White Mountains Insurance Group, Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. White Mountains is a Bermuda-based insurance holding company with five reportable segments: HG Global/BAM, Ark, NSM, Kudu and Other Operations. Amounts below are in U.S. dollars; financial-statement amounts are generally in millions.
Financial results and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Total revenues | $348.9 | $178.2 in Q1 2021 |
| Pre-tax continuing-operations loss | $(12.2) | $(138.7) in Q1 2021 |
| Net income (loss) attributable to White Mountains common shareholders | $33.4; diluted EPS $11.10 | $(75.3); diluted EPS $(24.30) in Q1 2021 |
| Operating cash flow | $(41.5) | $(92.8) in Q1 2021 |
| Total assets / total equity | $7,356.7 / $3,669.3 | $7,000.7 / $3,704.7 at December 31, 2021 |
| Common shareholders’ equity / book value per share | $3,542.1 / $1,183 | $3,548.1 / $1,176 at December 31, 2021 |
| Adjusted book value per share | $1,204 | $1,190 at December 31, 2021 |
| Total debt | $690.9 | $693.0 at December 31, 2021 |
White Mountains’ common-shareholder earnings differ from consolidated net loss: the quarter’s $8.4 million consolidated net loss included $41.8 million of net losses attributable to non-controlling interests. Total consolidated portfolio return was 0.8%, including $18.8 million of MediaAlpha gains; excluding MediaAlpha, return was 0.3%. Fixed-income investments returned negative 3.2%, primarily reflecting rising interest rates.
At March 31, holding-company and intermediate holding-company liquidity included $352 million of net unrestricted cash, short-term investments and fixed maturities, plus $280 million of MediaAlpha shares and $223 million of private-equity and insurance-linked securities funds. These asset balances are not all equivalent to immediately available cash. Management stated that cash, operating cash flows and routine investment sales and maturities were adequate for foreseeable requirements. Total debt to adjusted capital was 15.2%; the company reported material compliance with debt covenants.
Material changes and segment performance
- Ark: Gross written premiums rose 57% to $633 million; net earned premiums increased to $194 million from $105 million. GAAP combined ratio improved to 100% from 109% (adjusted ratio: 101% versus 108%). Ark recorded a $23 million pre-tax loss, including $18 million of net unrealized investment losses. Q1 2022 catastrophe losses included an estimated 11 points from the Ukraine conflict. Favorable prior-year reserve development was $3.7 million.
- NSM: Commission and other revenues increased to $88.5 million from $74.8 million; pre-tax income was $2.6 million versus a $33.3 million loss. Adjusted EBITDA rose to $18.1 million from $14.4 million. The prior-year loss included a $28.7 million charge on the Fresh Insurance motor business sale; Q1 2022 results included J.C. Taylor, acquired in August 2021.
- Kudu: Pre-tax income rose to $29.3 million from $15.7 million, including $22.3 million of realized and unrealized investment gains. Adjusted EBITDA was $10.0 million versus $5.9 million.
- Other Operations: Pre-tax income was $29.6 million versus a $63.6 million loss. MediaAlpha contributed $18.8 million of gains versus a $41.7 million loss in Q1 2021; other investment gains also increased. Other revenue and cost of sales rose following a 2021 acquisition.
- HG Global/BAM: The segment reported a $50.6 million pre-tax loss versus $25.0 million, primarily because rising rates caused unrealized losses on fixed-income portfolios. Gross written premiums plus member surplus contributions were $21.7 million versus $26.3 million; total pricing declined to 63 basis points from 74.
Overall revenue and earnings comparisons were affected substantially by investment-market movements. Q1 2021 also included the $28.7 million NSM disposal charge and an $18.7 million after-tax gain from reversing a Sirius Group tax-indemnity liability; neither item recurred in Q1 2022.
Outlook, risks and unusual items
- No specific consolidated earnings guidance was provided. Management expects Ark’s net after-tax U.S. windstorm exposure, currently estimated at 32% of tangible capital on a 1-in-250-year basis, to be roughly 25%–30% after completing its planned 2022 reinsurance placement and as capital grows. The filing notes the estimate does not reflect the full planned reinsurance placement.
- Ark’s Ukraine-related loss estimate may increase as the conflict continues. Other material insurance exposures include natural catastrophes, cyber, offshore energy, terrorism and political risk; reserve estimates and reinsurance recoveries are subject to uncertainty.
- Interest-rate increases reduced fixed-income portfolio values and contributed to losses at Ark and HG Global/BAM. MediaAlpha’s market price is also a material source of book-value volatility: the filing estimates each $1 share-price movement changes White Mountains’ book value per share by about $5.65.
- On April 29, 2022, HG Global received a new $150 million, 10-year term loan; on May 2, it paid a $120 million dividend, including $116 million to White Mountains. The dividend is subsequent to quarter-end.
- White Mountains repurchased 37,435 shares for approximately $39 million during Q1 and paid a $1.00-per-share dividend. It reported no material non-claims litigation, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- How much of reported earnings and book-value movement reflects recurring operating performance versus fair-value changes in fixed income, MediaAlpha and private investments.
- Ark’s Ukraine loss development, reserve adequacy, catastrophe aggregation and completion and cost of its 2022 reinsurance program.
- Liquidity available at the holding company versus restricted, pledged or subsidiary-level assets, including the effect of the HG Global loan and dividend.
- Debt terms, floating-rate exposure, covenant headroom and subsidiary restrictions on dividends or capital distributions.
- Whether growth and margin trends at Ark and NSM, and Kudu’s investment income, persist beyond acquisition effects and unrealized gains.