White Mountains Insurance Group, Ltd. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company is an acquisition-oriented Bermuda-based holding company with businesses in municipal bond insurance, P&C insurance and reinsurance, asset-management capital solutions, and other investments. Figures below are generally in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $2,166.7 | $1,157.9 |
| Pre-tax income (loss), continuing operations | $565.4 | $(149.4) |
| Net income (loss) attributable to common shareholders | $509.2 | $792.8 |
| Comprehensive income attributable to common shareholders | $511.1 | $787.6 |
| Net cash from operating activities, continuing operations | $404.1 | $326.3 |
| Total assets at year-end | $8,385.9 | $7,389.3 |
| Common shareholders’ equity at year-end | $4,240.5 | $3,746.9 |
| Book value per share | $1,656 | $1,457 |
| Adjusted book value per share (non-GAAP) | $1,704 | $1,495 |
| Total debt, carrying value | $564.6 | $575.2 |
| Debt / total adjusted capital (non-GAAP) | 10.5% | 12.1% |
Book value and adjusted book value per share each increased 14% during 2023, including dividends. The company paid a $1.00 per-share dividend and repurchased 24,165 shares for $32.7 million. It reported $404 million of operating cash flow from continuing operations; investing activities used $543.9 million and financing activities provided $7.2 million. The filing does not provide a free-cash-flow measure.
At the holding-company and intermediate-holding-company level, White Mountains reported $673 million of unrestricted cash, short-term investments and fixed-maturity investments at year-end, plus $255 million of MediaAlpha shares and other investment assets. Management said cash balances, operating cash flows and routine investment sales and maturities should meet expected requirements for the foreseeable future. Subsidiary funds are subject to regulatory, collateral and other distribution constraints.
Segments and operating metrics
- Ark/WM Outrigger: Segment pre-tax income was $317.5 million, versus $95.1 million in 2022. Segment gross written premiums were $1.898 billion, net written premiums $1.521 billion and net earned premiums $1.410 billion. The combined ratio was 79.6% (below 100% indicates underwriting profit); Ark alone reported 82.4%, versus 81.8% in 2022. Ark’s $249 million pre-tax income included $86 million of investment gains and a $51 million deferred tax benefit. WM Outrigger Re reported $68.9 million pre-tax income and a 44.2% combined ratio.
- HG Global/BAM: Segment pre-tax loss was $2.1 million, compared with a $135.0 million loss in 2022. BAM insured $15.6 billion of municipal bonds, and segment gross written premiums plus member surplus contributions collected were $131.4 million, down from $146.5 million. Total pricing declined to 84 basis points from 91. BAM’s claims-paying resources rose to $1.501 billion from $1.423 billion; its S&P rating remained AA/stable.
- Kudu: Pre-tax income rose to $136.5 million from $88.8 million; revenue was $177.1 million and adjusted EBITDA (non-GAAP) $56.5 million. Results included $106.1 million of realized and unrealized investment gains. Kudu had deployed $884 million across 25 asset- and wealth-management firms.
- Other Operations: Pre-tax income was $113.0 million, versus a $198.3 million loss. Results included $188.5 million of investment gains and $27.1 million of gains on MediaAlpha, compared with a $93.0 million MediaAlpha loss in 2022.
Material changes versus 2022
- Revenue increased 87%, and continuing-operations pre-tax results moved from a loss to a profit. The improvement reflected stronger operating and investment results; 2022 had been affected by rising-rate investment losses.
- Common-shareholder net income declined from $792.8 million to $509.2 million despite the improvement in continuing operations. The comparison is distorted by the 2022 NSM sale, which generated an $886.8 million after-tax gain; the sale produced $1.4 billion in net cash proceeds.
- Ark premiums expanded substantially, while catastrophe losses were lower: Ark’s 2023 combined ratio included two catastrophe-loss points versus 13 points in 2022. However, Ark recorded two points of unfavorable prior-year reserve development in 2023, compared with six favorable points in 2022.
- The consolidated investment portfolio returned 11.4% in 2023, versus negative 1.6% in 2022. The fixed-income portfolio returned 5.8%, compared with negative 4.8%; MediaAlpha contributed $27 million of unrealized gains versus $93 million of unrealized losses.
- Total investments increased to $6.389 billion from $5.170 billion. Short-term investments increased to $1.488 billion from $924 million; other long-term investments increased to $1.998 billion from $1.488 billion.
Outlook, notable items and risks
- Outlook: Ark reported more than $700 million of gross written premiums in the 2024 renewal period to date, with risk-adjusted rate change of 3%. Management expects to deploy up to $500 million of equity over time through newly launched White Mountains Partners. No consolidated earnings or revenue guidance is provided.
- Post-year-end acquisition: On January 2, 2024, White Mountains closed its acquisition of a controlling interest in Bamboo, investing approximately $297 million. Bamboo is a California-focused homeowners’ insurance distribution/MGA business and is expected to be a reportable segment after 2023; it is not included in 2023 results.
- Tax item: Bermuda enacted a 15% corporate income tax generally effective in 2025. White Mountains expects to qualify for deferral until 2030. A related economic transition adjustment generated a $68 million deferred tax benefit in 2023, increasing book value per share by approximately $14, net of specified effects.
- Reserves and catastrophe exposure: Ark’s gross loss and LAE reserves were $1.605 billion. Its recorded net reserves of approximately $1.249 billion were within a disclosed actuarial range of approximately $1.001 billion to $1.352 billion. Management emphasizes that estimates are judgmental; inflation, long-tail claims, new-business experience and catastrophe losses could cause material adverse development. Ark estimated that a 10% error in initial loss-ratio assumptions for new Bermuda business could produce about $87 million of reserve variance.
- Investment and market risks: $1.138 billion of investments were Level 3 fair-value assets relying on significant unobservable inputs; an additional $834 million of other long-term investments used fund NAV. MediaAlpha’s share-price movements materially affect reported value—management estimated each $1 change in its share price changes White Mountains’ book value per share by about $9.
- Other exposures: Reinsurance may be unavailable, insufficient or uncollectible. BAM surplus-note repayments require NYDFS approval; $322 million principal and $175 million accrued interest were outstanding at year-end. The company also cites competition, regulatory and tax changes, cyber risk, foreign exchange and liquidity restrictions on certain investments. No material non-claims litigation was disclosed; Item 3 reported no legal proceedings.
Investor verification priorities
- Separate recurring 2023 operating earnings from investment marks, the $68 million tax benefit and the prior-year NSM disposal gain when assessing earnings comparability.
- Track Ark reserve development, especially property/accident-and-health and long-tail casualty reserves, and compare actual claims with the disclosed reserve range and assumptions.
- Confirm that catastrophe exposure remains within capital and reinsurance tolerances, and assess the availability, cost and collectability of reinsurance.
- Review BAM’s rating, claims-paying resources and NYDFS approvals for surplus-note payments; test the assumptions underlying expected repayment timing.
- Assess sensitivity of reported book value to MediaAlpha and Level 3 valuations, including Kudu and PassportCard/DavidShield, and to changes in interest rates and credit spreads.
- Verify post-close Bamboo performance, capacity-provider and broker concentration, integration costs, and the impact of its addition to segment reporting.
- Monitor holding-company liquidity, regulated-subsidiary dividend capacity, debt maturities and floating-rate borrowing costs; total debt carrying value was $564.6 million and the company reported covenant compliance.