White Mountains Insurance Group, Ltd. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. White Mountains is a Bermuda-based insurance and financial-services holding company with businesses in municipal bond insurance, P&C insurance and reinsurance, specialty insurance distribution, asset-management capital solutions, and other investments. Ark was consolidated from January 1, 2021, so reported results are not fully comparable with 2020.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $944.8 million | $1,180.7 million |
| Pre-tax income (loss) | $(302.0) million | $645.2 million |
| Net income (loss) attributable to common shareholders | $(275.4) million | $708.7 million |
| Comprehensive income (loss) attributable to common shareholders | $(273.3) million | $715.5 million |
| Operating cash flow | $38.6 million | $(60.6) million |
| Debt outstanding | $693.0 million | $376.4 million |
Consolidated assets were $7.00 billion, liabilities $3.30 billion, and total equity $3.70 billion at year-end. Common shareholders’ equity was $3.55 billion. Book value per share was $1,175.73 and adjusted book value per share was $1,190.39, down 6.5% and 5.7%, respectively, including dividends. Excluding MediaAlpha investment losses, adjusted book value per share increased 4.3%.
The reported loss was dominated by a $380.3 million realized and unrealized loss on MediaAlpha, whose share price fell from $39.07 to $15.44. White Mountains’ total consolidated portfolio return was -3.4%; excluding MediaAlpha, it was 6.4%. The comparable 2020 portfolio returns were 31.9% and 4.6%, respectively. Fixed-income investments returned -0.4% in 2021; the portfolio’s duration, including short-term investments, was 2.6 years.
Year-end cash was $259.3 million, including $93.7 million of restricted cash. The Company and intermediate holding companies had $453.5 million of net unrestricted cash, short-term investments, and fixed-maturity investments, alongside $261.6 million of MediaAlpha shares and $170.5 million of private-equity and ILS funds. Management said cash, operating cash flows, and routine investment sales and maturities should meet expected requirements for the foreseeable future. Total debt to adjusted capital rose to 15.2% from 8.7%; the company reported material covenant compliance.
Segment performance and material changes
- Ark: Acquired control on January 1, 2021. Gross written premiums were $1.06 billion, up 77% from 2020; net earned premiums were $637.3 million and pre-tax income was $52.9 million, including $25.3 million of transaction costs. The GAAP combined ratio was 87.4% (adjusted for pre-acquisition third-party capital arrangements: 84.9%), including 10 catastrophe-loss points and favorable prior-year reserve development. January 2022 renewals exceeded $500 million of gross written premiums.
- NSM: Commission and other revenue increased to $330.4 million from $285.1 million. Pre-tax loss widened to $28.1 million from $12.6 million, while adjusted EBITDA increased to $70.9 million from $58.9 million. The 2021 loss included $28.7 million related to the sale of Fresh Insurance’s motor business; NSM also acquired J.C. Taylor.
- Kudu: Revenue rose to $134.0 million from $45.7 million, and pre-tax income to $107.5 million from $27.6 million. Results included $89.9 million of realized and unrealized gains on participation contracts. Adjusted EBITDA increased to $32.8 million from $22.1 million. Kudu deployed $225 million during 2021.
- HG Global/BAM: Segment pre-tax loss was $42.4 million, versus income of $4.7 million in 2020. Lower investment returns and lower BAM Surplus Note interest income contributed. Gross written premiums and member surplus contributions totaled $118.0 million, down from $131.3 million; insured bond par was $17.5 billion and total pricing fell to 67 basis points from 76. BAM’s claims-paying resources rose to $1.19 billion from $987 million, including the addition of $150 million of Fidus Re protection.
- Other Operations: Pre-tax loss was $391.9 million versus income of $625.5 million, largely reflecting the MediaAlpha valuation reversal. White Mountains sold 3.6 million MediaAlpha shares for $160 million net proceeds in a March 2021 secondary offering and held 16.9 million shares at year-end.
Outlook, risks, and unusual items
The filing does not provide a consolidated earnings or revenue forecast. Management described approximately $400 million of undeployed capital at year-end. Ark expected its U.S. windstorm net after-tax exposure, after completing its planned 2022 reinsurance placement, to be about 25% of tangible capital; the disclosed January 2022 estimate before full placement was 32%. Ark’s catastrophe models are estimates and actual losses may differ materially.
Key risks include catastrophe and climate-related losses, reserve-estimation uncertainty, reinsurance collectability and adequacy, investment-market and interest-rate volatility, MediaAlpha’s publicly traded share-price volatility, and subjective valuations of illiquid Level 3 investments. NSM depends on a concentrated group of insurance carriers: its top five represented about 65% of premiums placed and its largest about 25%. Goodwill and intangible assets totaled $1.07 billion; no goodwill impairment was recorded in 2021, but the Fresh Insurance motor-business sale generated a $28.7 million loss. Ark loss reserves were $894.7 million gross and $465.8 million net of reinsurance; management cautioned that ultimate losses may differ materially from estimates.
Other notable items: the company recorded an $18.7 million discontinued-operations gain after a favorable Swedish tax ruling relating to the prior Sirius Group sale. BAM’s $365 million of surplus notes and $158 million accrued interest depend on NYDFS approval for payments; BAM paid $34 million of principal and interest in 2021. The company paid $3.1 million of common dividends and repurchased 98,511 shares for approximately $107.5 million. PwC issued unqualified opinions on the financial statements and internal control, while noting critical audit matters involving NSM goodwill, selected Level 3 valuations, Ark acquisition accounting, and Ark reserves. Internal-control testing excluded certain 2021 acquisitions representing 39% of year-end assets.
Important investor verification points
- Separate operating-business performance from MediaAlpha’s $380.3 million investment loss and confirm how adjusted book value and portfolio-return measures are defined.
- Review Ark’s reserve development, gross-to-net reinsurance recoverables, catastrophe protection, and the completion and cost of its 2022 reinsurance program.
- Assess valuation assumptions and sensitivity for Kudu participation contracts and other Level 3 assets; $890.6 million of investments were classified Level 3.
- Check BAM surplus-note repayment assumptions and regulatory approvals, as well as the sustainability of BAM’s rating and claims-paying resources.
- Evaluate debt growth, maturities, interest costs, and subsidiary-level restrictions on dividends and capital distributions.
- Monitor NSM carrier concentration, the Fresh Insurance disposition, and the performance of recently acquired businesses.