White Mountains Insurance Group, Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Amounts are in U.S. dollars unless noted.
Business context
White Mountains operates through Ark/WM Outrigger (property and casualty insurance and reinsurance), HG Global/BAM (municipal bond insurance), Kudu (asset management investments), Bamboo (insurance distribution), and Other Operations. The results include Bamboo from its January 2, 2024 acquisition: White Mountains invested $296.7 million and owned 72.8% of basic units at closing.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $647.3 million | $531.9 million |
| Pre-tax income | $232.6 million | $199.1 million |
| Net income | $221.8 million | $187.2 million |
| Net income attributable to common shareholders | $236.4 million; $92.33 per share | $179.5 million; $69.83 per share |
| Cash from operations | $36.5 million | $85.6 million |
| Total assets / total equity | $9.59 billion / $4.89 billion | At Dec. 31, 2023: $8.39 billion / $4.56 billion |
| Debt | $532.1 million | $564.6 million at Dec. 31, 2023 |
| Debt / adjusted capital | 9.4% | 10.5% at Dec. 31, 2023 |
| Book value per share / adjusted book value per share | $1,742 / $1,797 | Up 5% / 6% in Q1, including dividends |
Reported common-shareholder income exceeded consolidated net income because of losses attributed to noncontrolling interests. Total revenue growth included a $210.7 million unrealized gain on MediaAlpha; without MediaAlpha, consolidated portfolio return was 1.2%, versus 3.0% in Q1 2023. Total portfolio return was 4.6%, compared with 4.5%.
- Ark/WM Outrigger: Segment pre-tax income was $42.9 million versus $42.1 million. Combined ratio was 91% versus 92%; net earned premiums were $302.8 million versus $255.1 million. Ark recorded $15 million of net losses from the Francis Scott Key Bridge collapse and $16 million from a satellite loss; prior-year reserve development was slightly favorable.
- HG Global/BAM: Segment pre-tax loss was $15.1 million versus income of $8.2 million, reflecting investment losses as interest rates rose. BAM’s claims-paying resources were $1.508 billion.
- Kudu: Pre-tax income was $1.7 million versus $35.3 million, mainly reflecting investment losses rather than gains. Adjusted EBITDA was $13.9 million versus $10.9 million.
- Bamboo: Q1 segment revenue was $31.1 million and pre-tax income was $0.9 million. Managed premiums were $89.5 million versus $28.2 million in Q1 2023, before White Mountains’ ownership.
Consolidated cash at quarter-end was $225.3 million, including $83.0 million of restricted cash. At the holding-company and intermediate-holding-company level, White Mountains reported $427 million of net unrestricted cash, short-term investments and fixed maturities. Management reported approximately $600 million of undeployed capital. Cash from investing activities was $100.6 million, including $231.8 million of net cash used to acquire consolidated subsidiaries; financing activities used $34.2 million.
Material changes, outlook and risks
- The Bamboo acquisition added a new reportable segment and $270.4 million of goodwill plus $101.0 million of other intangible assets; purchase accounting values remained provisional at March 31.
- MediaAlpha’s share price increased from $11.15 at December 31, 2023 to $20.37 at March 28, 2024. The investment was valued at $465.6 million; management estimates each $1 share-price change affects book value per share by approximately $9.
- Ark repaid its $30 million 2007 subordinated notes. Kudu’s revolving-credit availability expired March 31; Kudu was discussing renewal with its lender. The company said it was in material compliance with debt covenants.
- Management gave no specific earnings or revenue guidance. It believes cash, operating cash flows, and routine investment sales and maturities are adequate for expected needs for the foreseeable future. White Mountains expects additional return of capital and profits from WM Outrigger’s 2023 underwriting year to begin in Q3 2024.
- In April 2024, White Mountains committed up to $30 million to a reinsurance vehicle participating in Bamboo’s 2024 quota-share program. The company also cited a volatile MediaAlpha valuation, catastrophe and reserve-development risk, reinsurance counterparty and capacity risk, market and interest-rate risk, and availability and cost of financing. It expects to qualify for deferral of Bermuda corporate income tax until 2030.
- The filing reports no material change to previously disclosed risk factors and no current non-claims litigation expected to materially affect financial condition, results or cash flows.
Important facts for investors to verify
- How much of earnings and book-value growth depends on MediaAlpha’s market price, and how that exposure changes over time.
- Bamboo’s post-acquisition premium growth, profitability, purchase-accounting estimates, and the economics of the additional reinsurance commitment.
- Ark loss-reserve adequacy and the development of the bridge-collapse and satellite claims, along with reinsurance recoverability and collateral restrictions.
- Whether Kudu renews its credit facility and the liquidity available at the holding-company level versus funds restricted or held in operating subsidiaries.
- The sustainability of operating cash flow, which declined year over year, and the timing and amount of expected WM Outrigger capital returns.