with the longer duration BBIA Index return.”

Additional Information

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.