White Mountains Insurance Group, Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. The company reports through HG Global/BAM, Ark, Kudu and Other Operations. NSM was classified as discontinued operations following its announced sale.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Total revenue | $76.7 | $342.4 | $337.1 | $445.8 |
| Pre-tax income (loss), continuing operations | $(232.6) | $161.4 | $(247.4) | $56.0 |
| Net income (loss) attributable to common shareholders | $(169.2) | $138.5 | $(135.8) | $63.2 |
| GAAP book value per share | $1,129 at June 30 | Down 4% in H1, including dividends | ||
| Adjusted book value per share (non-GAAP) | $1,152 at June 30 | Down 3% in H1, including dividends |
- Investment losses drove much of the reported weakness: H1 net realized and unrealized investment losses were $207.2, including a $94.7 loss on MediaAlpha. Fixed-income marks also declined as interest rates rose. Total portfolio return was negative 4.0% for H1, or negative 1.9% excluding MediaAlpha.
- Ark earned premiums of $217.3 in Q2 and $411.7 in H1, versus $117.8 and $222.4 in the comparable 2021 periods. Its GAAP combined ratio was 87% in Q2 and 93% in H1; the H1 2021 ratio was 99%.
- Operating cash flow was $3.2 for continuing operations and $39.9 including NSM discontinued operations in H1. Cash from investing activities was $33.2 and financing activities provided $189.5.
- At June 30, total assets were $7.66 billion and total equity was $3.49 billion. Continuing-operations debt was $618.1; including $261.7 of debt classified with NSM held for sale, total debt was $879.8. Total debt to adjusted capital was 19.3%, compared with 15.2% at year-end 2021.
- Management reported $349 of net unrestricted cash, short-term investments and fixed maturities at the parent and intermediate holding-company level. It said cash, operating cash flows and routine investment sales and maturities should meet expected requirements for the foreseeable future.
Material changes versus comparable periods
- Common-shareholder results swung from profit to loss, principally reflecting market-value declines in fixed-income holdings and MediaAlpha. MediaAlpha’s fair value fell to $166.9 at June 30 from $261.6 at December 31, 2021.
- Ark’s premium growth reflected favorable market conditions and expansion, while investment losses weighed on segment earnings. Its adjusted combined ratio was 86% in Q2 and 93% in H1, compared with 84% and 96% in 2021.
- White Mountains repurchased 90,535 shares for $101.6 in H1, versus 7,161 shares for $7.4 in H1 2021, and paid a $3.0 common dividend.
- HG Global issued $150 of floating-rate senior notes in April. Kudu raised $114.5 of equity in May, reducing White Mountains’ basic ownership from 99.1% to 89.3%.
Outlook, commentary and risks
- NSM sale: The sale to Carlyle-affiliated funds closed August 1, 2022, after quarter-end. White Mountains received approximately $1.4 billion in net cash proceeds and expected to recognize an approximately $870 million transaction gain in Q3, subject to final closing adjustments. Management estimated the gain would add about $300 per share; including it, June 30 book value and adjusted book value were estimated at $1,429 and $1,452 per share, respectively.
- No formal earnings or revenue guidance is provided in the supplied filing text. Management cited favorable market conditions and premium growth at Ark and continued BAM bond-insurance activity, but results remain exposed to market movements and underwriting losses.
- Ark’s H1 adjusted combined ratio included nine points of estimated losses related to the conflict in Ukraine, as well as five points of natural-catastrophe losses; favorable prior-year reserve development partly offset these impacts. Ark also identifies catastrophe, cyber, energy, terrorism and political-risk exposures.
- Other key risks include investment-value volatility, particularly MediaAlpha and fixed-income holdings; reserve estimates and reinsurance recoverability; inflation and economic conditions; ratings actions; and access to financing. The company reported compliance in all material respects with debt covenants and no material change to previously disclosed risk factors.
- Ark’s modeled 1-in-250-year U.S. windstorm and earthquake events were estimated to affect 31% and 23% of total tangible capital, respectively, on a net after-tax basis using July 2022 estimates.
Important facts for investors to verify
- Final NSM sale proceeds, closing adjustments and the transaction gain actually recognized in Q3.
- Underlying investment performance excluding market-value marks, particularly MediaAlpha and fixed-income holdings.
- Ark’s reserve development, catastrophe and Ukraine-loss estimates, combined ratio, and reinsurance recoverables and counterparty exposure.
- Liquidity and debt service after the NSM divestiture, including floating-rate borrowing costs and covenant headroom.
- How non-GAAP measures, including adjusted book value per share and adjusted combined ratio, reconcile to GAAP results.