WHITE MOUNTAINS INSURANCE GROUP LTD (WTM) FY 2023 MD&A

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains “forward-looking statements.” White Mountains intends statements that are not historical in nature, which are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct. White Mountains’s actual results could be materially different from and worse than its expectations. See “FORWARD-LOOKING STATEMENTS” on page 95 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.

The following discussion also includes five non-GAAP financial measures: (i) adjusted book value per share, (ii) Kudu’s earnings before interest, taxes, depreciation and amortization (“EBITDA”), (iii) Kudu’s adjusted EBITDA, (iv) total consolidated portfolio returns excluding MediaAlpha and (v) adjusted capital, that have been reconciled from their most comparable GAAP financial measures on page 73. White Mountains believes these measures to be useful in evaluating White Mountains’s financial performance and condition.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Overview—Year Ended December 31, 2023 versus Year Ended December 31, 2022

White Mountains ended 2023 with book value per share of $1,656 and adjusted book value per share of $1,704. During 2023, book value per share and adjusted book value per share both increased 14%, including dividends. Comprehensive income (loss) attributable to common shareholders was $511 million in 2023 compared to $788 million in 2022.

Results in 2023 were driven primarily by good results from White Mountains’s operating businesses and strong returns in the investment portfolio. Results in 2022 were driven primarily by the net gain of $876 million from the NSM Transaction. Results in the year ended December 31, 2023 also included $27 million of unrealized investment gains (losses) from White Mountains’s investment in MediaAlpha compared to $(93) million in the year ended December 31, 2022.

As of December 31, 2023, White Mountains’s undeployed capital was approximately $0.5 billion reflecting the Bamboo Transaction and redeployment to WM Outrigger Re.

In the HG Global/BAM segment, gross written premiums and MSC collected totaled $131 million in 2023 compared to $147 million in 2022. Total pricing was 84 basis points in 2023 compared to 91 basis points in 2022. BAM insured municipal bonds with par value of $15.6 billion in 2023 compared to $16.0 billion in 2022. BAM’s total claims paying resources were $1,501 million as of December 31, 2023 compared to $1,423 million as of December 31, 2022. In December 2023, BAM made a $27 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. In December 2022, BAM made a $36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. In July 2023, Standard & Poor’s affirmed BAM’s “AA/stable” rating.

Ark’s combined ratio was 82% in both 2023 and 2022. The combined ratio in 2023 included two points of unfavorable prior year loss reserve development compared to six points of favorable prior year loss reserve development in 2022. The combined ratio for 2023 included two points of catastrophe losses, which included losses from Hurricane Idalia, the Maui wildfires, Hurricane Otis and various smaller events, compared to 13 points in 2022, driven primarily by losses from Hurricane Ian and the conflict in Ukraine. Ark reported gross written premiums of $1,898 million, net written premiums of $1,411 million and net earned premiums of $1,305 million in 2023 compared to gross written premiums of $1,452 million, net written premiums of $1,195 million and net earned premiums of $1,043 million in 2022. Ark reported pre-tax income of $249 million in 2023 compared to $95 million in 2022. In December 2023, AM Best affirmed Ark’s financial strength rating at “A/stable.” In the 2024 renewal period to date, Ark wrote gross written premiums in excess of $700 million, with risk adjusted rate change of 3%.

WM Outrigger Re’s combined ratio was 44% in 2023. WM Outrigger Re reported gross and net written premiums of $110 million, net earned premiums of $104 million and pre-tax income of $69 million in 2023. During the fourth quarter of 2023, White Mountains agreed to redeploy $130 million into Outrigger Re Ltd. for business written in the 2024 underwriting year.

Kudu reported total revenues of $177 million, pre-tax income of $137 million and adjusted EBITDA of $57 million in 2023 compared to total revenues of $119 million, pre-tax income of $89 million and adjusted EBITDA of $42 million in 2022. Total revenues and pre-tax income in 2023 included $71 million of net investment income and $106 million of net realized and unrealized investment gains compared to $54 million and $64 million in 2022.

Kudu deployed $172 million, including transaction costs, into seven asset management firms in 2023. As of December 31, 2023, Kudu had deployed $884 million into 25 asset and wealth management firms globally, including three that have been exited. As of December 31, 2023, the asset and wealth management firms have combined assets under management of approximately $104 billion, spanning a range of asset classes.

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During the second quarter of 2023, White Mountains completed a tender offer to purchase 5.9 million additional shares of MediaAlpha at a purchase price of $10.00 per share. As of December 31, 2023, White Mountains owned 22.9 million shares of MediaAlpha, representing a 34.9% basic ownership interest (33.1% on a fully-diluted/fully-converted basis). As of December 31, 2023, MediaAlpha’s closing price was $11.15 per share, which increased from $9.95 per share as of December 31, 2022. The carrying value of White Mountains’s investment in MediaAlpha was $255 million as of December 31, 2023, which increased from $169 million as of December 31, 2022. Based on White Mountains’s ownership as of December 31, 2023, each $1.00 per share increase or decrease in the stock price of MediaAlpha will result in an approximate $9.00 per share increase or decrease in White Mountains’s book value per share and adjusted book value per share.

White Mountains’s total consolidated portfolio return on invested assets, both including and excluding White Mountains’s investment in MediaAlpha, was 11.4% in 2023. The total consolidated portfolio return included $27 million of net unrealized investment gains from White Mountains’s investment in MediaAlpha in 2023. Excluding MediaAlpha, investment returns in 2023 were driven primarily by net investment income and net realized and unrealized investment gains from the other long-term investments and fixed income portfolios.

White Mountains’s total consolidated portfolio return on invested assets was -1.6% in 2022, which included $93 million of net unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by net investment income and net realized and unrealized gains from other long-term investments, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.

During 2023, White Mountains repurchased and retired 24,165 of its common shares for $33 million at an average share price of $1,354.88, or 82% of White Mountains’s book value per share and 80% of White Mountains’s adjusted book value per share as of December 31, 2023.

On December 27, 2023, Bermuda enacted a 15% corporate income tax that will generally become effective on January 1, 2025. White Mountains expects to meet the requirements to be exempt from the Bermuda corporate income tax and the Pillar Two worldwide minimum tax until January 1, 2030. The Bermuda legislation also provides for an economic transition adjustment that will reduce future years’ taxable income. Under GAAP, this economic transition adjustment was required to be recognized as a net deferred tax asset as of December 31, 2023. Accordingly, White Mountains’s net income for 2023 included a net deferred tax benefit of $68 million, of which $51 million was recorded at Ark and $17 million was recorded at HG Global. This tax benefit increased both book value per share and adjusted book value per share by approximately $14, net of noncontrolling interest and the impact on the fair value of Ark’s contingent consideration.

Overview—Year Ended December 31, 2022 versus Year Ended December 31, 2021

White Mountains ended 2022 with book value per share of $1,457 and adjusted book value per share of $1,495. During 2022, book value per share increased 24% and adjusted book value per share increased 26%, including dividends. Comprehensive income (loss) attributable to common shareholders was $788 million in 2022 compared to $(273) million in 2021.

Results in 2022 were driven primarily by the net gain from the NSM Transaction. On August 1, 2022, White Mountains closed the NSM Transaction. White Mountains received $1.4 billion in net cash proceeds at closing and recognized a net gain of $876 million in the third quarter of 2022, which was comprised of $887 million of net gain from sale of discontinued operations and $3 million of comprehensive income related to the recognition of foreign currency translation gains (losses) from the sale, partially offset by $14 million of compensation and other costs related to the transaction recorded in Other Operations. Results in 2021 were driven primarily by $380 million of net realized and unrealized investment losses from White Mountains’s investment in MediaAlpha.

During 2022, White Mountains repurchased and retired 461,256 of its common shares for $616 million at an average share price of $1,335.11, or 92% of White Mountains’s book value per share and 89% of White Mountains’s adjusted book value per share as of December 31, 2022. As of December 31, 2022, White Mountains’s undeployed capital was approximately $0.9 billion.

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In the HG Global/BAM segment, gross written premiums and MSC collected totaled $147 million in 2022 compared to $118 million in 2021. Total pricing was 91 basis points in 2022 compared to 67 basis points in 2021. BAM insured municipal bonds with par value of $16.0 billion in 2022 compared to $17.5 billion in 2021. During 2022, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of $43 million. During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of $806 million. BAM’s total claims paying resources were $1,423 million as of December 31, 2022 compared to $1,192 million as of December 31, 2021. During 2022 and 2021, BAM completed reinsurance agreements with Fidus Re that increased BAM’s claims paying resources by $150 million in each year. In December 2022, BAM made a $36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. In December 2021, BAM made a $34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. In June 2022, Standard & Poor’s affirmed BAM’s “AA/stable” rating.

Ark’s combined ratio was 82% in 2022 compared to 87% in 2021. The combined ratio in 2022 included six points of favorable prior year loss reserve development compared to three points in 2021. The combined ratio for 2022 included 13 points of catastrophe losses compared to 10 points in 2021. Catastrophe losses in 2022 included $45 million related to the conflict in Ukraine and $44 million related to Hurricane Ian on a net basis after reinstatement premiums. Ark reported gross written premiums of $1,452 million, net written premiums of $1,195 million and net earned premiums of $1,043 million in 2022 compared to gross written premiums of $1,059 million, net written premiums of $859 million and net earned premiums of $637 million in 2021. Ark reported pre-tax income of $95 million in 2022 compared to $53 million in 2021, which reflected $25 million of transaction expenses related to the Ark Transaction. In December 2022, AM Best affirmed Ark’s financial strength rating at “A/stable.” In the January 2023 renewal season, Ark wrote gross written premiums in excess of $575 million, with risk adjusted rate change of 15%.

During the fourth quarter of 2022, White Mountains invested $205 million into Outrigger Re Ltd., a newly-formed Bermuda special purpose insurer that provided reinsurance protection on a portion of Ark’s Bermuda global property catastrophe portfolio written in the 2023 underwriting year.

Kudu reported total revenues of $119 million, pre-tax income of $89 million and adjusted EBITDA of $42 million in 2022 compared to total revenues of $134 million, pre-tax income of $108 million and adjusted EBITDA of $33 million in 2021. Total revenues and pre-tax income in 2022 included $54 million of net investment income and $64 million of net realized and unrealized investment gains compared to $44 million and $90 million in 2021. Kudu deployed $101 million, including transaction costs, into five asset management firms in 2022. As of December 31, 2022, Kudu had deployed $713 million into 20 asset and wealth management firms globally, including two that have been exited. As of December 31, 2022, the asset and wealth management firms have combined assets under management of approximately $74 billion, spanning a range of asset classes.

White Mountains’s investment in MediaAlpha was $169 million as of December 31, 2022 at the closing price of $9.95 per share, compared to $262 million as of December 31, 2021 at the closing price of $15.44 per share. On March 23, 2021, MediaAlpha completed a secondary offering of 8.05 million shares at $46.00 per share ($44.62 per share net of underwriting fees). In the secondary offering, White Mountains sold 3.6 million shares for net proceeds of $160 million.

White Mountains’s total consolidated portfolio return on invested assets was -1.6% in 2022, which included $93 million of net unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by net investment income and net realized and unrealized gains from other long-term investments, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.

White Mountains’s total consolidated portfolio return on invested assets was -3.4% in 2021, which included $380 million of net realized and unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by net investment income and net unrealized gains from other long-term investments.

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Adjusted Book Value Per Share

The following table presents White Mountains’s adjusted book value per share, a non-GAAP financial measure, as of December 31, 2023, 2022 and 2021 and reconciles this non-GAAP measure from book value per share, the most comparable GAAP measure. See “NON-GAAP FINANCIAL MEASURES” on page 73.

(1) Amounts reflect White Mountains’s preferred share ownership in HG Global of 96.9%.

Goodwill and Other Intangible Assets

The following table presents goodwill and other intangible assets that are included in White Mountains’s adjusted book value as of December 31, 2023, 2022 and 2021:

(1) See Note 4 — “Goodwill and Other Intangible Assets” on page F-31 for details of other intangible assets.

(2) Amounts reflect the basic ownership percentage of the noncontrolling shareholders.

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Summary of Consolidated Results

The following table presents White Mountains’s consolidated financial results by industry for the years ended December 31, 2023, 2022 and 2021:

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I. SUMMARY OF OPERATIONS BY SEGMENT

As of December 31, 2023, White Mountains conducted its operations through three segments: (1) HG Global/BAM, (2) Ark/WM Outrigger and (3) Kudu, with our remaining operating businesses, holding companies and other assets included in Other Operations. White Mountains has made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company’s subsidiaries and affiliates; (ii) the manner in which the Company’s subsidiaries and affiliates are organized; (iii) the existence of primary managers responsible for specific subsidiaries and affiliates; and (iv) the organization of information provided to the Company’s chief operating decision makers and its Board of Directors. Significant intercompany transactions among White Mountains’s segments have been eliminated herein. White Mountains’s segment information is presented in Note 15 — “Segment Information” on page F-63 to the Consolidated Financial Statements.

During the fourth quarter of 2022, Ark sponsored the formation of Outrigger Re Ltd. to provide reinsurance protection on Ark’s Bermuda global property catastrophe excess of loss portfolio written in the 2023 underwriting year. During the fourth quarter of 2023, Ark renewed Outrigger Re Ltd. for the 2024 underwriting year. White Mountains consolidates its segregated account of Outrigger Re Ltd., WM Outrigger Re, in its financial statements. WM Outrigger Re’s quota share reinsurance agreement with GAIL eliminates in White Mountains’s consolidated financial statements. WM Outrigger Re exclusively provides reinsurance protection to Ark. As a result, WM Outrigger Re was aggregated with Ark within the Ark/WM Outrigger segment starting in 2023. See Note 2 — “Significant Transactions.”

As a result of the NSM Transaction, the results of operations for NSM, previously reported as a segment, have been classified as discontinued operations in the statements of operations and comprehensive income through the closing of the transaction in 2022. See Note 20 — “Held for Sale and Discontinued Operations” on page F-70.

Prior period amounts have been reclassified to conform to the current period’s presentation.

As a result of the Ark Transaction, White Mountains began consolidating Ark in its financial statements as of January 1, 2021. See Note 2 — “Significant Transactions” on page F-17.

A discussion of White Mountains’s consolidated investment operations is included after the discussion of operations by segment.

HG Global/BAM

The following tables present the components of pre-tax income (loss) included in the HG Global/BAM segment related to the consolidation of HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM for the years ended December 31, 2023, 2022 and 2021:

(1) Amount includes $0.5 of intercompany interest expense that is eliminated in White Mountains’s consolidated financial statements. For segment reporting, HG Global’s intercompany interest expense included within the HG Global/BAM segment is eliminated against the offsetting

intercompany interest income included within Other Operations.

(2) MSC collected are recorded directly to BAM’s equity, which is recorded as noncontrolling interest on White Mountains’s balance sheet.

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(1) MSC collected are recorded directly to BAM’s equity, which is recorded as noncontrolling interest on White Mountains’s balance sheet.

(1) MSC collected are recorded directly to BAM’s equity, which is recorded as noncontrolling interest on White Mountains’s balance sheet.

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HG Global/BAM Results—Year Ended December 31, 2023 versus Year Ended December 31, 2022

BAM is required to prepare its financial statements on a statutory accounting basis for the NYDFS and does not report stand-alone GAAP financial results. BAM is owned by its members, the municipalities that purchase BAM’s insurance for their debt issuances. BAM charges an insurance premium on each municipal bond insurance policy it writes. A portion of the premium is MSC and the remainder is a risk premium. In the event of a municipal bond refunding, a portion of the MSC from original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond.

Gross written premiums and MSC collected in the HG Global/BAM segment totaled $131 million and $147 million in 2023 and 2022. BAM insured $15.6 billion of municipal bonds, $13.0 billion of which were in the primary market, in 2023 compared to $16.0 billion of municipal bonds, $12.2 billion of which were in the primary market, in 2022. During 2022, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of $43 million. During 2023, demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.8% compared to 8.0% in 2022. The decrease in gross written premiums and MSC collected in 2023 compared to 2022 was driven by (i) a decrease in secondary market activity, down from record levels in 2022 amidst interest rate volatility, as well as (ii) lower pricing in the primary market.

Total pricing, which reflects both gross written premiums and MSC, decreased to 84 basis points in 2023 compared to 91 basis points in 2022. The decrease in total pricing was driven primarily by lower pricing in the primary market and a decrease in secondary market par insured, which was partially offset by higher pricing in the secondary market in 2023 compared to 2022. Pricing in the primary market decreased to 63 basis points in 2023 compared to 69 basis points in 2022, driven primarily by a decrease in credit spreads for municipal bonds. Pricing in the secondary and assumed reinsurance markets, which is more transaction-specific than pricing in the primary market, increased to 189 basis points in 2023 compared to 163 basis points in 2022.

The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the years ended December 31, 2023 and 2022:

HG Global reported pre-tax income (loss) of $56 million in 2023 compared to $(23) million in 2022. The change in pre-tax income (loss) was driven primarily by net realized and unrealized investment gains (losses) in the HG Global fixed income portfolio in 2023 compared to 2022 driven by the movement of interest rates. HG Global’s results in 2023 included $26 million of interest income on the BAM Surplus Notes compared to $12 million in 2022, as the interest rate increased to 7.7% in 2023 from 3.2% in 2022. HG Global’s results in 2023 also included a $17 million net deferred tax benefit related to the Bermuda economic transition adjustment.

BAM is a mutual insurance company that is owned by its members. BAM’s results are consolidated into White Mountains’s GAAP financial statements and attributed to noncontrolling interests. White Mountains reported pre-tax loss from BAM of $58 million in 2023 compared to $112 million in 2022. The decrease in pre-tax loss was driven primarily by net realized and unrealized investment gains (losses) in the BAM fixed income portfolio in 2023 compared to 2022 driven by the movement of interest rates. BAM’s results included $26 million of interest expense on the BAM Surplus Notes and $66 million of general and administrative expenses in 2023 compared to $12 million of interest expense on the BAM Surplus Notes and $66 million of general and administrative expenses in 2022.

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In December 2023, BAM made a $27 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $18 million was a repayment of principal held in the Supplemental Trust, $2 million was a payment of accrued interest held in the Supplemental Trust and $7 million was a payment of accrued interest held outside the Supplemental Trust.

In December 2022, BAM made a $36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $25 million was a repayment of principal held in the Supplemental Trust, $1 million was a payment of accrued interest held in the Supplemental Trust and $10 million was a payment of accrued interest held outside the Supplemental Trust.

As of December 31, 2023, White Mountains’s debt service model indicated that the BAM Surplus Notes would be fully repaid approximately five years prior to final maturity, which is generally consistent with the results of the update of the debt service model as of December 31, 2022.

HG Global/BAM Results—Year Ended December 31, 2022 versus Year Ended December 31, 2021

Gross written premiums and MSC collected in the HG Global/BAM segment totaled $147 million and $118 million in 2022 and 2021. BAM insured $16.0 billion of municipal bonds, $12.2 billion of which were in the primary market, in 2022 compared to $17.5 billion of municipal bonds, $15.6 billion of which were in the primary market, in 2021. During 2022, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of $43 million. During 2021, BAM completed an assumed reinsurance transaction to insure municipal bonds with a par value of $806 million. Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 8.0% in 2022 compared to 8.1% in 2021. Increased secondary market activity and higher pricing in the primary market, driven in part by the volatility in interest rates experienced in 2022, contributed to the increase in gross written premiums and MSC collected in 2022 compared to 2021.

Total pricing increased to 91 basis points in 2022 compared to 67 basis points in 2021. The increase in total pricing was

driven primarily by increased secondary market activity and higher pricing in the primary market in 2022 compared to 2021.

Pricing in the primary market increased to 69 basis points in 2022 compared to 57 basis points in 2021, driven primarily by an

increase in transactions insured in specific credit sectors with higher pricing. Pricing in the secondary and assumed reinsurance

markets, which is more transaction-specific than pricing in the primary market, increased to 163 basis points in 2022 compared

to 155 basis points in 2021.

The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the years ended December 31, 2022 and 2021:

HG Global reported pre-tax income (loss) of $(23) million in 2022 compared to $21 million in 2021. The change in pre-tax income (loss) was driven primarily by higher net realized and unrealized investment losses on the HG Global fixed income portfolio in 2022 compared to 2021, as interest rates increased significantly. HG Global’s results in 2022 and 2021 both included $12 million of interest income on the BAM Surplus Notes.

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On April 29, 2022, HG Global received the proceeds of a $150 million, 10-year term loan credit facility. In turn, on May 2, 2022, HG Global paid a $120 million cash dividend to shareholders, of which $116 million was paid to White Mountains.

BAM is a mutual insurance company that is owned by its members. BAM’s results are consolidated into White Mountains’s GAAP financial statements and attributed to noncontrolling interests. White Mountains reported pre-tax loss from BAM of $112 million in 2022 compared to $63 million in 2021. The increase in the pre-tax loss was driven primarily by higher net unrealized investment losses on the BAM fixed income portfolio in 2022 compared to 2021, as interest rates

increased significantly. BAM’s results included $12 million of interest expense on the BAM Surplus Notes and $66 million of general and administrative expenses in 2022 compared to $12 million of interest expense on the BAM Surplus Notes and $55 million of general and administrative expenses in 2021. The increase in general and administrative expenses was driven primarily by higher incentive compensation costs.

In December 2022, BAM made a $36 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $25 million was a repayment of principal held in the Supplemental Trust, $1 million was a payment of accrued interest held in the Supplemental Trust and $10 million was a payment of accrued interest held outside the Supplemental Trust.

In December 2021, BAM made a $34 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $24 million was a repayment of principal held in the Supplemental Trust and $10 million was a payment of accrued interest held outside the Supplemental Trust.

Claims Paying Resources

BAM’s claims paying resources represent the capital and other financial resources that BAM has available to pay claims and, as such, is a key indication of BAM’s financial strength.

BAM’s claims paying resources were $1,501 million as of December 31, 2023 compared to $1,423 million as of December 31, 2022 and $1,192 million as of December 31, 2021. The increase in claims paying resources was driven primarily by the Fidus Re 2022 Agreement and increases in the statutory value of the collateral trusts resulting from positive cash flow from operations, partially offset by the portion of cash payments on the BAM surplus notes related to accrued interest held outside the Supplemental Trust.

The following table presents BAM’s total claims paying resources on a statutory basis as of December 31, 2023, 2022 and 2021:

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HG Global/BAM Balance Sheets

The following tables present amounts from HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM that are contained within White Mountains’s consolidated balance sheet as of December 31, 2023 and 2022:

(1)    Under GAAP, the BAM Surplus Notes are classified as debt by the issuer. Under U.S. Statutory accounting, they are classified as policyholders’ surplus.

(2)    Under GAAP, interest accrues daily on the BAM Surplus Notes. Under U.S. Statutory accounting, interest is not accrued on the BAM Surplus Notes until it has been approved for payment by insurance regulators.

(3)    HG Global preferred dividends payable to White Mountains are eliminated in White Mountains’s consolidated financial statements. For segment reporting, HG Global’s preferred dividends payable to White Mountains included within the HG Global/BAM segment are eliminated against the offsetting receivable included within Other Operations.

(4)    HG Global’s intercompany debt is eliminated in White Mountains’s consolidated financial statements. For segment reporting, HG Global’s intercompany debt included within the HG Global/BAM segment is eliminated against the offsetting receivable included within Other Operations.

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(1)    Under GAAP, the BAM Surplus Notes are classified as debt by the issuer. Under U.S. Statutory accounting, they are classified as policyholders’ surplus.

(2)    Under GAAP, interest accrues daily on the BAM Surplus Notes. Under U.S. Statutory accounting, interest is not accrued on the BAM Surplus Notes until it has been approved for payment by insurance regulators.

(3)    HG Global preferred dividends payable to White Mountains are eliminated in White Mountains’s consolidated financial statements. For segment reporting, HG Global’s preferred dividends payable to White Mountains included within the HG Global/BAM segment are eliminated against the offsetting receivable included within Other Operations.

(4)    HG Global’s intercompany debt is eliminated in White Mountains’s consolidated financial statements. For segment reporting, HG Global’s intercompany debt included within the HG Global/BAM segment is eliminated against the offsetting receivable included within Other Operations.

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Ark/WM Outrigger

On January 1, 2021, White Mountains completed the Ark Transaction. See Note 2 — “Significant Transactions”. Ark is a specialty property and casualty insurance and reinsurance company that offers a wide range of niche insurance and reinsurance products, including property, specialty, marine & energy, casualty and accident & health. Ark underwrites select coverages through its two major subsidiaries in the United Kingdom and Bermuda.

During the fourth quarter of 2022, Ark sponsored the formation of Outrigger Re Ltd., a Bermuda company registered as a special purpose insurer and segregated accounts company, to provide reinsurance capacity to Ark.

The following tables presents the components of pre-tax income (loss) included in the Ark/WM Outrigger segment for the years ended December 31, 2023, 2022 and 2021:

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Combined Ratio

The following table presents the Ark/WM Outrigger segment’s insurance premiums, insurance expenses and insurance ratios for year ended December 31, 2023, 2022 and 2021:

(1) Included within general and administrative expenses.

For the years of account subsequent to the Ark Transaction, Ark is no longer using TPC Providers to provide underwriting capital for the Syndicates. During the first quarter of 2023, an RITC agreement was executed such that the outstanding loss and LAE reserves for claims arising out of the 2020 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 43%, were reinsured into the 2021 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 0%. Captions within Ark’s results of operations for the years ended December 31, 2022 and 2021 are shown net of amounts relating to TPC Providers’ share of the Syndicates’ results, including investment results.

Ark/WM Outrigger Results—Year Ended December 31, 2023 versus Year Ended December 31, 2022

Ark/WM Outrigger segment’s combined ratio was 80% for the year ended December 31, 2023. The Ark/WM Outrigger segment reported gross written premiums of $1,898 million, net written premiums of $1,521 million and net earned premiums of $1,410 million in 2023. The Ark/WM Outrigger segment reported pre-tax income of $318 million in 2023.

Ark’s combined ratio was 82% in both 2023 and 2022. The combined ratio for 2023 included two points of catastrophe losses, which included losses from Hurricane Idalia, the Maui wildfires, Hurricane Otis and various smaller events, compared to 13 points of catastrophe losses in 2022, driven primarily by losses from the conflict in Ukraine and Hurricane Ian. The combined ratio for 2023 included two points of net unfavorable prior year loss reserve development, driven primarily by unfavorable loss reserve development in the property and accident & health reserving line of business including Hurricane Ian, Winter Storm Elliott and a power outage claim, partially offset by favorable prior year loss reserve development within the specialty and casualty–runoff reserving lines of business. This compared to six points of net favorable prior year loss reserve development in 2022, driven primarily by the property and accident & health, specialty and marine & energy reserving lines of business, predominantly from business underwritten in London.

Ark reported gross written premiums of $1,898 million, net written premiums of $1,411 million and net earned premiums of $1,305 million in 2023, compared to gross written premiums of $1,452 million, net written premiums of $1,195 million and net earned premiums of $1,043 million in 2022.

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Ark reported pre-tax income of $249 million in 2023 compared to $95 million in 2022. Ark’s results included net realized and unrealized investment gains (losses) of $86 million in 2023, driven primarily by net unrealized investment gains on other long-term investments, fixed maturity investments and common equity securities, compared to $(55) million in 2022, driven primarily by net unrealized investment losses on fixed income securities and the impact of foreign currency on its investment portfolio. Ark’s results in 2023 also included a $51 million net deferred tax benefit related to the Bermuda economic transition adjustment. Ark’s results in 2023 also included $49 million for the increase in the fair value of its contingent consideration compared to $17 million in 2022.

Ark has exposure to the ongoing war in Gaza, primarily through its specialty (political risk/violence), marine & energy and accident & health lines of business. At this time, Ark has had negligible claims and does not expect losses from the war to have a material impact on its results of operations or financial condition. However, losses could increase depending upon the scope and duration of the war.

WM Outrigger Re’s combined ratio was 44% in 2023. The combined ratio benefited from a lack of major catastrophe losses in 2023. Losses included $16 million for smaller events such as the Maui wildfires, Hurricane Idalia and Typhoon Doksuri. WM Outrigger Re reported gross and net written premiums of $110 million and net earned premiums of $104 million in 2023. Premium levels were supported by the strong rate environment in property reinsurance. WM Outrigger Re reported pre-tax income of $69 million in 2023.

Ark/WM Outrigger Results—Year Ended December 31, 2022 versus Year Ended December 31, 2021

Ark’s combined ratio was 82% in 2022 compared to 87% in 2021. The combined ratio for 2022 included 13 points of catastrophe losses, driven primarily by losses from the conflict in Ukraine and Hurricane Ian, compared to 10 points of catastrophe losses in 2021, driven primarily by Hurricane Ida, Winter Storm Uri and European floods. Catastrophe losses for 2022 included $45 million related to the conflict in Ukraine and $44 million related to Hurricane Ian on a net basis after reinstatement premiums. The combined ratio for 2022 included six points of net favorable prior year loss reserve development, driven primarily by the property and accident & health, specialty and marine & energy reserving lines of business, predominantly from business underwritten in London. This compared to three points of net favorable prior year loss reserve development in 2021, driven primarily by the property and accident & health reserving line of business.

Ark reported gross written premiums of $1,452 million, net written premiums of $1,195 million and net earned premiums of $1,043 million in 2022 compared to gross written premiums of $1,059 million, net written premiums of $859 million and net earned premiums of $637 million in 2021. Premium growth at Ark was supported by favorable market conditions across most classes with general inflationary concerns and market capacity constraints, along with the ongoing conflict in Ukraine, driving positive rate momentum.

Ark reported pre-tax income of $95 million in 2022 compared to $53 million in 2021. Ark’s pre-tax income for 2022 included $55 million of net realized and unrealized investment losses, driven primarily by net unrealized losses on fixed income securities and the impact of foreign currency on its investment portfolio, compared to $17 million of net realized and unrealized investment gains in 2021. Ark’s results in 2022 also included $17 million for the increase in the fair value of its contingent consideration compared to $6 million in 2021.

Gross Written Premiums

Ark’s gross written premiums increased 31% to $1,898 million in 2023 compared to 2022, with risk adjusted rate change of 15%. The increase in gross written premiums was driven primarily by the property line of business for both insurance and reinsurance across London and Bermuda, reflecting the rate environment and additional capacity provided by Outrigger Re Ltd., as well as the specialty and marine & energy lines of business. The risk adjusted rate change on the Outrigger Re Ltd. portfolio of global property reinsurance was 33% in 2023. The following table presents Ark’s gross written premiums by line of business for the years ended December 31, 2023, 2022 and 2021:

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Ark/WM Outrigger Balance Sheets

The following tables present amounts from Ark and WM Outrigger Re that are contained within White Mountains’s consolidated balance sheet as of December 31, 2023 and 2022:

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(1) Amounts as of December 31, 2022 for WM Outrigger Re have been reclassified from Other Operations to the Ark/WM Outrigger segment to conform to the presentation as of December 31, 2023.

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Kudu

Kudu provides capital solutions for boutique asset and wealth managers for a variety of purposes including generational ownership transfers, management buyouts, acquisition and growth finance and legacy partner liquidity. Kudu also provides strategic assistance to investees from time to time.

As of December 31, 2023, Kudu had deployed a total of $884 million, including transaction costs, into 25 asset and wealth management firms globally, including three that have been exited. As of December 31, 2023, the asset and wealth management firms have combined assets under management of approximately $104 billion, spanning a range of asset classes, including real estate, wealth management, hedge funds, private equity and alternative credit strategies. Kudu’s capital was deployed at an average gross cash yield at inception of 9.9%.

The following table presents the components of GAAP net income, EBITDA and adjusted EBITDA included in White Mountains’s Kudu segment for the years ended December 31, 2023, 2022 and 2021:

(1) See “NON-GAAP FINANCIAL MEASURES” on page 73.

The following table presents the changes to the fair value of Kudu’s Participation Contracts:

(1) Includes $35.8 of non-cash contribution to (proceeds from) Participation Contracts.

(2) Includes realized and unrealized investment gains (losses) recognized from Participation Contracts beginning in the quarter a contract is classified as pending sale.

(3) Includes unrealized investment gains (losses) recognized from (i) ongoing Participation Contracts and (ii) Participation Contracts prior to classification as pending sale.

(4) As of December 31, 2023, Kudu’s other long-term investments also include $5.8 related to a private debt instrument.

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Kudu Results — Year Ended December 31, 2023 versus Year Ended December 31, 2022

Kudu reported total revenues of $177 million, pre-tax income of $137 million and adjusted EBITDA of $57 million for the year ended December 31, 2023 compared to total revenues of $119 million, pre-tax income of $89 million and adjusted EBITDA of $42 million for the year ended December 31, 2022. Total revenues and pre-tax income included $47 million of realized investment gains and $59 million of unrealized investment gains on Kudu’s Participation Contracts in 2023 compared to $67 million of realized investment gains, partially offset by $3 million of net unrealized investment losses, on Kudu’s Participation Contracts in 2022. Realized investment gains on Kudu’s Participation Contracts were driven by two sales transactions in 2023 and two sales transaction in 2022. The net unrealized investment gains on Kudu’s Participation Contracts for the year ended December 31, 2023 were driven primarily by a step-up in valuation related to a pending transaction, improved growth prospects at several managers and lower discount rates across the portfolio. Total revenues, pre-tax income, and adjusted EBITDA for the year ended 2023 also included $71 million of net investment income compared to $54 million for the year ended 2022. The increase in net investment income in 2023 compared to 2022 was driven primarily by amounts earned from $266 million in new deployments that Kudu made during 2023 and 2022 and a $12 million realization of carried interest for one of Kudu’s Participation Contracts, partially offset by the negative impact on net investment income from recent sale transactions.

Kudu Results—Year Ended December 31, 2022 versus Year ended December 31, 2021

Kudu reported total revenues of $119 million, pre-tax income of $89 million and adjusted EBITDA of $42 million for the year ended December 31, 2022 compared to total revenues of $134 million, pre-tax income of $108 million and adjusted EBITDA of $33 million for the year ended December 31, 2021. Total revenues and pre-tax income included $67 million of realized investment gains, partially offset by $3 million of net unrealized investment losses, on Kudu’s Participation Contracts in 2022 compared to $22 million of realized investment gains and $68 million of net unrealized investment gains on Kudu’s Participation Contracts in 2021. Realized investment gains on Kudu’s Participation Contracts were driven by two sales transactions in 2022 and one sales transaction in 2021. The net unrealized investment losses on Kudu’s Participation Contracts for the year ended December 31, 2022 were driven primarily by declines in assets under management at several managers with public equity exposure, an increase in discount rates as a result of the rising interest rate environment and foreign exchange losses, partially offset by an increase in the fair value of two Participation Contracts with pending sales transactions. Total revenues, pre-tax income, and adjusted EBITDA for the year ended 2022 also included $54 million of net investment income compared to $44 million for the year ended 2021. The increase in net investment income was driven primarily by amounts earned from $310 million in new deployments that Kudu made during 2022 and 2021. The two sales transactions in 2022 negatively impacted net investment income until proceeds were redeployed.

Other Operations

The following table presents the components of pre-tax income (loss) included in White Mountains’s Other Operations for the years ended December 31, 2023, 2022 and 2021:

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Other Operations Results—Year Ended December 31, 2023 versus Year Ended December 31, 2022

White Mountains’s Other Operations reported pre-tax income (loss) of $113 million in 2023 compared to $(198) million in 2022. White Mountains’s Other Operations reported net realized and unrealized investment gains (losses) from its investment in MediaAlpha of $27 million in 2023 compared to $(93) million in 2022. White Mountains’s Other Operations reported net realized and unrealized investment gains (losses) of $189 million in 2023 compared to $(2) million in 2022. White Mountains’s Other Operations reported net investment income of $30 million in 2023 compared to $32 million in 2022. See “Summary of Investment Results” on page 62.

White Mountains’s Other Operations reported $81 million of other revenues in 2023 compared to $127 million in 2022. White Mountains’s Other Operations reported $40 million of cost of sales in 2023 compared to $99 million in 2022. The decreases in other revenues and cost of sales were driven primarily by a recent sale within Other Operations.

White Mountains’s Other Operations reported general and administrative expenses of $182 million in 2023 compared to $174 million in 2022. The increase in general and administrative expenses in 2023 compared to 2022 was driven primarily by two acquisitions within Other Operations in the second half of 2022, partially offset by a decrease due to the recent sale within Other Operations and lower parent company compensation and benefits. Other Operations general and administrative expenses in 2023 included $94 million of parent company compensation and benefits compared to $101 million in 2022.

White Mountains’s Other Operations includes its investment in PassportCard/DavidShield, which has operations, including its principal executive office, in Israel. White Mountains is monitoring the ongoing war in Gaza but does not expect that any effect on PassportCard/DavidShield will have a material impact on White Mountains’s results of operations or financial condition.

Share repurchases

In the year ended December 31, 2023, White Mountains repurchased and retired 24,165 of its common shares for $33 million at an average share price of $1,354.88.

Other Operations Results—Year Ended December 31, 2022 versus Year Ended December 31, 2021

White Mountains’s Other Operations reported pre-tax loss of $198 million in 2022 compared to $392 million in 2021. White Mountains’s Other Operations reported net realized and unrealized investment losses from its investment in MediaAlpha of $93 million in 2022 compared to $380 million in 2021. White Mountains’s Other Operations reported net realized and unrealized investment gains (losses) of $(2) million in 2022 compared to $51 million in 2021. White Mountains’s Other Operations reported net investment income of $32 million in 2022 compared to $18 million in 2021. See “Summary of Investment Results” on page 62. The increase in net investment income in 2022 was driven primarily by the increase in the invested assets resulting from the NSM Transaction.

White Mountains’s Other Operations reported $127 million of other revenues in 2022 compared to $91 million in 2021. White Mountains’s Other Operations reported $99 million of cost of sales in 2022 compared to $69 million in 2021. The increases in other revenues and cost of sales were driven primarily by a business acquired within Other Operations in 2021.

White Mountains’s Other Operations reported general and administrative expenses of $174 million in 2022 compared to $110 million in 2021. The increase in general and administrative expenses was driven primarily by higher incentive compensation costs and advisory fees, primarily in connection with the NSM Transaction.

Share repurchases

In the year ended December 31, 2022, White Mountains repurchased and retired 461,256 of its common shares for $616 million at an average price of $1,335.11. The majority of these shares were repurchased through a self-tender offer that White Mountains completed on September 26, 2022, through which it repurchased 327,795 of its common shares at a purchase price of $1,400 per share for a total cost of approximately $461 million, including expenses.

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II. Summary of Investment Results

White Mountains’s total investment results include results from all segments. For purposes of discussing rates of return, percentages are presented gross of management fees and trading expenses and before any adjustments for TPC Providers, in order to produce a better comparison to benchmark returns.

Gross Investment Returns and Benchmark Returns

The following table presents the pre-tax investment returns for White Mountains’s consolidated portfolio for the years ended December 31, 2023, 2022 and 2021:

Investment Returns—Year Ended December 31, 2023 versus Year Ended December 31, 2022

White Mountains’s total consolidated portfolio return on invested assets, both including and excluding White Mountains’s investment in MediaAlpha, was 11.4% in 2023. The total consolidated portfolio return included $27 million of net unrealized investment gains from White Mountains’s investment in MediaAlpha in 2023. Excluding MediaAlpha, investment returns in 2023 were driven primarily by net investment income and net realized and unrealized investment gains from the other long-term investments and fixed income portfolios.

White Mountains’s total consolidated portfolio return on invested assets was -1.6% in 2022, which included $93 million of net unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by net investment income and net realized and unrealized gains from other long-term investments, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.

Fixed Income Results

White Mountains’s fixed income portfolio, including short-term investments, was $3.6 billion and $2.8 billion as of December 31, 2023 and 2022, which represented 56% and 55% of total invested assets. The duration of White Mountains’s fixed income portfolio, including short-term investments, was 1.9 years and 2.3 years as of December 31, 2023 and 2022. White Mountains’s fixed income portfolio includes fixed maturity and short-term investments held on deposit or as collateral. See Note 3 — “Investment Securities”.

White Mountains’s fixed income portfolio returned 5.8% in 2023 compared to -4.8% in 2022, outperforming the Bloomberg Barclays U.S. Intermediate Aggregate Index returns of 5.2% and -9.5% for the comparable periods. The results in 2023 were driven primarily by net investment income from higher yields and net unrealized investment gains as interest rates declined marginally in the period. The results in 2022 were driven primarily by net unrealized investment losses due to the impact of rising interest rates on White Mountains’s short duration portfolio, partially offset by net investment income.

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Common Equity Securities, Investment in MediaAlpha and Other Long-Term Investments Results

White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments was $2.8 billion and $2.3 billion as of December 31, 2023 and 2022, which represented 44% and 45% of total invested assets. See Note 3 — “Investment Securities”.

White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned 18.5% in 2023, which included $27 million of net unrealized investment gains from MediaAlpha. White Mountains’s portfolio of common equity securities and other long-term investments returned 19.0% in 2023. White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned 2.3% in 2022, which included $93 million of net unrealized investment losses from MediaAlpha. White Mountains’s portfolio of common equity securities and other long-term investments returned 8.1% in 2022.

White Mountains’s portfolio of common equity securities consists of international listed equity funds, as well as passive ETFs that seek to provide investment results that generally correspond to the performance of the S&P 500 Index. White Mountains’s portfolio of common equity securities was $538 million and $668 million as of December 31, 2023 and 2022.

White Mountains’s portfolio of common equity securities returned 13.4% in 2023 compared to -1.0% in 2022, underperforming and outperforming the S&P 500 Index returns of 26.3% and -18.1% for the comparable periods. The results for 2023 and 2022 were driven primarily by relative underperformance and outperformance in White Mountains’s international listed equity funds, a number of which employ a market neutral strategy, versus the S&P 500 Index.

White Mountains maintains a portfolio of other long-term investments that consists primarily of unconsolidated entities, including Kudu’s Participation Contracts, private equity funds and hedge funds, a bank loan fund, Lloyd’s trust deposits, ILS funds and private debt instruments. White Mountains’s portfolio of other long-term investments was $2.0 billion and $1.5 billion as of December 31, 2023 and 2022.

White Mountains’s portfolio of other long-term investments returned 20.6% in 2023 compared to 10.5% in 2022. Investment returns for 2023 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu’s Participation Contracts, net realized and unrealized investment gains from private equity funds, hedge funds and unconsolidated entities, as well as unrealized gains from ILS funds. Investment returns for 2022 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu’s Participation Contracts, and net investment income and net realized and unrealized investment gains from private equity funds, partially offset by unrealized losses from foreign currency.

Investment Returns—Year Ended December 31, 2022 versus Year Ended December 31, 2021

White Mountains’s total consolidated portfolio return on invested assets was -1.6% in 2022, which included $93 million of net unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 0.3% in 2022. Excluding MediaAlpha, investment returns in 2022 were driven primarily by net investment income and net realized and unrealized gains from other long-term investments, which more than offset net unrealized investment losses in the fixed income portfolio due to rising interest rates.

White Mountains’s total consolidated portfolio return on invested assets was -3.4% in 2021, which included $380 million of net realized and unrealized investment losses from White Mountains’s investment in MediaAlpha. Excluding MediaAlpha, the total consolidated portfolio return on invested assets was 6.4% in 2021. Excluding MediaAlpha, investment returns in 2021 were driven primarily by net investment income and net unrealized gains from other long-term investments.

Fixed Income Results

White Mountains’s fixed income portfolio, including short-term investments, was $2.8 billion and $2.4 billion as of December 31, 2022 and 2021, which represented 55% and 56% of total invested assets. The duration of White Mountains’s fixed income portfolio, including short-term investments, was 2.3 years and 2.6 years as of December 31, 2022 and 2021. White Mountains’s fixed income portfolio includes fixed maturity and short-term investments held on deposit or as collateral. See Note 3 — “Investment Securities”.

White Mountains’s fixed income portfolio returned -4.8% in 2022 compared to -0.4% in 2021, outperforming the Bloomberg Barclays U.S. Intermediate Aggregate Index returns of -9.5% and -1.3% for the comparable periods. The results in both 2022 and 2021 were driven primarily by net unrealized investment losses due to the impact of rising interest rates on White Mountains’s short duration portfolio, partially offset by net investment income.

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Common Equity Securities, Investment in MediaAlpha and Other Long-Term Investments Results

White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments was $2.3 billion and $1.9 billion as of December 31, 2022 and 2021, which represented 45% and 44% of total invested assets. See Note 3 — “Investment Securities”.

White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned 2.3% in 2022, which included $93 million of net unrealized investment losses from MediaAlpha. White Mountains’s portfolio of common equity securities and other long-term investments returned 8.1% in 2022. White Mountains’s portfolio of common equity securities, its investment in MediaAlpha and other long-term investments returned -7.1% in 2021, which included $380 million of net realized and unrealized investment losses from MediaAlpha. White Mountains’s portfolio of common equity securities and other long-term investments returned 19.3% in 2021.

White Mountains’s portfolio of common equity securities was $668 million and $251 million as of December 31, 2022 and 2021. White Mountains’s portfolio of common equity securities returned -1.0% in 2022 compared to 11.0% in 2021, outperforming and underperforming the S&P 500 Index returns of -18.1% and 28.7% for the comparable periods. The results for 2022 and 2021 were driven primarily by relative outperformance and underperformance in White Mountains’s international listed equity funds, a number of which employ a market neutral strategy, versus the S&P 500 Index.

White Mountains’s portfolio of other long-term investments was $1.5 billion and $1.4 billion as of December 31, 2022 and 2021. White Mountains’s portfolio of other long-term investments returned 10.5% in 2022 compared to 20.7% in 2021. Investment returns for 2022 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu’s Participation Contracts, and net investment income and net realized and unrealized investment gains from private equity funds, partially offset by unrealized losses from foreign currency. Investment returns for 2021 were driven primarily by net investment income and net realized and unrealized investment gains from Kudu’s Participation Contracts, net investment income and net realized and unrealized investment gains from private equity funds, and net unrealized gains from certain unconsolidated entities.

Portfolio Composition

The following table presents the composition of White Mountains’s total investment portfolio as of December 31, 2023 and 2022:

The following table presents the breakdown of White Mountains’s fixed maturity investments as of December 31, 2023 by credit class, based upon issuer credit ratings provided by Standard & Poor’s, or if unrated by Standard & Poor’s, long-term obligation ratings provided by Moody’s:

(1)Includes mortgage-backed securities, which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

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The following table presents the cost or amortized cost and carrying value of White Mountains’s fixed maturity investments by contractual maturity as of December 31, 2023. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

The following table presents the composition of White Mountains’s other long-term investments portfolio as of December 31, 2023 and 2022:

Foreign Currency Exposure

As of December 31, 2023, White Mountains had foreign currency exposure on $204 million of net assets primarily related to Ark/WM Outrigger’s non-U.S. business, Kudu’s non-U.S. Participation Contracts and certain other foreign consolidated and unconsolidated entities.

The following table presents the fair value of White Mountains’s foreign denominated net assets (liabilities) by segment as of December 31, 2023:

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III. Income Taxes

On December 27, 2023, Bermuda enacted a corporate income tax that will generally become effective on January 1, 2025. The Bermuda legislation defers the effective date until January 1, 2030, for Bermuda companies in consolidated groups that meet certain requirements. To qualify for the deferral, the group must (i) have permanent establishments in six or fewer countries, (ii) have less than €50 million of net tangible assets outside of the country where the group has the largest amount of net tangible assets and (iii) not have a Bermuda company directly or indirectly owned by a parent entity that is subject to the Income Inclusion Rule of Pillar Two in any jurisdiction. White Mountains expects to meet the requirements to be exempt from the Bermuda corporate income tax until January 1, 2030. The Bermuda legislation also provides for an economic transition adjustment that will reduce future years’ taxable income. Under GAAP, this economic transition adjustment was required to be recognized as a net deferred tax asset as of December 31, 2023. Accordingly, White Mountains’s net income for 2023 included a net deferred tax benefit of $68 million, of which $51 million was recorded at Ark and $17 million was recorded at HG Global.

On December 15, 2022, European Union Member States voted to adopt the EU Minimum Tax Directive in conformity with the OECD’s Pillar Two initiative. The EU Minimum Tax Directive requires European Union Member States to enact conforming law by December 31, 2023. The main rule of the EU Minimum Tax Directive, the IIR will become effective for fiscal years beginning on or after December 31, 2023, while the UTPR will become effective for fiscal years beginning on or after December 31, 2024. On December 20, 2023, Luxemburg enacted conforming Pillar Two legislation including the IIR, UTPR and the associated Qualified Domestic Minimum Top-Up Tax (“QDMTT”). The Luxembourg legislation defers the effective date of the UTPR until fiscal years beginning on or after December 31, 2029 for Luxembourg companies in consolidated groups with a non-EU parent company that meet certain requirements. To qualify for the deferral, the group must (i) have permanent establishments in six or fewer countries and (ii) have less than €50 million of net tangible assets outside of the country where the group has the largest amount of net tangible assets. White Mountains expects to meet the requirements to be exempt from the Luxembourg UTPR until January 1, 2030.

On July 11, 2023, the U.K. enacted conforming legislation adopting the Pillar Two IIR and the associated QDMTT which will become effective for fiscal years beginning on or after December 31, 2023. The U.K. has proposed legislation to adopt the Pillar Two UTPR effective for fiscal years beginning on or after December 31, 2024; however, this legislation has not yet been enacted.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act (the “IRA”). White Mountains has evaluated the tax provisions of the IRA, the most significant of which relate to the corporate alternative minimum tax and the tax on share repurchases, and does not expect the legislation to have a material impact on its results of operations.

As of December 31, 2023, the primary jurisdictions in which the Company’s subsidiaries and branches operate and were subject to tax are Israel, Luxembourg, the United Kingdom and the United States.

White Mountains reported income tax benefit of $16 million in 2023 on pre-tax income from continuing operations of $565 million. The difference between White Mountains’s effective tax rate and the current U.S. statutory rate of 21% was driven primarily by income generated in jurisdictions with lower tax rates than the United States, a full valuation allowance on net deferred tax assets in certain U.S. operations (consisting of Other Operations and BAM), withholding taxes and state income taxes. The effective rate was also different from the U.S. statutory rate of 21% due to the recording of a $68 million deferred tax benefit related to the Bermuda economic transition adjustment.

White Mountains reported income tax expense of $41 million in 2022 on pre-tax loss from continuing operations of $149 million. The difference between White Mountains’s effective tax rate and the current U.S. statutory rate of 21% was driven primarily by losses generated in jurisdictions with lower tax rates than the United States, a full valuation allowance on net deferred tax assets in certain U.S. operations (consisting of Other Operations and BAM), withholding taxes and state income taxes.

White Mountains reported income tax expense of $44 million in 2021 on pre-tax loss from continuing operations of $274 million. The difference between White Mountains’s effective tax rate and the current U.S. statutory rate of 21% was driven primarily by losses generated in jurisdictions with lower tax rates than the United States, a full valuation allowance on net deferred tax assets in certain U.S. operations (consisting of Other Operations and BAM), and state income taxes. The effective rate was also different from the U.S. statutory rate of 21% due to additional tax expense related to the revaluation of U.K. deferred tax assets and liabilities. On June 10, 2021, the U.K. enacted an increase in its corporate tax rate from 19% to 25% for periods after April 1, 2023. During 2021, White Mountains increased its net U.K. deferred tax liability to reflect the higher tax rate.

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IV. Discontinued Operations

NSM

On August 1, 2022, White Mountains closed the NSM Transaction. White Mountains received $1.4 billion in net cash proceeds at closing and recognized a net gain of $876 million in the third quarter of 2022, which was comprised of $887 million of net gain from sale of discontinued operations and $3 million of comprehensive income related to the recognition of foreign currency translation gain (loss) from the sale, partially offset by $14 million of compensation and other costs related to the transaction recorded in Other Operations. See Note 2 — “Significant Transactions” on page F-17.

White Mountains reported net income from discontinued operations, net of tax, for NSM Group of $16 million for the period from January 1, 2022 to August 1, 2022. White Mountains reported net loss from discontinued operations, net of tax, for NSM Group of $23 million for the year ended December 31, 2021. The net loss from discontinued operations, net of tax, for NSM Group for the year ended December 31, 2021 included a loss of $29 million related to the sale of a subsidiary. See Note 20 — “Held for Sale and Discontinued Operations” on page F-70.

Sirius Group

On April 18, 2016, White Mountains completed the sale of Sirius International Insurance Group, Ltd. (“Sirius Group”) to CM International Pte. Ltd. and CM Bermuda Limited (collectively, “CMI”). In connection with the sale, White Mountains indemnified Sirius Group against the loss of certain interest deductions claimed by Sirius Group related to periods prior to the sale of Sirius Group to CMI that had been disputed by the Swedish Tax Agency (STA). In late October 2018, the Swedish Administrative Court ruled against Sirius Group on its appeal of the STA’s denial of these interest deductions. As a result, in 2018 White Mountains recorded a loss of $17 million in discontinued operations reflecting the value of these interest deductions.

In April 2021, the STA informed the Swedish Administrative Court of Appeal that Sirius Group should prevail in its appeal and that the interest deductions should not be disallowed. In June 2021, the Swedish Administrative Court of Appeal ruled in Sirius Group’s favor. As a result, in 2021 White Mountains recorded a gain of $19 million in discontinued operations to reverse the accrued liability, including foreign currency translation. See Note 20 — “Held for Sale and Discontinued Operations” on page F-70.

LIQUIDITY AND CAPITAL RESOURCES

Operating Cash and Short-term Investments

Holding Company Level

The primary sources of cash for the Company and certain of its intermediate holding companies are expected to be distributions from its insurance, reinsurance and other operating subsidiaries, net investment income, proceeds from sales, repayments and maturities of investments, capital raising activities and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be general and administrative expenses, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of debt obligations, dividend payments to holders of the Company’s common shares, distributions to noncontrolling interest holders of consolidated subsidiaries, contributions to operating subsidiaries and, from time to time, purchases of operating subsidiaries and repurchases of the Company’s common shares.

Operating Subsidiary Level

The primary sources of cash for White Mountains’s insurance, reinsurance and other operating subsidiaries are expected to be premium and fee collections, commissions, net investment income, proceeds from sales, repayments and maturities of investments, contributions from holding companies and capital raising activities. The primary uses of cash are expected to be claim payments, policy acquisition costs, general and administrative expenses, broker commission expenses, cost of sales, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of debt obligations, distributions to holding companies, distributions to noncontrolling interest holders and, from time to time, purchases of operating subsidiaries.

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Both internal and external forces influence White Mountains’s financial condition, results of operations and cash flows. Premium and fee collections, investment returns, claim payments and cost of sales may be impacted by changing rates of inflation and other economic conditions. Some time may lapse between the occurrence of an insured loss, the reporting of the loss to White Mountains’s insurance and reinsurance operating subsidiaries and the settlement of the liability for that loss. The exact timing of the payment of losses cannot be predicted with certainty. White Mountains’s insurance and reinsurance operating subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of cash and short-term investments to provide adequate liquidity for the payment of claims.

Management believes that White Mountains’s cash balances, cash flows from operations and routine sales and maturities of investments are adequate to meet expected cash requirements for the foreseeable future at both a holding company and insurance, reinsurance and other operating subsidiary level.

Dividend Capacity

Following is a description of the dividend capacity of White Mountains’s insurance and reinsurance and other operating subsidiaries:

HG Global/BAM

As of December 31, 2023, HG Global had $619 million face value of preferred shares outstanding, of which White Mountains owned 96.9%. Holders of the HG Global preferred shares are entitled to receive cumulative dividends at a fixed annual rate of 6.0% on a quarterly basis, when and if declared by HG Global. As of December 31, 2023, HG Global had accrued $415 million of dividends payable to holders of its preferred shares, $400 million of which is payable to White Mountains and eliminated in consolidation. As of December 31, 2023, HG Global and its subsidiaries had less than $1 million of net unrestricted cash outside of HG Re.

On April 29, 2022, HG Global received the proceeds of its new $150 million, 10-year term loan credit facility. In turn, on May 2, 2022, HG Global paid a $120 million cash dividend to preferred shareholders, of which $116 million was paid to White Mountains.

HG Re is a special purpose insurer subject to regulation and supervision by the BMA. HG Re does not require regulatory approval to pay dividends; however, its dividend capacity is limited to amounts held outside of the Collateral Trusts pursuant to the FLRT with BAM. As of December 31, 2023, HG Re had $3 million of net unrestricted cash. As of December 31, 2023, HG Re had $106 million of accrued interest on the BAM Surplus Notes held outside the Collateral Trusts. As of December 31, 2023, HG Re had $784 million of statutory capital and surplus and $949 million of assets held in the Collateral Trusts.

On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT directly into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to HG Re’s unearned premiums and unpaid loss and LAE reserves, if any.  If, at the end of any quarter, the Regulation 114 Trust balance is below the target balance, funds will be withdrawn from the Supplemental Trust and deposited into the Regulation 114 Trust in an amount equal to the shortfall.  If, at the end of any quarter, the Regulation 114 Trust balance is above 102% of the target balance, funds will be withdrawn from the Regulation 114 Trust and deposited into the Supplemental Trust.  The Regulation 114 Trust balance as of December 31, 2023 and 2022 was $342 million and $289 million.

The Supplemental Trust Target Balance is $603 million, less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance. If, at the end of any quarter, the Supplemental Trust balance exceeds the Supplemental Trust Target Balance, such excess may be distributed to HG Re.  The distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities.  As the BAM Surplus Notes are repaid over time, the BAM Surplus Notes will be replaced in the Supplemental Trust by cash and fixed income securities. The Supplemental Trust balance as of December 31, 2023 and 2022 was $607 million and $568 million, which included $247 million and $214 million of cash, investments and accrued investment income, $322 million and $340 million of BAM Surplus Notes and $38 million and $14 million of interest receivable on the BAM Surplus Notes.

As of December 31, 2023, the Collateral Trusts held assets of $949 million, which included $589 million of cash, investments and accrued investment income, $322 million of BAM Surplus Notes and $38 million of interest receivable on the BAM Surplus Notes.

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Through 2024, the interest rate on the BAM Surplus Notes is a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually. Beginning in 2025, the rate will be fixed through maturity at the higher of the 2024 variable rate or 8.0%. Accordingly, beginning in 2024 and through maturity, the interest rate on the BAM Surplus Notes will be 8.2%. Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its “AA/stable” rating from Standard & Poor’s. No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS.

In December 2023, BAM made a $27 million cash payment of principal and interest on the BAM Surplus Notes held by HG Global. Of this payment, $18 million was a repayment of principal held in the Supplemental Trust, $2 million was a payment of accrued interest held in the Supplemental Trust and $7 million was a payment of accrued interest held outside the Supplemental Trust.

See Note 10 — “Municipal Bond Guarantee Insurance.”

Ark/WM Outrigger

During any 12-month period, GAIL, a class 4 licensed Bermuda insurer, has the ability to (i) make capital distributions of up to 15% of its total statutory capital per the previous year’s statutory financial statements, or (ii) make dividend payments of up to 25% of its total statutory capital and surplus per the previous year’s statutory financial statements, without prior approval of Bermuda regulatory authorities. Accordingly, GAIL will have the ability to pay a dividend of up to $272 million during 2024, which is equal to 25% of its December 31, 2023 statutory capital and surplus of $1,088 million, subject to meeting all appropriate liquidity and solvency requirements and the filing of its December 31, 2023 statutory financial statements. During 2023, GAIL paid a $15 million dividend to its immediate parent.

During 2023, Ark paid $24 million of dividends to shareholders, $17 million of which was paid to White Mountains. As of December 31, 2023, Ark and its intermediate holding companies had $1 million of net unrestricted cash, short-term investments and fixed maturity investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries.

WM Outrigger Re is a special purpose insurer subject to regulation and supervision by the BMA. WM Outrigger Re does not require regulatory approval to pay dividends; however, its dividend capacity is limited to amounts held outside of the collateral trust pursuant to the reinsurance agreement with GAIL. As of December 31, 2023, WM Outrigger Re had less than $1 million of net unrestricted cash and investments held outside the collateral trust. As of December 31, 2023, WM Outrigger Re had $273 million of statutory capital and surplus and $265 million of assets held in the collateral trusts pursuant to the reinsurance agreement with GAIL.

Kudu

During 2023, Kudu distributed $83 million to unitholders, $78 million of which was paid to White Mountains. As of December 31, 2023, Kudu had $16 million of net unrestricted cash and short-term investments.

Other Operations

During 2023, White Mountains paid a $3 million common share dividend.

As of December 31, 2023, the Company and its intermediate holding companies had $673 million of net unrestricted cash, short-term investments and fixed maturity investments, $255 million of MediaAlpha common stock, $138 million of common equity securities and $426 million of private equity and hedge funds, ILS funds and unconsolidated entities.

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Financing

The following table presents White Mountains’s capital structure as of December 31, 2023 and 2022:

(1)See Note 7 — “Debt” for details of debt arrangements.

(2) Net of unamortized issuance costs.

(3) Amount reflects White Mountains's preferred share ownership in HG Global of 96.9%.

Management believes that White Mountains has the flexibility and capacity to obtain funds externally through debt or equity financing on both a short-term and long-term basis. However, White Mountains can provide no assurance that, if needed, it would be able to obtain additional debt or equity financing on satisfactory terms, if at all.

It is possible that, in the future, one or more of the rating agencies may lower White Mountains’s and its subsidiaries’ existing ratings. If one or more of its ratings were lowered, White Mountains could incur higher borrowing costs on future borrowings, and its ability to access the capital markets could be impacted.

Covenant Compliance

As of December 31, 2023, White Mountains was in compliance, in all material respects, with all of the covenants under its debt instruments.

Contractual Obligations and Commitments

The following table presents White Mountains’s material contractual obligations and commitments as of December 31, 2023:

(1) Represents expected future cash outflows resulting from loss and LAE payments. The amounts presented are gross of reinsurance recoverables on unpaid losses of $340.8 as of December 31, 2023.

(2) The contingent consideration liabilities are primarily related to White Mountains’s acquisition of Ark. See Note 2 — “Significant Transactions” on page F-17.

(3) Includes amounts related to BAM’s operating leases of $2.1, $3.0 and $0.5 that are due in less than one year, two to three years and four to five years, which are attributed to noncontrolling interests. Includes amounts related to Ark’s new operating lease, which will not commence until 2024, of $4.2 and $17.5 that are due in four to five years and after five years.

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The long-term incentive compensation balances included in the table above include amounts payable for performance shares. Exact amounts to be paid for performance shares cannot be predicted with certainty, as the ultimate amounts of these liabilities are based on the future performance of White Mountains and the market price of the Company’s common shares at the time the payments are made.

The estimated payments reflected in the table are based on current accrual factors (including performance relative to targets and common share price) and assume that all outstanding balances were 100% vested as of December 31, 2023.

There are no provisions within White Mountains’s operating lease agreements that would trigger acceleration of future lease payments.

White Mountains does not finance its operations through the securitization of its trade receivables, through special purpose entities or through synthetic leases. Further, White Mountains has not entered into any material arrangements requiring it to guarantee payment of third-party debt or lease payments or to fund losses of an unconsolidated special purpose entity.

White Mountains also has future binding commitments to fund certain other long-term investments. These commitments, which totaled approximately $61 million as of December 31, 2023, do not have fixed funding dates and are therefore excluded from the table above.

Share Repurchase Programs

White Mountains’s Board of Directors has authorized the Company to repurchase its common shares from time to time, subject to market conditions. The repurchase authorizations do not have a stated expiration date. As of December 31, 2023, White Mountains may repurchase an additional 301,014 shares under these Board authorizations. In addition, from time to time White Mountains has also repurchased its common shares through self-tender offers that were separately approved by its Board of Directors.

The following table presents common shares repurchased by the Company as well as the average price per share as a percent of December 31, 2023 GAAP book value per share, adjusted book value per share and market value per share.

Cash Flows

Detailed information concerning White Mountains’s cash flows from continuing operations during 2023, 2022 and 2021 follows:

Cash flows from operations for the years ended 2023, 2022 and 2021

Net cash flows provided from (used for) operations was $404 million, $326 million and $(4) million for the years ended December 31, 2023, 2022 and 2021. Cash provided from (used for) operations was higher in 2023 compared to 2022, driven primarily by the cash inflow from Ark/WM Outrigger Re’s operations. Cash provided from (used for) operations was higher in 2022 compared to 2021, driven primarily by the cash inflow from Ark’s operations and the proceeds from Kudu’s Participation Contracts sold. White Mountains does not believe these trends will have a meaningful impact on its future liquidity or its ability to meet its future cash requirements. As of December 31, 2023, the Company and its intermediate holding companies had $673 million of net unrestricted cash, short-term investments and fixed maturity investments, $255 million of MediaAlpha common stock, $138 million of common equity securities and $426 million of private equity funds and hedge funds, ILS funds and unconsolidated entities.

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Cash flows from investing and financing activities for the year ended December 31, 2023

Financing and Other Capital Activities

During 2023, the Company declared and paid a $3 million cash dividend to its common shareholders.

During 2023, White Mountains repurchased and retired 24,165 of its common shares

for $33 million. Of the shares White Mountains repurchased in 2023, 4,629 were to satisfy employee income tax withholding pursuant to employee benefit plans.

During 2023, BAM received $73 million in MSC.

During 2023, BAM repaid $18 million of principal and paid $9 million of accrued interest on the BAM Surplus Notes.

During 2023, Kudu borrowed $12 million in term loans under the Kudu Credit Facility.

During 2023, Kudu repaid $17 million in term loans under the Kudu Credit Facility.

Acquisitions and Dispositions

On June 28, 2023, White Mountains completed a tender offer to purchase 5.9 million additional shares of MediaAlpha at a purchase price of $10.00 per share for a total cost of $59 million.

Cash flows from investing and financing activities for the year ended December 31, 2022

Financing and Other Capital Activities

During 2022, the Company declared and paid a $3 million cash dividend to its common shareholders.

During 2022, White Mountains repurchased and retired 461,256 of its common shares for $616 million. The majority of these shares were repurchased through a self-tender offer that White Mountains completed on September 26, 2022, through which it repurchased 327,795 of its common shares at a purchase price of $1,400 per share for a total cost of approximately $461 million, including expenses. Of the shares White Mountains repurchased in 2022, 4,011 were to satisfy employee income tax withholding pursuant to employee benefit plans.

During 2022, HG Global received net proceeds of $147 million from the issuance of the HG Global Senior Notes.

During 2022, BAM received $81 million in MSC.

During 2022, BAM repaid $25 million of principal and paid $11 million of accrued interest on the BAM Surplus Notes.

During 2022, Kudu borrowed $35 million and repaid $45 million in term loans under the Kudu Credit Facility.

Acquisitions and Dispositions

On May 26, 2022, Kudu raised $115 million of equity capital (the “Kudu Transaction”) from Massachusetts Mutual Life Insurance Company (“Mass Mutual”), White Mountains and Kudu management. Mass Mutual, White Mountains and Kudu management contributed $64 million, $50 million and $1 million in the Kudu Transaction, respectively.

On August 1, 2022, White Mountains closed the previously announced NSM Transaction. White Mountains received $1.4 billion in net cash proceeds at closing.

On December 20, 2022, Outrigger Re Ltd. issued non-voting redeemable preference shares on behalf of four segregated accounts to White Mountains and other unrelated third-party investors. White Mountains purchased 100% of the preference shares issued by its segregated account, WM Outrigger Re, for $205 million.

Cash flows from investing and financing activities for the year ended December 31, 2021

Financing and Other Capital Activities

During 2021, the Company declared and paid a $3 million cash dividend to its common shareholders.

During 2021, White Mountains repurchased and retired 98,511 of its common shares for $108 million, 7,218 of which were repurchased under employee benefit plans for statutory withholding tax payments.

During 2021, BAM received $62 million in MSC.

During 2021, BAM repaid $24 million of principal and paid $10 million of accrued interest on the BAM Surplus Notes.

During 2021, Ark issued $163 million face value floating rate unsecured subordinated notes at par in three transactions for proceeds of $158 million, net of debt issuance costs, and repaid €12 million ($14 million based upon the foreign exchange spot rate at the date of repayment) of the outstanding principal balance on the subordinated note to Dekania Europe CDO II plc (“Ark 2007 Notes Tranche 2”).

During 2021, Kudu borrowed $3 million in term loans under the Kudu Bank Facility.

On March 23, 2021, Kudu entered into the Kudu Credit Facility with an initial draw of $102 million, of which $92 million was used to repay the outstanding principal balance on its term loans under the Kudu Bank Facility. During 2021, Kudu borrowed an additional $130 million and repaid $7 million in term loans under the Kudu Credit Facility.

During 2021, White Mountains’s Other Operations borrowed $3 million and repaid $8 million under its three secured credit facilities.

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Acquisitions and Dispositions

On January 1, 2021 White Mountains completed the Ark Transaction, which included contributing $605 million of equity capital to Ark, at a pre-money valuation of $300 million, and purchasing $41 million of shares from certain selling shareholders. In the fourth quarter of 2020, White Mountains prefunded/placed in escrow a total of $646 million in preparation for closing the Ark Transaction.

On March 23, 2021, MediaAlpha completed a secondary offering of 8.05 million shares. In the secondary offering, White Mountains sold 3.6 million shares at $46.00 per share ($44.62 per share net of underwriting fees) for net proceeds of $160 million.

TRANSACTIONS WITH RELATED PERSONS

White Mountains does not have any related party transactions to report as of December 31, 2023.

NON-GAAP FINANCIAL MEASURES

This report includes five non-GAAP financial measures that have been reconciled with their most comparable GAAP financial measures.

Adjusted book value per share

Adjusted book value per share is a non-GAAP financial measure which is derived by adjusting (i) the GAAP book value per share numerator and (ii) the common shares outstanding denominator, as described below.

The GAAP book value per share numerator is adjusted (i) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global and (ii) to include a discount for the time value of money arising from the modeled timing of cash payments of principal and interest on the BAM Surplus Notes.

The value of HG Global’s unearned premium reserve, net of deferred acquisition costs, was $195 million, $179 million and $159 million as of December 31, 2023, 2022 and 2021, respectively.

Under GAAP, White Mountains is required to carry the BAM Surplus Notes, including accrued interest, at nominal value with no consideration for time value of money. Based on a debt service model that forecasts operating results for BAM through maturity of the BAM Surplus Notes, the present value of the BAM Surplus Notes, including accrued interest and using an 8.0% discount rate, was estimated to be $91 million, $98 million and $130 million less than the nominal GAAP carrying values as of December 31, 2023, 2022 and 2021, respectively.

White Mountains believes these adjustments are useful to management and investors in analyzing the intrinsic value of HG Global, including the value of the BAM Surplus Notes and the value of the in-force business at HG Re, HG Global’s reinsurance subsidiary.

The denominator used in the calculation of adjusted book value per share equals the number of common shares outstanding adjusted to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized. Restricted common shares are earned on a straight-line basis over their vesting periods. The reconciliation of GAAP book value per share to adjusted book value per share is included on page 45.

Kudu’s EBITDA and Kudu’s adjusted EBITDA

Kudu's EBITDA and adjusted EBITDA are non-GAAP financial measures. EBITDA is a non-GAAP financial measure that excludes interest expense on debt, income tax (expense) benefit, depreciation and amortization of other intangible assets from GAAP net income (loss). Adjusted EBITDA is a non-GAAP financial measure that excludes certain other items in GAAP net income (loss) in addition to those excluded from EBITDA. The adjustments relate to (i) net realized and unrealized investment gains (losses) on Kudu's Participation Contracts, (ii) non-cash equity-based compensation expense and (iii) transaction expenses. A description of each adjustment follows:

•Net realized and unrealized investment gains (losses) - Represents net unrealized investment gains and losses on Kudu’s Participation Contracts, which are recorded at fair value under GAAP, and net realized investment gains and losses on Kudu’s Participation Contracts sold during the period.

•Non-cash equity-based compensation expense - Represents non-cash expenses related to Kudu’s management compensation that are settled with equity units in Kudu.

•Transaction expenses - Represents costs directly related to Kudu’s mergers and acquisitions activity, such as external lawyer, banker, consulting and placement agent fees, which are not capitalized and are expensed under GAAP.

White Mountains believes that these non-GAAP financial measures are useful to management and investors in evaluating Kudu’s performance. The reconciliation of Kudu’s GAAP net income (loss) to EBITDA and adjusted EBITDA is included on page 59.

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Total consolidated portfolio return excluding MediaAlpha

Total consolidated portfolio return excluding MediaAlpha is a non-GAAP financial measure that removes the net investment income and net realized and unrealized investment gains (losses) from White Mountains’s investment in MediaAlpha. White Mountains believes this measure to be useful to management and investors by showing the underlying performance of White Mountains’s investment portfolio without regard to MediaAlpha.

The following table presents return reconciliations from GAAP to the reported percentages:

Total adjusted capital

Total capital at White Mountains is comprised of White Mountains’s common shareholders’ equity, debt and noncontrolling interests other than noncontrolling interests attributable to BAM. Total adjusted capital is a non-GAAP financial measure, which is derived by adjusting total capital (i) to include a discount for the time value of money arising from the expected timing of cash payments of principal and interest on the BAM Surplus Notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. The reconciliation of total capital to total adjusted capital is included on page 70.

CRITICAL ACCOUNTING ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The financial statements presented herein include all adjustments considered necessary by management to fairly present the financial condition, results of operations and cash flows of White Mountains.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain of these estimates are considered critical in that they involve a higher degree of judgment and are subject to a significant degree of variability. On an ongoing basis, management evaluates its estimates and bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

1. Fair Value Measurements

General

White Mountains records certain assets and liabilities at fair value in its consolidated financial statements, with changes therein recognized in current period earnings. In addition, White Mountains discloses estimated fair value for certain liabilities measured at historical or amortized cost. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at a particular measurement date. Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources (observable inputs) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (unobservable inputs). Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities (“Level 2”) and unobservable inputs, including the reporting entity’s estimates of the assumptions that market participants would use, having the lowest priority (“Level 3”).

Assets and liabilities carried at fair value include all of White Mountains’s investment portfolio and derivative instruments. Valuation of assets and liabilities measured at fair value require management to make estimates and apply judgment to matters that may carry a significant degree of uncertainty. In determining its estimates of fair value, White Mountains uses a variety of valuation approaches and inputs. Whenever possible, White Mountains estimates fair value using valuation methods that maximize the use of quoted market prices or other observable inputs. Where appropriate, assets and liabilities measured at fair value have been adjusted for the effect of counterparty credit risk.

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Invested Assets

White Mountains uses outside pricing services and brokers to assist in determining fair values. The outside pricing services White Mountains uses have indicated that they will only provide prices where observable inputs are available.

Level 1 Measurements

Investments valued using Level 1 inputs include White Mountains’s fixed maturity investments, primarily investments in U.S. Treasuries and short-term investments, which include U.S. Treasury Bills, common equity securities, and White Mountains’s investment in MediaAlpha. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value.

Level 2 Measurements

Investments valued using Level 2 inputs include fixed maturity investments which have been disaggregated into classes, including debt securities issued by corporations, municipal obligations, mortgage and asset-backed securities and collateralized loan obligations. Investments valued using Level 2 inputs also include certain international listed common equity funds, which White Mountains values using the fund manager’s published net asset value (“NAV”) to account for the difference in market exchange close times.

In circumstances where quoted market prices are unavailable or are not considered reasonable, White Mountains estimates the fair value using industry standard pricing methodologies and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, credit ratings, prepayment speeds, reference data including research publications and other relevant inputs. Given that many fixed maturity investments do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable fixed maturity investments vary by asset type and take into account market convention.

White Mountains’s process to assess the reasonableness of the market prices obtained from the outside pricing sources covers substantially all of its fixed maturity investments and includes, but is not limited to, the evaluation of pricing methodologies and a review of the pricing services’ quality control procedures on at least an annual basis, a comparison of its invested asset prices obtained from alternate independent pricing vendors on at least a semi-annual basis, monthly analytical reviews of certain prices and a review of the underlying assumptions utilized by the pricing services for select measurements on an ad hoc basis throughout the year. White Mountains also performs back-testing of selected investment sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sale price of the security on an ad hoc basis throughout the year. Prices provided by the pricing services that vary by more than $0.5 million and 5% from the expected price based on these assessment procedures are considered outliers, as are prices that have not changed from period to period and prices that have trended unusually compared to market conditions. In circumstances where the results of White Mountains’s review process does not appear to support the market price provided by the pricing services, White Mountains challenges the vendor provided price. If White Mountains cannot gain satisfactory evidence to support the challenged price, White Mountains will rely upon its own internal pricing methodologies to estimate the fair value of the security in question.

The valuation process described above is generally applicable to all of White Mountains’s fixed maturity investments. The techniques and inputs specific to asset classes within White Mountains’s fixed maturity investments for Level 2 securities that use observable inputs are as follows:

Debt Securities Issued by Corporations:

The fair value of debt securities issued by corporations is determined from a pricing evaluation technique that uses information from market sources and integrates relative credit information, observed market movements, and sector news. Key inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications.

Municipal Obligations:

The fair value of municipal obligations is determined from a pricing evaluation technique that uses information from market makers, brokers-dealers, buy-side firms, and analysts along with general market information. Key inputs include benchmark yields, reported trades, issuer financial statements, material event notices and new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including type, coupon, credit quality ratings, duration, credit enhancements, geographic location and market research publications.

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Mortgage and Asset-Backed Securities and Collateralized Loan Obligations:

The fair value of mortgage and asset-backed securities and collateralized loan obligations is determined from a pricing evaluation technique that uses information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data, collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings and market research publications.

Level 3 Measurements

Fair value estimates for investments that trade infrequently and have few or no quoted market prices or other observable inputs are classified as Level 3 measurements. Investments valued using Level 3 fair value estimates are based upon unobservable inputs and include investments in certain fixed maturity investments, common equity securities and other long-term investments where quoted market prices or other observable inputs are unavailable or are not considered reliable or reasonable.

Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable inputs reflect White Mountains’s assumptions of what market participants would use in valuing the investment. In certain circumstances, investment securities may start out as Level 3 when they are originally issued, but as observable inputs become available in the market, they may be reclassified to Level 2. Transfers of securities between levels are based on investments held as of the beginning of the period.

Other Long-Term Investments

As of December 31, 2023, $1,138 million of White Mountains’s other long-term investments, which consisted primarily of unconsolidated entities, including Kudu’s Participation Contracts and PassportCard/DavidShield, were classified as Level 3 investments in the GAAP fair value hierarchy. The determination of the fair value of these securities involves significant management judgment, and the use of valuation analyses and assumptions that are inherently subjective and uncertain. See Item 1A. Risk Factors, “Our investment portfolio includes securities that do not have readily observable market prices. We use valuation methodologies that are inherently subjective and uncertain to value these securities. The values of securities established using these methodologies may never be realized, which could materially adversely affect our results of operations and financial condition.” on page 34.

White Mountains may use a variety of valuation techniques to determine fair value depending on the nature of the investment, including a discounted cash flow analysis, market multiple approach, cost approach and/or liquidation analysis. On an ongoing basis, White Mountains also considers qualitative changes in facts and circumstances, which may impact the valuation of its unconsolidated entities, including economic and market changes in relevant industries, changes to the entity’s capital structure, business strategy and key personnel and any recent transactions. On a quarterly basis, White Mountains evaluates the most recent qualitative and quantitative information of the business and completes a fair valuation analysis for all other long-term investments classified as Level 3 investments. Periodically, and at least on an annual basis, White Mountains uses a third-party valuation firm to complete an independent valuation analysis of significant unconsolidated entities.

As of December 31, 2023, White Mountains’s most significant other long-term investments that are fair valued using Level 3 measurements include Kudu’s Participation Contracts and its investment in PassportCard/DavidShield.

Valuation of Kudu’s Participation Contracts

Kudu’s Participation Contracts comprise noncontrolling equity interests in the form of revenue and earnings participation contracts. As of December 31, 2023, the combined fair value of Kudu’s Participation Contracts was $891 million. On a quarterly basis, White Mountains fair values each of Kudu’s Participation Contracts, typically using a discounted cash flow analysis. As of December 31, 2023, one of Kudu’s Participation Contracts, with a fair value of $69 million, was valued using a probability weighted expected return method, which takes into account factors such as a discounted cash flow analysis, the expected value to be received in a pending sales transaction and the likelihood that a sales transaction will take place.

The discounted cash flow analyses used to fair value Kudu’s Participation Contracts include key inputs, such as projections of future revenues and earnings of Kudu’s underlying managers, a discount rate and a terminal cash flow exit multiple. The expected future cash flows are based on management judgment, considering current performance, budgets and projected future results. The discount rates reflect the weighted average cost of capital, considering comparable public company data and adjusted for risks specific to the business and industry. The terminal cash flow exit multiple is generally based on expectations of annual cash flow to Kudu from each of its underlying managers in the terminal year of the discounted cash flow analysis. In determining fair value, White Mountains considers factors for each underlying manager, such as performance of products and vehicles, expected client growth rates, new fund launches, fee rates by products, capacity constraints, operating cash flows and other qualitative factors, including the assessment of key personnel. The inputs to each discounted cash flow analysis vary depending on the nature of each underlying manager. As of December 31, 2023, White Mountains concluded that pre-tax discount rates in the range of 18% to 25% and terminal cash flow exit multiples in the range of 7 to 22 times were appropriate inputs for the discounted cash flow analyses used to fair value Kudu’s Participation Contracts.

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With a discounted cash flow analysis, small changes to key inputs may result in significant changes to fair value. The following table presents the estimated effect on the fair value of Kudu’s Participation Contracts as of December 31, 2023, resulting from changes in key inputs to the discounted cash flow analysis, including discount rates and terminal cash flow exit multiples:

(1) Since Kudu’s Participation Contracts are not subject to corporate taxes within Kudu Investment Management, LLC, pre-tax discount rates are applied to pre-tax cash flows in determining fair values.

Valuation of PassportCard/DavidShield

On a quarterly basis, White Mountains values its investment in PassportCard/DavidShield using a discounted cash flow analysis. The discounted cash flow analysis used to fair value PassportCard/DavidShield includes key inputs, such as projections of future revenues and earnings, a discount rate and a terminal revenue growth rate. The expected future cash flows are based on management judgment, considering current performance, budgets and projected future results. The discount rate reflects the weighted average cost of capital, considering comparable public company data and adjusted for risks specific to the business and industry. The terminal revenue growth rate is based on company, industry and macroeconomic expectations of perpetual revenue growth subsequent to the end of the discrete period in the discounted cash flow analysis.

When making its fair value selection, which is within a range of reasonable values derived from the discounted cash flow analysis, White Mountains considers all available information, including any relevant market multiples and multiples implied by recent transactions, facts and circumstances specific to PassportCard/DavidShield’s businesses and industries and any infrequent or unusual results for the period.

As of December 31, 2023, White Mountains concluded that an after-tax discount rate of 24% and a terminal revenue growth rate of 4% were appropriate for the valuation of its investment in PassportCard/DavidShield. Utilizing these assumptions and all available information, White Mountains determined that the fair value of its investment in PassportCard/DavidShield was $150 million as of December 31, 2023.

Revenues from leisure travel insurance placed by PassportCard grew through the first nine months of 2023 but declined significantly in the fourth quarter due to the events of October 7, 2023 and the resulting war in Gaza. PassportCard expects leisure travel in Israel to remain depressed until the war abates and international carriers resume flights in and out of Tel Aviv. Revenues from international private medical insurance (“IPMI”) placed by DavidShield were less impacted and grew slightly year over year. Revenues from international operations, including European IPMI and Australian leisure travel, also grew year over year. White Mountains does not expect the war to have a material impact on White Mountains’s results of operations or financial condition.

With a discounted cash flow analysis, small changes to key inputs may result in significant changes to fair value. The following table presents the estimated effect on the fair value of White Mountains’s investment in PassportCard/DavidShield as of December 31, 2023, resulting from changes in key inputs to the discounted cash flow analysis, including the discount rate and terminal revenue growth rate:

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Other Long-term Investments - NAV

As of December 31, 2023, $834 million of White Mountains’s other long-term investments, which consisted of a private equity funds and hedge funds, a bank loan fund, Lloyd’s trust deposits and ILS funds, were valued at fair value using NAV as a practical expedient. Investments for which fair value is measured using NAV as a practical expedient are not classified within the fair value hierarchy.

White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for other long-term investments measured at NAV, including obtaining and reviewing interim unaudited and annual audited financial statements as well as periodically discussing the valuations and methodologies used to value the underlying investments of each fund with fund managers. However, since fund managers do not provide sufficient information to evaluate the pricing methods and inputs for each underlying investment, White Mountains considers the valuation inputs to be unobservable. The fair value of White Mountains’s other long-term investments measured at NAV are generally determined using the fund manager’s NAV. In the event that White Mountains believes the fair value of the fund differs from the NAV reported by the fund manager due to illiquidity or other factors, White Mountains will make an adjustment to the reported NAV to more appropriately represent the fair value of its other long-term investment.

Sensitivity Analysis on Other Long-term Investments - NAV

The underlying investments of White Mountains’s private equity funds and hedge funds typically consist of publicly-traded and private securities whose exit strategies often depend on equity market conditions. These investments are based on quoted market prices or fund managers’ estimates of fair value, which could cause the amount realized upon sale to differ from current reported fair values. The fluctuations in fair value may result from a variety of risks, such as changes in the economic characteristics, the relative price of alternative investments, supply and demand and other equity market factors.

The underlying investments of White Mountains’s bank loan fund consist primarily of U.S. dollar-denominated, non-investment grade, floating-rate senior secured loans and may consist of other financial instruments, such as secured and unsecured corporate debt, credit default swaps, reverse repurchase agreements and synthetic indices. These investments are subject to credit spread and interest rate risk and may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other market factors.

The underlying investments of White Mountains’s multi-investor ILS funds consist primarily of catastrophe bonds, collateralized reinsurance investments and industry loss warranties. In addition to catastrophe event risk, the underlying investments are also subject to a variety of other risks, including modeling, liquidity, market, collateral credit quality, counterparty financial strength, interest rate and currency risks.

See Note 3 — “Investment Securities” on page F-20 for tables that summarize the changes in White Mountains’s fair value measurements by level as of December 31, 2023 and 2022, and, for investments held at the end of the period, the total net unrealized gains (losses) attributable to Level 3 investments for the years ended December 31, 2023, 2022 and 2021.

2. Surplus Note Valuation

BAM Surplus Notes

As of December 31, 2023, White Mountains owned $322 million of BAM Surplus Notes and had accrued $175 million in interest due thereon. BAM made cash payments of principal and interest on the BAM Surplus Notes of $27 million, $36 million and $34 million in 2023, 2022 and 2021, respectively.

Because BAM is consolidated in White Mountains’s financial statements, the BAM Surplus Notes and accrued interest are classified as intercompany notes, carried at face value and eliminated in consolidation. However, the BAM Surplus Notes and accrued interest are carried as assets at HG Global, of which White Mountains owns 96.9% of the preferred equity and 88.4% of the common equity, while the BAM Surplus Notes are carried as liabilities at BAM, which White Mountains has no ownership interest in and is completely attributed to noncontrolling interests.

Any write-down of the carrying value of the BAM Surplus Notes and/or the accrued interest thereon could adversely impact White Mountains’s results of operations and financial condition. See Item 1A., Risk Factors, “If BAM does not pay some or all of the principal and interest due on the BAM Surplus Notes, it could materially adversely affect our results of operations and financial condition.” on page 28.

Periodically, White Mountains’s management reviews the recoverability of amounts recorded from the BAM Surplus Notes. As of December 31, 2023, White Mountains believes such notes and interest thereon to be fully recoverable. White Mountains’s review is based on a debt service model that forecasts operating results for BAM and related payments on the BAM Surplus Notes through maturity of the BAM Surplus Notes in 2042. The model depends on assumptions regarding future trends for the issuance of municipal bonds, interest rates, credit spreads, insured market penetration, competitive activity in the market for municipal bond insurance and other factors affecting the demand for and pricing of BAM’s municipal bond insurance.

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As of December 31, 2023, White Mountains debt service model indicated that the BAM Surplus Notes would be fully repaid approximately five years prior to final maturity, which is generally consistent with the results of the update of the debt service model as of December 31, 2022. The debt service model assumes both par insured and total pricing gradually increase from 2024 to 2026 and flatten thereafter. Assumptions regarding future trends for these factors are a matter of significant judgment, and whether actual results will follow the model is subject to a number of risks and uncertainties.

Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its “AA/stable” rating from Standard & Poor’s. No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS.

Interest payments on the BAM Surplus Notes are due quarterly but are subject to deferral, without penalty or default and without compounding, for payment in the future. Payments made on the BAM Surplus Notes are applied pro rata between outstanding principal and interest. Deferred interest is due on the stated maturity date in 2042.

3. Ark’s Loss and LAE Reserves

General

Ark establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. The process of estimating loss and LAE reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. See Note 5 — “Loss and Loss Adjustment Expense Reserves” on page F-33 for a description of Ark’s loss and LAE reserves and actuarial methods.

Ark performs an actuarial review of its recorded loss and LAE reserves each quarter, using several generally accepted actuarial methods to evaluate its loss reserves, each of which has its own strengths and weaknesses. Management bases its level of reliance on a particular method based on the facts and circumstances at the time the reserve estimates are made.

As part of Ark’s quarterly actuarial review, Ark compares the previous quarter’s projections of incurred, paid and case reserve activity, including amounts incurred but not reported, to actual amounts experienced in the quarter. Differences between previous estimates and actual experience are evaluated to determine whether a given actuarial method for estimating loss and LAE reserves should be relied upon to a greater or lesser extent than it had been in the past. While some variance is expected each quarter due to the inherent uncertainty in estimating loss and LAE reserves, persistent or large variances would indicate that prior assumptions and/or reliance on certain actuarial methods may need to be revised going forward.

Upon completion of each quarterly review, Ark selects indicated loss and LAE reserve levels based on the results of the relevant actuarial methods, which are the primary consideration in determining management’s best estimate of required loss and LAE reserves. However, in making its best estimate, management also considers other qualitative factors that may lead to a difference between held reserves and actuarially indicated reserve levels. Typically, these qualitative factors are considered when management and Ark’s actuaries conclude that there is insufficient historical incurred and paid loss information or that there is particular uncertainty about whether trends included in the historical incurred and paid loss information are likely to repeat in the future. Such qualitative factors include, among others, recent entry into new markets or new products, improvements in the claims department that are expected to lessen future ultimate loss costs, legal and regulatory developments, inflation, climate change or other uncertainties that may arise.

The process of establishing loss and LAE reserves, including amounts incurred but not reported, is complex and imprecise, as it must consider many variables that are subject to the outcome of future events. As a result, informed subjective estimates and judgments as to Ark’s ultimate exposure to losses are an integral component of the loss and LAE reserving process. Ark categorizes and tracks insurance and reinsurance reserves by “reserving class of business” for each underwriting office, London and Bermuda, and then aggregates the reserving classes by line of business, which are summarized herein as property and accident & health, specialty, marine & energy, casualty-active and casualty-runoff.

Ark regularly reviews the appropriateness of its loss and LAE reserves at the reserving class of business level, considering a variety of trends that impact the ultimate settlement of claims for the subsets of claims in each particular reserving class. Losses and LAE are categorized by the year in which the policy is underwritten (the year of account, or underwriting year) for purposes of Ark’s claims management and estimation of the ultimate loss and LAE reserves. For purposes of Ark’s reporting under GAAP, losses and LAE are categorized by the accident year.

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Impact of Third-Party Capital

For the years of account prior to the Ark Transaction, a significant proportion of the Syndicates’ underwriting capital was provided by TPC Providers using whole account reinsurance contracts with Ark’s corporate member. For the years of account subsequent to the Ark Transaction, Ark is no longer using TPC Providers to provide underwriting capital for the Syndicates.

A Reinsurance to Close (“RITC”) agreement is generally put in place after the third year of operations for a year of account such that the outstanding loss and LAE reserves, including future development thereon, are reinsured into the next year of account. As a result, and in combination with the changing participation provided by TPC Providers, Ark’s participation on outstanding loss and LAE reserves reinsured into the next year of account changes. For example, during 2023, an RITC was executed such that the outstanding loss and LAE reserves for claims arising out of the 2020 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates was 42.8%, were reinsured into the 2021 year of account, for which the TPC Providers’ participation in the total net results of the Syndicates is 0.0%. After 2023, Ark is no longer subject to changes in TPC Providers’ participation.

Loss and LAE Reserves by Line of Business

The following table summarizes Ark’s loss and LAE reserves, net of reinsurance recoverables on unpaid losses, as of December 31, 2023: