UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the period ended September 30, 20172018
 
OR
 
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to         
 
Commission file number 1-8993

WHITE MOUNTAINS INSURANCE GROUP, LTD.
(Exact name of Registrant as specified in its charter)
Bermuda 94-2708455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
80 South Main Street, 03755-2053
Hanover, New Hampshire (Zip Code)
(Address of principal executive offices)  
 
Registrant’s telephone number, including area code: (603) 640-2200
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes   ý   No   o
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes   ý    No   o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  ý

As of November 7, 2017, 3,749,9712, 2018, 3,180,540 common shares with a par value of $1.00 per share were outstanding (which includes 53,55441,509 restricted common shares that were not vested at such date).

WHITE MOUNTAINS INSURANCE GROUP, LTD.

Table of Contents
 
  Page No.
   
PART I.
FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements (Unaudited)
 
   
 Consolidated Balance Sheets, September 30, 20172018 and December 31, 20162017
1
   
 
Consolidated Statements of Operations and Comprehensive Income,
 
      Three and Nine Months Ended September 30, 20172018 and 20162017
23
   
 Consolidated Statements of Changes in Equity, Nine Months Ended September 30, 20172018 and 20162017
35
   
 Consolidated Statements of Cash Flows, Nine Months Ended September 30, 20172018 and 20162017
46
   
 
Notes to Consolidated Financial Statements
57
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
5141
   
 Results of Operations for the Three and Nine Months Ended September 30, 20172018 and 20162017
5141
   
 
Liquidity and Capital Resources
6958
   
 
Fair Value Considerations
7463
   
 
Non-GAAP Financial Measures
7664
   
 
Critical Accounting Estimates
7765
   
 
Forward-Looking Statements
7865
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
7866
   
Item 4.
Controls and Procedures
7966
   
PART II.
OTHER INFORMATION
7966
   
Items 1 through 6.
7966
   
SIGNATURES
8067


Part I.FINANCIAL INFORMATION.
Item 1.Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Millions, except��share amounts) September 30,
2017		 December 31,
2016
Assets (Unaudited)  
Fixed maturity investments, at fair value $1,490.0
 $2,081.1
Short-term investments, at amortized cost (which approximates fair value) 786.5
 174.9
Common equity securities, at fair value 774.4
 285.6
Other long-term investments 229.6
 172.8
Total investments 3,280.5
 2,714.4
Cash 48.6
 80.2
Insurance premiums receivable 4.5
 1.6
Deferred acquisition costs 14.1
 10.6
Accrued investment income 15.4
 14.8
Accounts receivable on unsettled investment sales 190.1
 4.8
Goodwill and other intangible assets 37.8
 45.2
Other assets 46.1
 49.1
Assets held for sale —
 3,599.5
Total assets $3,637.1
 $6,520.2
Liabilities  
  
Unearned insurance premiums $118.5
 $82.9
Debt 9.4
 12.7
Accrued incentive compensation 76.9
 95.7
Accounts payable on unsettled investment purchases 49.7
 —
Other liabilities 45.4
 43.6
Liabilities held for sale —
 2,569.3
Total liabilities 299.9
 2,804.2
Equity  
  
White Mountains’s common shareholders’ equity  
  
White Mountains’s common shares at $1 par value per share - authorized 50,000,000 shares;  
  
    issued and outstanding 3,749,971 and 4,563,814 shares 3.7
 4.6
Paid-in surplus 665.6
 806.1
Retained earnings 2,800.8
 2,776.6
Accumulated other comprehensive loss, after tax:    
Net unrealized foreign currency translation losses (1.3) (1.4)
Accumulated other comprehensive loss from net change
     in benefit plan assets and obligations
 —
 (3.2)
Total White Mountains’s common shareholders’ equity 3,468.8
 3,582.7
Non-controlling interests (131.6) 133.3
Total equity 3,337.2
 3,716.0
Total liabilities and equity $3,637.1
 $6,520.2
  September 30, 2018 December 31, 2017
Millions, except share and per share amounts  
Assets Unaudited  
Financial Guarantee (HG Global/BAM)    
     Fixed maturity investments, at fair value $677.7
 $623.6
     Short-term investments, at fair value 35.9
 69.8
     Total investments 713.6
 693.4
     Cash 17.9
 25.6
     Insurance premiums receivable 6.3
 4.5
     Deferred acquisition costs 17.6
 14.8
     Accrued investment income 4.8
 3.4
     Accounts receivable on unsettled investment sales .2
 .1
     Other assets 5.1
 5.6
     Total Financial Guarantee assets 765.5
 747.4
     
Specialty Insurance Distribution (NSM)    
     Short-term investments, at fair value .9
 —
     Cash (restricted $41.2) 60.6
 —
Premium and commission receivable 29.1
 —
     Goodwill and other intangible assets 431.0
 —
     Other assets 18.8
 —
Total Specialty Insurance Distribution assets 540.4
 —
     
Marketing Technology (MediaAlpha)    
     Cash 13.0
 9.1
     Goodwill and other intangible assets 45.9
 53.7
     Accounts receivable from publishers and advertisers 35.9
 32.4
     Other assets 2.2
 1.3
     Total Marketing Technology assets 97.0
 96.5
     
Other    
     Fixed maturity investments, at fair value 354.2
 1,506.1
     Short-term investments, at fair value 276.9
 106.3
     Common equity securities, at fair value 1,043.5
 866.1
     Other long-term investments 289.7
 208.8
     Total investments 1,964.3
 2,687.3
     Cash 20.7
 62.4
     Accrued investment income 5.7
 13.9
     Accounts receivable on unsettled investment sales 3.3
 20.9
     Goodwill and other intangible assets 8.3
 8.4
     Other assets 14.3
 19.1
     Assets held for sale 3.3
 3.3
     Total Other assets 2,019.9
 2,815.3
Total assets $3,422.8
 $3,659.2
 See Notes to Consolidated Financial Statements


CONSOLIDATED BALANCE SHEETS (CONTINUED)
  September 30, 2018 December 31, 2017
Millions, except share and per share amounts  
Liabilities Unaudited  
Financial Guarantee (HG Global/BAM)    
     Unearned insurance premiums $156.2
 $136.8
     Accounts payable on unsettled investment purchases 6.5
 .6
     Other liabilities 30.0
 29.6
     Total Financial Guarantee liabilities 192.7
 167.0
     
Specialty Insurance Distribution (NSM)    
Debt 149.3
 —
Premiums payable 56.6
 —
Contingent consideration earnout liabilities 20.1
 —
     Other liabilities 27.7
 —
Total Specialty Insurance Distribution liabilities 253.7
 —
     
Marketing Technology (MediaAlpha)    
     Debt 15.0
 23.8
     Amounts due to publishers and advertisers 37.7
 31.6
     Other liabilities 3.9
 4.4
     Total Marketing Technology liabilities 56.6
 59.8
     
Other    
Accrued incentive compensation 40.3
 60.6
Accounts payable on unsettled investment purchases 14.2
 —
Other liabilities 25.7
 11.0
Total Other liabilities 80.2
 71.6
Total liabilities 583.2
 298.4
     
Equity    
White Mountains’s common shareholders’ equity    
White Mountains’s common shares at $1 par value per share—authorized 50,000,000
shares; issued and outstanding 3,180,540 and 3,750,171 shares		 3.2
 3.8
Paid-in surplus 576.3
 666.8
Retained earnings 2,407.3
 2,823.2
Accumulated other comprehensive loss, after-tax:    
Net unrealized foreign currency translation losses and interest rate swap (2.8) (1.3)
     Total White Mountains’s common shareholders’ equity 2,984.0
 3,492.5
Non-controlling interests (144.4) (131.7)
Total equity 2,839.6
 3,360.8
Total liabilities and equity $3,422.8
 $3,659.2
See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
  Three Months Ended Nine Months Ended
  September 30, September 30,
(Millions, except per share amounts) 2017 2016 2017 2016
Revenues:        
Earned insurance premiums $2.4
 $3.4
 $7.6
 $10.2
Net investment income 12.2
 9.6
 39.7

18.2
Net realized and unrealized investment gains 32.5
 10.9
 102.5

27.2
Advertising and commission revenues 38.8
 28.2
 103.9
 89.6
Other revenue 1.6
 4.7
 6.1
 18.0
Total revenues 87.5
 56.8
 259.8
 163.2
Expenses:      
  
Loss and loss adjustment expenses —
 2.2
 1.1
 6.8
Insurance acquisition expenses .9
 1.3
 3.1
 4.4
Other underwriting expenses .1
 .2
 .3
 .4
Cost of sales 33.1
 24.0
 88.7
 76.9
General and administrative expenses 44.1
 42.4
 162.2
 144.9
Interest expense .9
 .5
 1.8
 2.6
Total expenses 79.1
 70.6
 257.2
 236.0
Pre-tax income (loss) from continuing operations 8.4
 (13.8) 2.6
 (72.8)
Income tax benefit 4.0
 17.1
 5.3
 22.7
Net income (loss) from continuing operations 12.4
 3.3
 7.9
 (50.1)
Gain from sale of other discontinued operations, net of tax 554.3
 47.9
 552.7
 414.5
Net (loss) income from discontinued operations, net of tax (15.2) 36.5
 20.5
 100.9
         
Net income 551.5
 87.7
 581.1
 465.3
Net loss (income) attributable to non-controlling interests 10.6
 3.1
 23.6
 (24.6)
Net income attributable to White Mountains’s common shareholders 562.1
 90.8
 604.7
 440.7
Comprehensive income, net of tax:      
  
Change in foreign currency translation, net of tax —
 .2
 .2
 (.4)
Comprehensive income from discontinued operations, net of tax 3.0
 (.3) 3.2
 145.8
Comprehensive income 565.1
 90.7
 608.1
 586.1
Other comprehensive income attributable to non-controlling interests —
 .1
 (.1) .1
Comprehensive income attributable to White Mountains’s
common shareholders		 $565.1
 $90.8
 $608.0
 $586.2
Income per share attributable to White Mountains’s common shareholders      
  
Basic income (loss) per share        
Continuing operations $5.36
 $1.31
 $7.03
 $(14.47)
Discontinued operations 125.45
 17.34
 128.03
 99.75
Total consolidated operations $130.81
 $18.65
 $135.06
 $85.28
Diluted income (loss) per share      
  
Continuing operations $5.36
 $1.31
 $7.03
 $(14.47)
Discontinued operations 125.45
 17.30
 128.03
 99.60
Total consolidated operations $130.81
 $18.61
 $135.06
 $85.13
Dividends declared per White Mountains’s common share $—
 $—
 $1.00
 $1.00


  Three Months Ended September 30, Nine Months Ended September 30,
Millions 2018 2017 2018 2017
Revenues:        
Financial Guarantee (HG Global/BAM)        
   Earned insurance premiums $3.3
 $2.4
 $9.7
 $6.6
   Net investment income 4.8
 3.3
 12.5
 8.9
   Net realized and unrealized investment (losses) gains (4.1) .8
 (14.4) 3.2
   Other revenues .2
 .2
 .8
 .8
Total Financial Guarantee revenues 4.2
 6.7
 8.6
 19.5
Specialty Insurance Distribution (NSM)        
Commission revenues 36.6
 —
 59.2
 —
Other revenues 3.1
 —
 4.0
 —
Total Specialty Insurance Distribution revenues 39.7
 —
 63.2
 —
Marketing Technology (MediaAlpha)        
   Advertising and commission revenues 74.5
 37.9
 216.4
 101.2
Other revenues —
 —
 1.6
 —
Total Marketing Technology revenues 74.5
 37.9
 218.0
 101.2
Other        
   Net investment income 8.6
 8.9
 32.4
 30.8
Net realized and unrealized investment gains 70.2
 31.7
 37.3
 99.3
   Advertising and commission revenues 1.1
 .9
 3.0
 2.7
   Other revenues .4
 1.4
 .6
 6.3
Total Other revenues 80.3
 42.9
 73.3
 139.1
Total revenues 198.7
 87.5
 363.1
 259.8
         
Expenses:        
Financial Guarantee (HG Global/BAM)        
   Insurance acquisition expenses 1.2
 .9
 3.9
 3.0
   Other underwriting expenses .1
 .1
 .3
 .3
   General and administrative expenses 11.3
 10.6
 36.5
 31.5
Total Financial Guarantee expenses 12.6
 11.6
 40.7
 34.8
Specialty Insurance Distribution (NSM)        
General and administrative expenses 25.8
 —
 37.9
 —
Broker commission expense 10.9
 —
 17.5
 —
Amortization of other intangible assets 5.0
 —
 5.0
 —
Interest expense 3.2
 —
 4.8
 —
Total Specialty Insurance Distribution expenses 44.9
 —
 65.2
 —
Marketing Technology (MediaAlpha)        
   Cost of sales 61.8
 32.2
 179.1
 86.0
   General and administrative expenses 5.4
 3.8
 21.2
 10.7
   Amortization of other intangible assets 2.4
 2.3
 7.8
 7.2
   Interest expense .2
 .1
 .9
 .6
Total Marketing Technology expenses 69.8
 38.4
 209.0
 104.5
Other        
   Cost of sales 1.1
 .9
 2.9
 2.7
   General and administrative and other expenses 26.0
 27.3
 79.0
 113.9
   Amortization of other intangible assets —
 .1
 .1
 .1
   Interest expense —
 .8
 .3
 1.2
Total Other expenses 27.1
 29.1
 82.3
 117.9
Total expenses 154.4
 79.1
 397.2
 257.2
Pre-tax income (loss) from continuing operations 44.3
 8.4
 (34.1) 2.6
   Income tax benefit 3.6
 4.0
 .4
 5.3
Net income (loss) from continuing operations 47.9
 12.4
 (33.7) 7.9
Net (loss) gain from sale of discontinued operations, net of tax (17.3) 554.3
 (17.2) 552.7
   Net (loss) income from discontinued operations, net of tax —
 (15.2) —
 20.5
Net income (loss) 30.6
 551.5
 (50.9) 581.1
   Net loss attributable to non-controlling interests 10.2
 10.6
 47.2
 23.6
Net income (loss) attributable to White Mountains’s common shareholders $40.8
 $562.1
 $(3.7) $604.7
See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

  Three Months Ended September 30, Nine Months Ended September 30,
Millions 2018 2017 2018 2017
Net income (loss) attributable to White Mountains’s common
   shareholders
 $40.8
 $562.1
 $(3.7) $604.7
Other comprehensive income, net of tax:        
Other comprehensive (loss) income, net of tax (.8) —
 (1.7) .2
Comprehensive income from discontinued operations, net of tax —
 3.0
 —
 3.2
Comprehensive income 40.0
 565.1
 (5.4) 608.1
Comprehensive income (loss) attributable to non-controlling interests .2
 —
 .2
 (.1)
Comprehensive income (loss) attributable to White Mountains’s
   common shareholders
 $40.2
 $565.1
 $(5.2) $608.0
See Notes to Consolidated Financial Statements.



WHITE MOUNTAINS INSURANCE GROUP, LTD.
EARNINGS PER SHARE (Unaudited)

  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Basic earnings (loss) per share        
Continuing operations $18.27
 $5.36
 $3.90
 $7.03
Discontinued operations (5.44) 125.45
 (4.98) 128.03
Total consolidated operations $12.83
 $130.81
 $(1.08) $135.06
Diluted earnings (loss) per share        
Continuing operations $18.27
 $5.36
 $3.90
 $7.03
Discontinued operations (5.44) 125.45
 (4.98) 128.03
Total consolidated operations $12.83
 $130.81
 $(1.08) $135.06
Dividends declared and paid per White Mountains’s common share $—
 $—
 $1.00
 $1.00
See Notes to Consolidated Financial Statements.


WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 White Mountains’s Common Shareholders’ Equity     White Mountains’s Common Shareholders’ Equity    
(Millions) Common shares and paid-in surplus Retained earnings AOCI, after tax Total Non-controlling interest Total Equity Common shares and paid-in surplus Retained earnings AOCI, after tax Total Non-controlling interest Total Equity
Balance at January 1, 2017 $810.7
 $2,776.6
 $(4.6) $3,582.7
 $133.3
 $3,716.0
Net income —
 604.7
 —
 604.7
 (23.6) 581.1
Net change in foreign currency translation and
benefit plan assets and obligations
 —
 —
 .4
 .4
 .1
 .5
Recognition of benefit plan assets and obligations
from the sale of OneBeacon
 —
 —
 2.9
 2.9
 —
 2.9
Total comprehensive income —
 604.7
 3.3
 608.0
 (23.5) 584.5
Balance at January 1, 2018 $670.6
 $2,823.2
 $(1.3) $3,492.5
 $(131.7) $3,360.8
Net loss —
 (3.7) —
 (3.7) (47.2) (50.9)
Net change in foreign currency translation and other —
 —
 (1.5) (1.5) —
 (1.5)
Total comprehensive loss —
 (3.7) (1.5) (5.2) (47.2) (52.4)
Dividends declared on common shares —
 (4.6) —
 (4.6) —
 (4.6) —
 (3.8) —
 (3.8) —
 (3.8)
Dividends to non-controlling interests —
 —
 —
 —
 (17.7) (17.7) —
 —
 —
 —
 (6.0) (6.0)
Repurchases and retirements of common shares (147.9) (575.9) —
 (723.8) (5.2) (729.0) (104.6) (408.4) —
 (513.0) —
 (513.0)
Issuances of common shares 1.7
 —
 —
 1.7
 —
 1.7
 2.0
 —
 —
 2.0
 —
 2.0
Deconsolidation of non-controlling interests
associated with the sale of Star & Shield
 —
 —
 —
 —
 (4.4) (4.4)
Deconsolidation of non-controlling interests
associated with the sale of OneBeacon		 —
 —
 —
 —
 (238.3) (238.3)
Issuance of shares to non-controlling interests (4.1) —
 —
 (4.1) 4.7
 .6
Net contributions from non-controlling interests (1.7) —
 —
 (1.7) 18.7
 17.0
Recognition of equity-based units of subsidiary 4.5
 —
 —
 4.5
 2.3
 6.8
Dilution from equity-based units of subsidiary (1.1) —
 —
 (1.1) 1.1
 —
Capital contributions from BAM members, net of tax —
 —
 —
 —
 22.9
 22.9
Amortization of restricted share awards 10.6
 —
 —
 10.6
 .8
 11.4
 9.7
 —
 —
 9.7
 —
 9.7
Balance at September 30, 2017 $669.3
 $2,800.8
 $(1.3) $3,468.8
 $(131.6) $3,337.2
Non-controlling interests from acquisition of NSM —
 —
 —
 —
 14.2
 14.2
Acquisition from non-controlling interests - other (1.6) —
 —
 (1.6) —
 (1.6)
Balance at September 30, 2018 $579.5
 $2,407.3
 $(2.8) $2,984.0
 $(144.4) $2,839.6
                        
 White Mountains’s Common Shareholders’ Equity     White Mountains’s Common Shareholders’ Equity    
(Millions) Common shares and paid-in surplus Retained earnings AOCI, after tax Total Non-controlling interest Total Equity Common shares and paid-in surplus Retained earnings AOCI, after tax Total Non-controlling interest Total Equity
Balance at January 1, 2016 $978.2
 $3,075.0
 $(149.9) $3,903.3
 $454.3
 $4,357.6
Net income —
 440.7
 —
 440.7
 24.6
 465.3
Net change in foreign currency translation and
benefit plan assets and obligations
 —
 —
 32.1
 32.1
 .1
 32.2
Balance at January 1, 2017 $810.7
 $2,776.6
 $(4.6) $3,582.7
 $133.3
 $3,716.0
Net income (loss) —
 604.7
 —
 604.7
 (23.6) 581.1
Net change in foreign currency translation and other —
 —
 .4
 .4
 .1
 .5
Recognition of foreign currency translation and
other accumulated comprehensive items from
the sale of Sirius Group
 —
 —
 113.3
 113.3
 —
 113.3
 —
 —
 2.9
 2.9
 —
 2.9
Total comprehensive income —
 440.7
 145.4
 586.1
 24.7
 610.8
Total comprehensive income (loss) —
 604.7
 3.3
 608.0
 (23.5) 584.5
Dividends declared on common shares —
 (5.4) —
 (5.4) —
 (5.4) —
 (4.6) —
 (4.6) —
 (4.6)
Dividends to non-controlling interests —
 —
 —
 —
 (17.4) (17.4) —
 —
 —
 —
 (17.7) (17.7)
Repurchases and retirements of common shares (188.1) (678.6) —
 (866.7) —
 (866.7) (147.9) (575.9) —
 (723.8) (5.2) (729.0)
Issuance of common shares 9.1
 —
 —
 9.1
 —
 9.1
 1.7
 —
 —
 1.7
 —
 1.7
Dilution from restricted shares issued at OneBeacon (4.1) —
 —
 (4.1) 4.7
 .6
Capital contributions from BAM members, net of tax —
 —
 —
 —
 18.7
 18.7
Amortization of restricted share awards 10.6
 —
 —
 10.6
 .8
 11.4
Deconsolidation of non-controlling interests
associated with the sale of Sirius Group
 —
 —
 —
 —
 (250.0) (250.0) —
 —
 —
 —
 (238.3) (238.3)
Deconsolidation of non-controlling interests
associated with the sale of Tranzact
 —
 —
 —
 —
 (78.4) (78.4)
Acquisition of subsidiary —
 —
 —
 —
 3.4
 3.4
Acquisition from non-controlling interests -
OneBeacon
 (2.7) —
 —
 (2.7) (8.8) (11.5)
Issuances of shares to non-controlling interests —
 —
 —
 —
 .3
 .3
Deconsolidation of non-controlling interests
associated with the sale of Star & Shield
 —
 —
 —
 —
 (4.4) (4.4)
Net contributions from non-controlling interests —
 —
 —
 —
 20.1
 20.1
 (1.7) —
 —
 (1.7) —
 (1.7)
Amortization of restricted share awards 13.3
 —
 —
 13.3
 .5
 13.8
Balance at September 30, 2016 $809.8
 $2,831.7
 $(4.5) $3,637.0
 $148.7
 $3,785.7
Balance at September 30, 2017 $669.3
 $2,800.8
 $(1.3) $3,468.8
 $(131.6) $3,337.2
See Notes to Consolidated Financial Statements

WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30, 
Nine Months Ended
September 30,
(Millions) 2017 2016 2018 2017
Cash flows from operations:        
Net income $581.1
 $465.3
Net (loss) income $(50.9) $581.1
Charges (credits) to reconcile net income to net cash used for operations:  
  
  
  
Net realized and unrealized investment gains (102.5) (27.2) (22.9) (102.5)
Deferred income benefit (6.9) (16.2) (4.7) (6.9)
Net income from discontinued operations (20.5) (100.9) —
 (20.5)
Net gain from sale of discontinued operations, net of tax (552.7) (414.5)
Net loss (gain) from sale of discontinued operations, net of tax 17.2
 (552.7)
Amortization of restricted share and option awards 9.7
 10.1
Amortization and depreciation 25.9
 13.3
 18.4
 15.8
Other operating items:    
    
Net change in unearned insurance premiums 36.2
 20.1
 19.4
 36.2
Net change in deferred acquisition costs (3.5) (2.8) (2.8) (3.5)
Net change in restricted cash —
 5.8
 (12.1) —
Net change in other assets and liabilities, net (21.5) (117.6) (1.8) (21.5)
Net cash used for operations - continuing operations (64.4) (174.7) (30.5) (64.4)
Net cash provided from operations - discontinued operations 157.0
 38.1
Net cash provided from (used for) operations 92.6
 (136.6)
Net cash (used for) provided from operations - discontinued operations —
 157.0
Net cash (used for) provided from operations (30.5) 92.6
Cash flows from investing activities:  
  
  
  
Net change in short-term investments (612.2) (82.3) (138.5) (612.2)
Sales of fixed maturity and convertible investments 1,631.2
 2,009.4
 1,768.5
 1,631.2
Maturities, calls and paydowns of fixed maturity and convertible investments 178.6
 184.4
 124.4
 178.6
Sales of common equity securities 407.8
 683.0
 129.8
 407.8
Distributions, settlements and redemptions of other long-term investments 1.3
 10.1
Distributions and redemptions of other long-term investments and settlements of forward contracts (5.5) 1.3
Sales of unconsolidated affiliates and consolidated subsidiaries, net of cash sold 1,131.0
 2,657.2
 —
 1,131.0
Proceeds paid to non-controlling common shareholders from the sale of consolidated subsidiaries —
 (141.6)
Net settlement of investment cash flows and contributions with discontinued operations 167.7
 (396.6) —
 167.7
Purchases of other long-term investments (67.7) (36.6) (65.9) (67.7)
Purchases of common equity securities (818.6) (94.7) (253.0) (818.6)
Purchases of fixed maturity and convertible investments (1,189.8) (3,591.5) (833.1) (1,189.8)
Purchases of unconsolidated affiliates and consolidated subsidiaries, net of cash acquired —
 (13.7)
Net change in unsettled investment purchases and sales (135.6) (113.7)
Net acquisitions of property and equipment 1.0
 (.9)
Purchases of consolidated subsidiaries, net of cash acquired of $71.9 (252.1) —
Other investing activities, net 33.8
 (134.6)
Net cash provided from investing activities - continuing operations 694.7
 1,072.5
 508.4
 694.7
Net cash provided from investing activities - discontinued operations 3.0
 269.7
 —
 3.0
Net cash provided from investing activities 697.7
 1,342.2
 508.4
 697.7
Cash flows from financing activities:  
  
  
  
Draw down of debt and revolving line of credit 361.0
 352.5
 50.9
 361.0
Repayment of debt and revolving line of credit (364.6) (401.8) (11.2) (364.6)
Proceeds from issuances of common shares —
 3.7
Cash dividends paid to the Company’s common shareholders (4.6) (5.4) (3.8) (4.6)
Common shares repurchased (714.6) (860.9) (504.7) (714.6)
Distribution to non-controlling interest shareholders (.9) (.9) (4.6) (.9)
Contributions from discontinued operations 45.2
 42.2
 —
 45.2
Payments of contingent consideration related to purchases of consolidated subsidiaries —
 (7.8)
Payments on contingent consideration earnout liability (2.6) —
Capital contributions from BAM members 25.7
 28.2
 26.9
 25.7
Acquisition of additional subsidiary shares from non-controlling interest (.7) —
 (1.7) (.7)
Other financing activities, net (9.3) (5.8)
Fidus Re premium payment (3.0) —
Restricted share statutory withholding tax payments (8.4) (9.3)
Net cash used for financing activities - continuing operations (662.8) (856.0) (462.2) (662.8)
Net cash used for financing activities - discontinued operations (61.9) (72.7) —
 (61.9)
Net cash used for financing activities (724.7) (928.7) (462.2) (724.7)
Effect of exchange rate changes on cash (.6) —
Net change in cash during the period - continuing operations (32.5) 41.8
 15.7
 (32.5)
Cash balances at beginning of period (excludes restricted cash balances of $0.0 and $5.8 and discontinued operations cash balances of $70.5 and $245.4) 80.2
 72.0
Cash balances at beginning of period (excludes discontinued operations cash balances of $0.0 and $70.5) 97.1
 80.2
Add: cash held for sale, excluding discontinued operations, at the beginning of period .9
 1.2
 —
 .9
Less: cash held for sale, excluding discontinued operations, at the end of period —
 3.8
 —
 —
Cash balances at end of period (excludes restricted cash balances of $0.0 and $0.0 and discontinued operations cash balances of $0.0 and $137.3) $48.6
 $111.2
Cash balances at end of period (excludes discontinued operations cash balances of $0.0 and $0.0) $112.2
 $48.6
Supplemental cash flows information:  
 

  
 

Interest paid $(.5) $(.7) $(5.3) $(.5)
Net income tax refund from national governments $—
 $—
Net income tax refunds $(.5) $—
See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. SummaryBasis of Presentation and Significant Accounting Policies
  
Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of White Mountains Insurance Group, Ltd. (the “Company” or the “Registrant”), its subsidiaries (collectively, with the Company, “White Mountains”) and other entities required to be consolidated under GAAP.
The Company is an exempted Bermuda limited liability company whose principal businesses are conducted through its insurance subsidiaries and other affiliates. The Company’s headquarters is located at 26 Reid Street, Hamilton, Bermuda HM 11, its principal executive office is located at 80 South Main Street, Hanover, New Hampshire 03755-2053 and its registered office is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HM 11.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of White Mountains Insurance Group, Ltd. (the “Company” or the “Registrant”), its subsidiaries (collectively with the Company, “White Mountains”) and other entities required to be consolidated under GAAP.

Consolidation Principles
Under GAAP, the Company is required to consolidate any entity in which it holds a controlling financial interest. A controlling financial interest is usually in the form of an investment representing the majority of the subsidiary’s voting interests. However, a controlling financial interest may also arise from a financial interest in a variable interest entity (“VIE”) through arrangements that do not involve ownership of voting interests. The Company consolidates a VIE if it determines that it is the primary beneficiary. The primary beneficiary is defined as the entity who holds a variable interest that gives it both the power to direct the VIE’s activities that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive returns from, the VIE that could potentially be significant to the VIE.
Intercompany transactions have been eliminated in consolidation. Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. These interim financial statements include all adjustments considered necessary by management to fairly state the financial position, results of operations and cash flows of White Mountains. These interim financial statements may not be indicative of financial results for the full year and should be read in conjunction with the Company’s 2017 Annual Report on Form 10-K.

Business Combinations
White Mountains accounts for purchases of businesses using the acquisition method, which requires the measurement of assets acquired, including goodwill and other intangible assets and liabilities assumed, including contingent liabilities, at their estimated fair values as of the acquisition date. The acquisition date fair values represent management's best estimates and are based upon established valuation techniques, reasonable assumptions and, where appropriate, valuations performed by independent third parties. In circumstances where additional information is required in order to determine the acquisition date fair value of balance sheet amounts, provisional amounts may be recorded as of the acquisition date and may be subject to subsequent adjustment throughout the measurement period, which is one year from the acquisition date. Measurement period adjustments are recognized in the period in which they are determined. The results of operations and cash flows of businesses acquired are included in the consolidated financial statements from the date of acquisition.

Use of Estimates
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 and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reportable Segments
White Mountains has determined its reportable segments based on the nature of the underlying businesses, the manner in which the Company’s subsidiaries and affiliates are organized and managed and the organization of the financial information provided to the chief operating decision maker to assess performance and make decisions regarding allocation of resources. White Mountains’s reportable segments are HG Global/BAM, NSM, MediaAlpha and Other Operations. See Note 12 — “Segment Information”.

The HG Global/BAM segment consists of HG Global Ltd. and its wholly-owned subsidiaries (“HG Global”) and the consolidated results of Build America Mutual Assurance Company (“BAM”) (collectively, “HG Global/BAM”). BAM is the first and only mutual municipal bond insurance company in the United States. By insuring the timely payment of principal and interest, BAM provides market access to, and lowers interest expense for, issuers of municipal bonds used to finance essential public purposes such as schools, utilities and transportation facilities. BAM is owned by and operated for the benefit of its members, the municipalities that purchase BAM’s insurance for their debt issuances. HG Global was established to fund the startup of BAM and, through its wholly-owned subsidiary, HG Re Ltd. (“HG Re”), to provide up to 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of surplus notes issued by BAM (the “BAM Surplus Notes”). As of September 30, 20172018, $499.0 million of the surplus notes remain outstanding. As of September 30, 2018 and December 31, 2016,2017, White Mountains owned 96.9% of HG Global’s preferred equity and 88.4% of its common equity. White Mountains does not have an ownership interest in BAM. However, GAAP requires White Mountains is required to consolidate BAM’s results in its financial statements.statements because BAM is a VIE for which White Mountains is the primary beneficiary. BAM’s results are attributed to non-controlling interests.
The NSM segment consists of NSM Insurance HoldCo, LLC and its wholly-owned subsidiaries (collectively, "NSM"). NSM is a full service managing general agency and program administrator for specialty property and casualty insurance. NSM manages all aspects of the placement process on behalf of its carrier partners, including product development, marketing, underwriting and policy issuance. NSM specializes in niche sectors including collector cars, social services and behavioral health, specialty real estate, sports and fitness centers, and pet insurance. White Mountains acquired a 95% ownership share in NSM on May 11, 2018. The NSM segment also includes White Mountains Catskill Holdings, Inc. See Note 2 - “Significant Transactions".
The MediaAlpha segment consists of QL Holdings LLC and its wholly-owned subsidiary QuoteLab, LLC (collectively “MediaAlpha”). MediaAlpha is an advertisinga leading marketing technology company that develops transparent and efficient platforms fortechnology that enables the programmatic buying and selling of insurance and other vertical-specific, performanceperformance-based media (i.e., clicks, calls and leads). MediaAlpha’s exchange technology, machine learning and analytical tools facilitate transparent, real-time transactions between advertisers (buyers of advertising inventory) and publishers (sellers of advertising inventory). through cost-per-click, cost-per-call and cost-per-lead pricing models. MediaAlpha's media buying platform enables advertisers to create and automate data-driven bidding strategies designed to improve the efficiency and enhance overall performance of their marketing campaigns that target high-intent consumers at the time and place they are ready to purchase. MediaAlpha’s publisher platform is used by publishers to sell their vertical-specific, performance-based media to advertisers through transparent, programmatic, auction-based marketplaces. MediaAlpha works with 330600 advertisers and 280330 publishers across a number of insurance (auto, motorcycle, home, renter, health and life) and non-insurance (travel, education, personal finance and home services) verticals.
White Mountains’s Other Operations segment consists of the Company, and its intermediate holding companies,wholly-owned subsidiary, White Mountains Capital, Inc. (“WM Capital”), its wholly-owned investment management subsidiary, White Mountains Advisors LLC (“WM Advisors”), and its other intermediate holding companies, as well as certain consolidated and unconsolidated private capital and other investments. The consolidated private capital investments consist ofinclude Wobi Insurance Agency Ltd. (“Wobi”) and Removal Stars Ltd. (“Buzzmove”). During the third quarter of 2017, White Mountains revised certain of its previously issued financial statements

Discontinued Operations and Assets and Liabilities Held for amounts relating to Wobi. See Note 16 — “Financial Statement Revisions”. White Mountains’s Other Operations segment also includes its variable annuity reinsurance business, White Mountains Life Reinsurance (Bermuda) Ltd. (“Life Re Bermuda”), which completed its runoff with all of its contracts fully matured on June 30, 2016 and which was liquidated in the third quarter of 2017, and its U.S.-based service provider, White Mountains Financial Services LLC, which was liquidated in the second quarter of 2017 (collectively, “WM Life Re”).Sale
On September 28, 2017, Intact Financial Corporation completed its previously announced acquisition of OneBeacon Insurance Group, Ltd. (“OneBeacon”) in an all-cash transaction for $18.10 per share (the “OneBeacon Transaction”). OneBeacon Ltd., an exempted Bermuda limited liability company that owns a family of property and casualty insurance companies (collectively, “OneBeacon”), offers a wide range of insurance products in the United States through independent agencies, regional and national brokers, wholesalers and managing general agencies. On July 21, 2016, White Mountains completed its sale of Tranzact Holdings, LLC (“Tranzact”) to an affiliate of Clayton, Dubilier & Rice, LLC. On April 18, 2016, White Mountains completed its sale of Sirius International Insurance Group, Ltd., and its subsidiaries (collectively, “Sirius (“Sirius Group”) to CM International Holding PTEPte. Ltd. (“CMI”and CM Bermuda Limited (collectively “CMI”), the Singapore-based investment arm of China Minsheng Investment Corp., Ltd. White Mountains has presented the results of OneBeacon, Tranzact and Sirius Group as discontinued operations in the statement of operations and comprehensive income for all periods prior to each transaction’s completion date. White Mountains has presented OneBeacon’sand their assets and liabilities as held for sale asin the balance sheet for all periods prior to the completion of December 31, 2016. On March 7, 2017, White Mountains completed the sale of Star & Shield Services LLC, Star & Shield Risk Management LLC, and Star & Shield Claims Services LLC (collectively “Star & Shield”) and its investment in Star & Shield Insurance Exchange (“SSIE”) surplus notes to K2 Insurance Services, LLC. Star & Shield provides management services for a fee to SSIE, a reciprocal that is owned by its members, who are policyholders. White Mountains was required to consolidate SSIE in its GAAP financial statements until White Mountains completed the sale. each transaction.
White Mountains has presented Star & Shield’sclassified its Guilford, Connecticut property, which consists of an office building and SSIE’s assets and liabilitiesadjacent land, as held for sale as of September 30, 2018 and December 31, 2016.2017. See Note 1516 — “Held for Sale and Discontinued Operations”.


Derivatives
All significant intercompany transactions have been eliminatedWhite Mountains holds from time to time derivative financial instruments for risk management purposes. White Mountains recognizes all derivatives as either assets or liabilities on the balance sheet measured at fair value. During the quarter ended June 30, 2018, White Mountains entered into an interest rate swap to hedge its exposure to the interest rate risk associated with the interest payments on NSM's variable rate debt. In order to qualify for hedge accounting, a derivative instrument must be both highly effective in consolidation. Certain amountsoffsetting the exposure to the hedged risk and designated as a hedge at inception. The swap meets both of these requirements and is being accounted for as a hedge. Changes in the prior period financial statements have been reclassified to conform tofair value of the current presentation. These interim financial statements include all adjustments considered necessary by management to fairly stateswap are recognized in other comprehensive income until changes in the financial position, results of operations andinterest rate on the debt cause an increase in the hedged cash flows. When the hedged cash flows increase, then the effective portion of the gains or losses arising from the change in the fair value of the swap are reclassified into earnings from other comprehensive income. The amounts reclassified are included in the same financial statement caption as the related interest expense, effectively fixing the debt interest at the fixed rate in the swap for the hedged portion of the interest cash flows. Any portion of the change in the fair value of a derivative instrument designated as a cash flow hedge that represents hedge ineffectiveness is recognized in current period pre-tax income. Hedge ineffectiveness is measured as the amount by which changes in the fair value of a derivative designated as a hedge exceed the change in the fair value of the related hedged cash flows. White Mountains formally evaluates and documents the relationship between derivatives used as hedges and the related hedged cash flows, including its risk-management objective and strategy for undertaking a hedging transaction. White Mountains formally assesses the effectiveness of the hedging transaction at both inception and on an ongoing basis. White Mountains also held certain foreign currency forward contracts which were held for risk management purposes, but not designated as hedges. These contracts were measured at fair value with the changes therein recognized through current period pre-tax income. See Note 7 — “Derivatives”.
Reinsurance Contracts Accounted for as Deposits
Reinsurance contracts that do not meet the risk transfer requirements necessary to be accounted for as reinsurance are accounted for using the deposit method under GAAP. BAM entered into a reinsurance contract agreement with Fidus Reinsurance Ltd. (“Fidus Re”) in 2018, which is accounted for using the deposit method. See Note 8 — “Municipal Bond Guarantee Insurance”. The nonrefundable consideration paid by BAM to Fidus Re is charged to financing expense within general and administrative expenses.

Restricted Cash
Cash includes amounts on hand and demand deposits with banks and other financial institutions. Cash balances which are not immediately available for general corporate purposes, including fiduciary accounts, are classified as restricted. Restricted amounts included within cash are disclosed parenthetically on the balance sheet. Amounts presented in the statement of cash flows are shown net of balances acquired and sold in the purchase or sale of White Mountains. These interim financial statements may not be indicative of financial results forMountains’s consolidated subsidiaries. Changes in restricted cash balances are presented as a separate caption within the full yearoperations, investing and should be read in conjunction with the Company’s 2016 Annual Report on Form 10-K.
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 and disclosure of contingent assets and liabilities asfinancing activities sections of the datestatement of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  cash flows.

Significant Accounting Policies

Refer to the Company’s 20162017 Annual Report on Form 10-K for a complete discussion regarding White Mountains’s significant accounting policies.

Recently Adopted Changes in Accounting Principles

StockRevenue Recognition
On January 1, 2018, White Mountains adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which modifies the guidance for revenue recognition. Under ASU 2014-09, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled once it fulfills its performance obligations under the terms of its contract with the customer. The scope of the new guidance includes agent commissions and other non-insurance revenues. Adoption of ASU 2014-09 did not have any impact on White Mountains's financial statements.
Share-Based Compensation
EffectiveOn January 1, 2018, White Mountains adopted ASU 2017-09, Stock Compensation: Scope of Modification Accounting (ASC 718), which narrows the scope of transactions subject to modification accounting to changes in terms of an award that result in a change in the award’s fair value, vesting conditions or classification. Adoption of ASU 2017-09 did not have any impact on White Mountains’s financial statements.

On January 1, 2017, White Mountains adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASC 718) which simplifies certain aspects of the accounting for share-based compensation. The new guidance provides an accounting policy election to account for forfeitures by either applying an assumption, as required under existing guidance, or by recognizing forfeitures when they actually occur. At adoption, White Mountains did not change its accounting policy for forfeitures, which is to apply an assumed forfeiture rate. The new guidance has also changed the threshold for partial cash settlement to settle statutory withholding requirements for equity classified awards, increasing the threshold up to the maximum statutory tax rate. As a result of adoption, White Mountains reported $9.3$8.4 million and $5.8$9.2 million of statutory withholding tax payments made in connection with the settlement of restricted shares as financing cash flows for the nine-month periodsnine months ended September 30, 20172018 and 2016.2017. Such payments were classified as operating cash flows prior to adoption.
In addition, the new guidance changed the treatment for excess tax benefits whichthat arise from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting. Under the new guidance, a reporting entity will recognizerecognizes excess tax benefits or expense in current period earnings, regardless of whether it is in a taxes payable position.

Business Combinations - Measurement Period Adjustments
Effective January 1, 2016, White Mountains adopted ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires adjustments to provisional amounts recorded in connection with a business combination that are identified during the measurement period to be recorded in the reporting period in which the adjustment amounts are determined, rather than as retroactive adjustments to prior periods. White Mountains has not recognized any adjustments to estimated purchase accounting amounts for the year to date period ended September 30, 2017 and accordingly, there was no effect to White Mountains’s financial statements upon adoption.

Amendments to Consolidation Analysis
On January 1, 2016,2018, White Mountains adopted ASU 2015-02,2017-01, Amendments toBusiness Combinations: Clarifying the Consolidation AnalysisDefinition of a Business (ASC 810)805), which amendsclarifies the guidance for determining whether an entity isdefinition of a variable interest entity (“VIE”). ASU 2015-02 eliminates the separate consolidation guidance for limited partnershipsbusiness and with it, the presumption that a general partner should consolidate a limited partnership. In addition, ASU 2015-02 changes the guidance for determining if fee arrangements qualify as variable interests and the effect fee arrangements have onaffects the determination of whether acquisitions or disposals are accounted for as assets or as a business. Under the primary beneficiary.new guidance, when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar assets, it is not a business. Adoption of ASU 2015-02 did not affect the consolidation analysis for any of White Mountains’s investments.

Share-Based Compensation Awards
On January 1, 2016, White Mountains adopted ASU 2014-12, Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASC 718). The new guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. Compensation cost is to be recognized in the period when it becomes probable the performance target will be achieved in an amount equal to the compensation cost attributable to the periods for which service has been rendered. Adoption2017-01 did not have any effectimpact on White Mountains’sMountains's financial position, results of operations, cash flows, presentation or disclosures.


Debt Issuance Costs
On January 1, 2016, White Mountains adopted ASU 2015-03, Imputation of Interest (ASC 835), which requires debt issuance costs to be presented as a deduction from the carrying amount of the related debt, consistent with the treatment required for debt discounts. The new guidance requires amortization of debt issuance costs to be classified within interest expense and also requires disclosure to the debt’s effective interest rate. As of September 30, 2017, there was an insignificant amount of unamortized debt issuance costs included in debt.

Recently Issued Accounting Pronouncements

Stock Compensation
In May 2017, the FASB issued ASU 2017-09, Stock Compensation: Scope of Modification Accounting (ASC 718), which narrows the scope of transactions subject to modification accounting to changes in terms of an award that result in a change in the award’s fair value, vesting conditions or classification. The new guidance becomes effective for fiscal years beginning after December 15, 2017. White Mountains does not expect a material impact from implementation of this guidance.statements.

Cash Flow Statement
In August 2016, the FASB issuedOn January 1, 2018, White Mountains adopted ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASC 230), which addresses the classification and presentation of certain items, including debt prepayment and extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees, for which there was diversity in practice.
In November 2016,practice prior to the FASB issuedissuance of ASU 2016-15. Also on January 1, 2018, White Mountains adopted ASU 2016-18, Statement of Cash Flows: Restricted Cash (ASC 230). Under current, which modifies the guidance for the treatment of restricted cash amounts of cash or cash equivalents are excluded fromin the cash flow statement. The new guidance requires restricted cash and restricted cash equivalents to be included in the reconciliation of beginning and end-of-period amounts presented on the statement of cash flows. In addition, the new guidanceflows and requires a description of the nature of the changes in restricted cash and cash equivalents during the periods presented.
The updated guidance in Adoption of ASU 2016-15 and ASU 2016-18 are both effective for interimdid not have any impact on White Mountains's statement of cash flows.

Financial Instruments - Recognition and annual reporting periods beginning after December 15, 2017, with early adoption permitted.Measurement
On January 1, 2018, White Mountains adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASC 825-10), which modifies the guidance for financial instruments, including investments in equity securities. Under the new guidance, all equity securities with readily determinable fair values are required to be measured at fair value with changes therein recognized through current period earnings. In addition, the new ASU requires a qualitative assessment for equity securities without readily determinable fair values to identify impairment, and for impaired equity securities to be measured at fair value. White Mountains measures its portfolio of investment securities at fair value with changes therein recognized through current period earnings and, accordingly, adoption of ASU 2016-01 did not have any impact on White Mountains's financial statements.
Recently Issued Accounting Pronouncements

Premium Amortization on Callable Debt Securities
In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities (ASC 310-20), which changes the amortization period for certain purchased callable debt securities. Under the new guidance, for investments in callable debt securities held at a premium, the premium will be amortized over the period to the earliest call date. The new guidance does not expectchange the amortization period for callable debt securities held at a materialdiscount. ASU 2017-08 is not expected to have any impact from implementation of this guidance.on White Mountains's financial statements at adoption but may affect the amortization recognized in future periods.


Credit Losses
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASC 326), which establishes new guidance for the recognition of credit losses for financial assets measured at amortized cost. The new ASU requires reporting entities to estimate the credit losses expected over the life of a credit exposure using historical information, current information and reasonable and supportable forecasts that affect the collectability of the financial asset. This differs from current U.S. GAAP, which delays recognition until it is probable a loss has been incurred. The new guidance is expected to accelerate recognition of credit losses. The types of assets within the scope of the new guidance include premium receivables, reinsurance recoverables and loans. ASU 2016-13 is effective for annual periods beginning after January 1, 2020, including interim periods. White Mountains is evaluating the expected impactmeasures its portfolio of this guidance.investment securities at fair value with changes therein recognized through current period earnings and, accordingly, does not expect adoption to have any effect on its financial statements.

Leases
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). The new guidance requires lessees to recognize lease assets and liabilities on the balance sheet for both operating and financing leases, with the exception of leases with an original term of 12 months or less. Under existing guidance recognition of lease assets and liabilities is not required for operating leases. The lease assets and liabilities to be recognized are both measured initially based on the present value of the lease payments. Under the new guidance, a sale-leaseback transaction must meet the recognition criteria under ASC 606, Revenues, in order to be accounted for as sale. The new guidance is effective for White Mountains for years beginning after December 15, 2018, including interim periods therein. White Mountains is evaluating the expected impact of this guidance and available adoption methods.


Financial Instruments - Recognition and Measurement
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASC 825-10). The new ASU modifies the guidance for financial instruments, including investments in equity securities. Under the new guidance, all equity securities with readily determinable fair values are required to be measured at fair value with changes therein recognized through current period earnings. In addition, the new ASU requires a qualitative assessment for equity securities without readily determinable fair values to identify impairment, and for impaired equity securities to be measured at fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. White Mountains measures its portfolio of investment securities at fair value with changes therein recognized through current period earnings and accordingly, does not expect the adoption of ASU 2016-01 to have a significant impact on its financial statements.

Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which modifies the guidance for revenue recognition. Under ASU 2014-09, revenue is to be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for goods or services transferred to customers. The new guidance sets forth the steps to be followed to recognize revenue: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Subsequently, the FASB issued additional ASUs clarifying the guidance in and providing implementation guidance for ASU 2014-09.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which delays the effective date of ASU 2014-09 and all related ASUs to annual and interim reporting periods beginning after December 15, 2017. Revenue from insurance contracts, investment income and investments gains and losses are excluded from the scope of 2014-09. The new guidance is applicable to some of White Mountains’s revenue streams, including certain fee arrangements as well as commissions and other non-insurance revenues. White Mountains does not expect ASU 2014-09 to have a significant effect on recognition of White Mountains’s revenues from customers.

Note 2. Significant Transactions

Acquisitions

NSM
On May 11, 2018, White Mountains closed its acquisition of 95% of NSM for cash consideration of $274.2 million. White Mountains recognized a purchase price adjustment of $2.1 million during the three months ended September 30, 2018 that was paid in October 2018. White Mountains recognized total assets acquired related to NSM of $495.2 million, including $383.0 million of goodwill and other intangible assets, total liabilities assumed of $204.6 million, including contingent consideration earnout liabilities related to NSM’s previous acquisitions of its U.K.-based operations, of $10.2 million, and non-controlling interest of $14.4 million reflecting acquisition date fair values. In connection with the acquisition, White Mountains incurred transaction costs of $6.3 million, which were expensed in the second quarter of 2018.
On May 18, 2018, NSM acquired 100% of Fresh Insurance Services Group Limited (“Fresh Insurance”), an insurance broker that specializes in non-standard personal lines products, motor trade, and van insurance in the United Kingdom, for cash consideration of $49.6 million. NSM recognized a purchase price adjustment of $0.7 million during the three months ended September 30, 2018. The purchase price is subject to additional adjustments based upon growth in EBITDA during two earnout periods, ending in February 2020 and February 2022. NSM recognized total assets acquired related to Fresh Insurance of $72.6 million, including $54.6 million of goodwill and other intangible assets, and total liabilities assumed of $22.3 million, reflecting acquisition date fair values. In connection with the acquisition, NSM recorded a contingent consideration earnout liability of $7.5 million.
The contingent consideration earnout liabilities related to these acquisitions are subject to adjustment based upon EBITDA, EBITDA projections, and present value factors for acquired entities. For both the three months ended September 30, 2018 and the period from May 11, 2018 through September 30, 2018, NSM recognized pre-tax expense of $2.6 million for the change in the fair value of its contingent consideration earnout liabilities for both Fresh Insurance and its other U.K.-based operations. Any future adjustments to contingent consideration earnout liabilities under the agreements will also be recognized through pre-tax income. As of September 30, 2018, NSM recorded contingent consideration earnout liabilities of $20.1 million.

DavidShield
On January 24, 2018, White Mountains acquired 50% of DavidShield Life Insurance Agency (2000) Ltd. (“DavidShield”), its joint venture partner in PassportCard Limited (“PassportCard”). DavidShield is a managing general agency that is the leading provider of expatriate medical insurance in Israel and uses the same card-based delivery system as PassportCard. As part of the transaction, White Mountains restructured its equity stake in PassportCard so that White Mountains and its partner in DavidShield would each own 50% of both businesses. To facilitate the transaction, White Mountains provided financing to its partner in the form of a non-interest bearing loan that is secured by the partner’s equity in PassportCard and DavidShield. The gross purchase price for the 50% of DavidShield was $41.8 million, or $28.3 million net of the financing provided for the restructuring.


Kudu
On February 5, 2018, White Mountains entered into an agreement to fund up to $127.5 million in Kudu Investment Management, LLC (“Kudu”), a capital provider to asset management and wealth management firms, including $125.0 million for new transactions. Kudu specializes in providing capital solutions to asset managers and registered investment advisers, including generational ownership transfers, management buyouts, acquisition and growth finance, as well as liquidity for legacy partners.
As of September 30, 2018, White Mountains has funded $12.3 million in Kudu. Kudu closed their first transaction in the third quarter of 2018 and announced two more in October, deploying $63.0 million of capital in total, $31.5 million of which is from White Mountains. White Mountains has determined that Kudu is a VIE, however White Mountains is not the primary beneficiary. White Mountains has elected to take the fair value option for its investment in Kudu.

MediaAlpha
On October 5, 2017, MediaAlpha acquired certain assets associated with the Health, Life and Medicare insurance business of Healthplans.com for an aggregate purchase price of $28.0 million. The majority of assets acquired, which are included in other intangible assets, consist of customer relationships, a non-compete agreement from the seller and domain names. See Note 4 — “Goodwill and Other Intangibles Assets”.
On October 5, 2017, White Mountains acquired 131,579 newly-issued Class A common units of MediaAlpha for $12.5 million. As of September 30, 2018 and December 31, 2017 White Mountains’s ownership share in MediaAlpha was 62.2% and 64.4%.

Dispositions

OneBeacon Transaction
On September 28, 2017, White Mountains received $1.3 billion in cash proceeds from the OneBeacon Transaction and recorded a gain of $554.6 million, net of transaction costs. As a result of the OneBeacon Transaction, OneBeacon’s results have been reported as discontinued operations within White Mountains’s GAAP financial statements. See Note 1516 — “Held for Sale and Discontinued Operations”.

Sale of Star & Shield
On March 7, 2017, White Mountains completed itsthe sale of Star & Shield Services LLC, Star & Shield Risk Management LLC, and Star & Shield Claims Services LLC (collectively “Star & Shield”) and its investment in SSIEStar & Shield Insurance Exchange (“SSIE”) surplus notes to K2 InsurancesInsurance Services, LLC. White Mountains did not recognize any gain or loss on the sale. Through December 31, 2016, Star & Shield’s assets and liabilities are reported as held for sale within White Mountains’s GAAP financial statements. See Note 15 — “Held for Sale and Discontinued Operations”.

Acquisition of Buzzmove
On August 4, 2016, White Mountains acquired a 70.9% ownership share in Buzzmove for a purchase price of GBP 6.1 million (approximately $8.1 million based upon the foreign exchange spot rate at the date of acquisition). White Mountains recognized total assets acquired related to Buzzmove of $11.5 million, including $7.6 million of goodwill and $1.1 million of intangible assets, and total liabilities assumed of $0.1 million, reflecting acquisition date fair values.
On August 1, 2017, White Mountains purchased 37,409 newly-issued preferred shares of Buzzmove for GBP 4.0 million (approximately $5.0 million based upon the foreign exchange spot rate at the date of acquisition) and 5,808 common shares from the company founders for GBP $0.5 million (approximately $0.7 million based upon the spot rate at the date of acquisition). White Mountains ownership share in Buzzmove as of September 30, 2017 was 77.1%.



Sale of Tranzact
On July 21, 2016, White Mountains completed the sale of Tranzact to Clayton, Dubilier & Rice, LLC and received net proceeds of $221.3 million. In connection with the sale of Tranzact, the purchaser directly repaid $56.3 million for the portion of Tranzact’s debt attributable to White Mountains’s common shareholders. On October 5, 2016, White Mountains received additional proceeds of $1.2 million following the release of the post-closing purchase price adjustment escrow.
White Mountains recorded a $51.9 million gain from the sale of Tranzact in discontinued operations, which included a $30.2 million tax expense for the reversal of a tax valuation allowance that is offset by a tax benefit recorded in continuing operations. See Note 6 — “Income Taxes”. The increase to White Mountains’s book value from the sale of Tranzact was $82.1 million. A reconciliation of the gain reported in discontinued operations to the impact to White Mountains’s book value is as follows:
Gain from sale of Tranzact reported in discontinued operations $51.9
Add back reclassification from continuing operations for the release of a tax valuation allowance 30.2
Increase to White Mountains’s book value from sale of Tranzact $82.1

In the first quarter of 2017, White Mountains recorded a $1.0 million reduction to the gain from sale of Tranzact in discontinued operations as a result of state tax expense.
Through July 21, 2016, Tranzact’s results of operations are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements. See Note 15 — “Held for Sale and Discontinued Operations”.

Sale of Sirius Group
On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI for approximately $2.6 billion. $161.8 million of this amount was used to purchase certain assets to be retained by White Mountains out of Sirius Group, including shares of OneBeacon. The amount paid at closing was based on an estimate of Sirius Group’s closing date tangible common shareholder’s equity. During the third quarter of 2016, there was a final true-up to Sirius Group’s tangible common shareholder’s equity that resulted in a $4.0 million reduction to the gain. During 2016, White Mountains recorded $363.2 million of gain from sale of Sirius Group in discontinued operations and $113.3 million in other comprehensive income from discontinued operations from Sirius Group.
During the third quarter of 2017, White Mountains recorded a $0.8 million reduction to the gain from sale of Sirius Group as a result of a change to the valuation of the accrued incentive compensation payable to Sirius Group employees.
Through April 18, 2016, Sirius Group’s results are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements.
The transactions to purchase the investments in OneBeacon and the other investments held by Sirius Group prior to the closing are presented in the statement of cash flows as net settlement of investment cash flows within discontinued operations. See Note 15 — “Held for Sale and Discontinued Operations”.

Sale of Symetra
On February 1, 2016, Symetra Financial Corporation (“Symetra”) closed its merger agreement with Sumitomo Life Insurance Company (“Sumitomo Life”) and White Mountains received proceeds of $658.0 million, or $32.00 per common share. White Mountains also received a special dividend of $0.50 per share as part of the transaction that was paid in the third quarter of 2015. See Note 12 — “Investment in Symetra”.


Note 3.  Investments Securities

White Mountains’s portfolio of investment securities held for general investment purposes consists of fixed maturity investments, short-term investments, common equity securities and other-long termother long-term investments, which are all classified as trading securities. Trading securities are reported at fair value as of the balance sheet date.  Net realized and unrealized investment gains (losses) on trading securities are reported in pre-tax revenues.
White Mountains’s fixed maturity investments are generally valued using industry standard pricing methodologies. Key inputs include benchmark yields, benchmark securities, reported trades, issuer spreads, bids, offers, credit ratings and prepayment speeds. Income on mortgage and asset-backed securities is recognized using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life.
Realized investment gains (losses) resulting from sales of investment securities are accounted for using the specific identification method. Premiums and discounts on all fixed maturity investments are amortized or accreted to income over the anticipated life of the investment. Short-term investments consist of interest-bearing money market funds certificates of deposit and other securities, which at the time of purchase, mature or become available for use within one year.  Short-term investments are carried at amortized or accreted cost, which approximated fair value as of September 30, 20172018 and December 31, 2016.2017.
Other long-term investments consist primarily of hedge funds, private equity funds and unconsolidated private capital investments and foreign currency forward contracts.investments.

Net Investment Income

White Mountains’s net investment income is comprised primarily of interest income associated with White Mountains’s fixed maturity investments and short-term investments and dividend income from its common equity securities and other long- termlong-term investments.
Pre-taxThe following table presents pre-tax net investment income for the three and nine months ended September 30, 20172018 and 2016 consisted of the following:2017.
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
Millions 2017 2016 2017 2016 2018 2017 2018 2017
Investment income:                
Fixed maturity investments $9.8
 $9.3
 $32.9
 $17.4
 $7.5
 $9.8
 $27.3
 $32.9
Short-term investments .3
 .2
 .6
 .7
 1.8
 .3
 6.5
 .6
Common equity securities 2.7
 .5
 7.7
 1.0
 3.4
 2.7
 11.2
 7.7
Other long-term investments .1
 —
 .5
 .4
 1.2
 .1
 1.7
 .5
Total investment income 12.9
 10.0
 41.7
 19.5
 13.9
 12.9
 46.7
 41.7
Third-party investment expenses (.7) (.4) (2.0) (1.3) (.5) (.7) (1.8) (2.0)
Net investment income, pre-tax $12.2
 $9.6
 $39.7
 $18.2
 $13.4
 $12.2
 $44.9
 $39.7



Net Realized and Unrealized Investment Gains (Losses)
Net
The following table presents net realized and unrealized investment gains (losses) for the three and nine months ended September 30, 20172018 and 2016 consisted of the following:2017:
 Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
 September 30, September 30, September 30,
Millions 2017 2016 2017 2016 2018 20172018 2017
Net realized investment gains, pre-tax $6.8
 $.7
 $20.8
 $265.0
Net unrealized investment gains (losses), pre-tax 25.7
 10.2
 81.7
 (237.8)
Net realized investment (losses) gains, pre-tax $(10.2) $6.8
$(13.9) $20.8
Net unrealized investment gains, pre-tax 76.3
 25.7
36.8
 81.7
Net realized and unrealized investment gains, pre-tax 32.5
 10.9
 102.5
 27.2
 66.1
 32.5
22.9
 102.5
Income tax expense attributable to net realized and
unrealized investment gains
 (3.9) —
 (9.5) (4.0) (9.7) (3.9)(5.9) (9.5)
Net realized and unrealized investment gains, after tax $28.6
 $10.9
 $93.0
 $23.2
Net realized and unrealized investment gains, after-tax $56.4
 $28.6
$17.0
 $93.0

Net Realized Investment Gains (Losses)
NetThe following tables present net realized investment gains (losses) for the three and nine months endedSeptember 30, 20172018 and 2016 consisted of the following:2017
 Three Months Ended Three Months Ended Three Months Ended Three Months Ended
 September 30, 2017 September 30, 2016 September 30, 2018 September 30, 2017
Millions Net
realized gains (losses)		 Net
foreign
currency gains (losses)		 Total net realized
gains (losses)
reflected in
earnings		 Net
realized gains		 Net
foreign
currency gains (losses)		 Total net realized
gains
reflected in
earnings		 Net
realized losses		 Net
foreign
exchange gains (losses)		 Total net realized
losses
reflected in
earnings		 Net
realized gains (losses)		 Net
foreign
exchange gains (losses)		 Total net realized
gains (losses)
reflected in
earnings
Fixed maturity investments $.6
 $1.2
 $1.8
 $.3
 $—
 $.3
 $(5.1) $—
 $(5.1) $.6
 $1.2
 $1.8
Short-term investments (.1) —
 (.1) .2
 —
 .2
 —
 —
 —
 (.1) —
 (.1)
Common equity securities 4.9
 5.4
 10.3
 .2
 —
 .2
 (1.5) —
 (1.5) 4.9
 5.4
 10.3
Other long-term investments 2.0
 (7.2) (5.2) —
 —
 —
 (3.6) —
 (3.6) 2.0
 (7.2) (5.2)
Net realized investment gains (losses),
pre-tax
 7.4
 (.6) 6.8
 .7
 —
 .7
Income tax expense attributable to
net realized investment gains
 (.6) —
 (.6) (.1) —
 (.1)
Net realized investment
gains (losses), after tax
 $6.8
 $(.6) $6.2
 $.6
 $—
 $.6
Net realized investment (losses) gains, pre-tax (10.2) —
 (10.2) 7.4
 (.6) 6.8
Income tax benefit (expense) attributable to net realized investment (losses) gains 2.3
 —
 2.3
 (.6) —
 (.6)
Net realized investment (losses) gains, after-tax $(7.9) $—
 $(7.9) $6.8
 $(.6) $6.2

 Nine Months Ended Nine Months Ended Nine Months Ended Nine Months Ended
 September 30, 2017 September 30, 2016 September 30, 2018 September 30, 2017
Millions Net
realized (losses)
gains		 Net
foreign
currency gains (losses)		 Total net realized
gains (losses)
reflected in
earnings		 Net
realized gains		 Net
foreign
currency gains (losses)		 Total net realized
gains
reflected in
earnings		 Net
realized (losses) gains		 Net
foreign
exchange gains (losses)		 Total net realized
(losses) gains
reflected in
earnings		 Net
realized (losses) gains		 Net
foreign
exchange gains (losses)		 Total net realized
gains (losses)
reflected in
earnings
Fixed maturity investments $(.4) $2.7
 $2.3
 $2.0
 $—
 $2.0
 $(27.6) $18.2
 $(9.4) $(.4) $2.7
 $2.3
Short-term investments (.1) —
 (.1) .4
 —
 .4
 (.8) —
 (.8) (.1) —
 (.1)
Common equity securities 18.5
 6.0
 24.5
 262.6
 —
 262.6
 10.5
 —
 10.5
 18.5
 6.0
 24.5
Other long-term investments 3.0
 (8.9) (5.9) —
 —
 —
 (7.0) (7.2) (14.2) 3.0
 (8.9) (5.9)
Net realized investment gains (losses), pre-tax 21.0
 (.2) 20.8
 265.0
 —
 265.0
Income tax expense attributable to
net realized investment gains
 (3.6) —
 (3.6) (45.1) —
 (45.1)
Net realized investment
gains (losses), after tax
 $17.4
 $(.2) $17.2
 $219.9
 $—
 $219.9
Net realized investment (losses) gains,
pre-tax
 (24.9) 11.0
 (13.9) 21.0
 (.2) 20.8
Income tax benefit (expense) attributable to net realized investment (losses) gains 11.2
 —
 11.2
 (3.6) —
 (3.6)
Net realized investment (losses)
gains, after-tax
 $(13.7) $11.0
 $(2.7) $17.4
 $(.2) $17.2



Net Unrealized Investment Gains (Losses)
NetThe following tables present net unrealized investment gains (losses) and changes in the carrying value of investments measured at fair value for the three and nine months ended September 30, 20172018 and 2016 consisted of the following:2017:
 Three Months Ended Three Months Ended Three Months Ended Three Months Ended
 September 30, 2017 September 30, 2016 September 30, 2018 September 30, 2017
Millions 
Net
unrealized
 gains (losses)
 
Net
foreign
currency
gains (losses)
 
Total net unrealized gains (losses)
reflected in
earnings
 
Net
unrealized (losses) gains
 Net
foreign
currency gains		 
Total net unrealized (losses) gains
reflected in
earnings
 
Net
unrealized gains (losses)
   
 
Net
foreign
exchange losses

 
Total net unrealized gains (losses)
reflected in
earnings
 
Net
unrealized gains (losses)
 Net
foreign
exchange gains (losses)		 
Total net unrealized gains (losses)
reflected in
earnings
Fixed maturity investments $2.0
 $5.1
 $7.1
 $(2.0) $—
 $(2.0) $1.5
 $—
 $1.5
 $2.0
 $5.1
 $7.1
Short-term investments (.1) —
 (.1) —
 —
 —
Common equity securities 26.6
 (3.1) 23.5
 8.5
 .2
 8.7
 54.9
 —
 54.9
 26.6
 (3.1) 23.5
Other long-term investments (2.5) (2.4) (4.9) 3.4
 .1
 3.5
 20.1
 (.1) 20.0
 (2.5) (2.4) (4.9)
Net unrealized investment gains (losses), pre-tax 26.1
 (.4) 25.7
 9.9
 .3
 10.2
 76.4
 (.1) 76.3
 26.1
 (.4) 25.7
Income tax (expense) benefit
attributable to net unrealized
investment gains (losses)
 (3.3) —
 (3.3) .1
 —
 .1
Net unrealized investment
gains (losses), after tax
 $22.8
 $(.4) $22.4
 $10.0
 $.3
 $10.3
Income tax expense attributable to net unrealized
investment gains (losses)
 (12.0) —
 (12.0) (3.3) —
 (3.3)
Net unrealized investment gains (losses), after-tax $64.4
 $(.1) $64.3
 $22.8
 $(.4) $22.4

 Nine Months Ended Nine Months Ended Nine Months Ended Nine Months Ended
 September 30, 2017 September 30, 2016 September 30, 2018 September 30, 2017
Millions 
Net
unrealized
 gains
 
Net
foreign
currency
gains (losses)
 
Total net unrealized gains (losses)
reflected in
earnings
 
Net
unrealized gains (losses)
 Net
foreign
currency gains		 
Total net unrealized
gains (losses)
reflected in
earnings
 
Net
unrealized (losses) gains
   
 
Net
foreign
exchange (losses)
gains
 
Total net unrealized (losses)
 gains
reflected in
earnings
 
Net
unrealized gains
 Net
foreign
exchange gains (losses)		 
Total net unrealized gains (losses)
reflected in
earnings
Fixed maturity investments $19.4
 $12.6
 $32.0
 $13.3
 $—
 $13.3
 $(15.7) $(14.8) $(30.5) $19.4
 $12.6
 $32.0
Short-term investments (.1) —
 (.1) —
 —
 —
Common equity securities 53.5
 —
 53.5
 (256.1) 2.6
 (253.5) 43.7
 —
 43.7
 53.5
 —
 53.5
Other long-term investments 9.2
 (13.0) (3.8) 2.1
 .3
 2.4
 20.5
 3.2
 23.7
 9.2
 (13.0) (3.8)
Net unrealized investment gains (losses), pre-tax 82.1
 (.4) 81.7
 (240.7) 2.9
 (237.8) 48.4
 (11.6) 36.8
 82.1
 (.4) 81.7
Income tax (expense) benefit
attributable to net unrealized
investment gains (losses)
 (5.9) —
 (5.9) 41.1
 —
 41.1
Net unrealized investment
gains (losses), after tax
 $76.2
 $(.4) $75.8
 $(199.6) $2.9
 $(196.7)
Income tax expense attributable to net unrealized
investment gains (losses)
 (17.1) —
 (17.1) (5.9) —
 (5.9)
Net unrealized investment gains (losses), after-tax $31.3
 $(11.6) $19.7
 $76.2
 $(.4) $75.8

TotalThe following table presents total gains (losses) included in earnings attributable to net unrealized investment gains (losses) for Level 3 investments for the three and nine months ended September 30, 20172018 and 2016 consisted of the following:2017:
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
Millions 2017 2016 2017 2016 2018 2017 2018 2017
Fixed maturity investments $—
 $—
 $—
 $.1
Other long-term investments (.7) (.9) (2.2) .7
 $4.0
 $(.7) $2.1
 $(2.2)
Total unrealized investment (losses) gains, pre-tax - Level 3 investments $(.7) $(.9) $(2.2) $.8
Total net unrealized investment gains (losses) , pre-tax - Level 3 investments $4.0
 $(.7) $2.1
 $(2.2)


Investment Holdings

The following tables present the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and carrying values of White Mountains’s fixed maturity investments as of September 30, 20172018 and December 31, 2016 were as follows: 2017.
 September 30, 2017 September 30, 2018
Millions 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations $218.1
 $.1
 $(.4) $—
 $217.8
 $127.0
 $—
 $(1.6) $—
 $125.4
Debt securities issued by corporations 608.3
 3.2
 (1.0) 14.5
 625.0
 509.4
 .2
 (9.6) —
 500.0
Mortgage and asset-backed securities 389.1
 1.2
 (2.4) —
 387.9
 132.4
 —
 (3.9) —
 128.5
Municipal obligations 252.1
 3.1
 (.5) —
 254.7
 281.1
 .4
 (3.5) —
 278.0
Foreign government, agency and provincial obligations 4.5
 —
 (.1) .2
 4.6
Total fixed maturity investments $1,472.1
 $7.6
 $(4.4) $14.7
 $1,490.0
 $1,049.9
 $.6
 $(18.6) $—
 $1,031.9

 December 31, 2016 December 31, 2017
Millions 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Net foreign
currency
gains
 
Carrying
value
U.S. Government and agency obligations $112.1
 $—
 $(1.1) $—
 $111.0
 $297.8
 $—
 $(1.3) $—
 $296.5
Debt securities issued by corporations 752.0
 2.3
 (10.1) 2.1
 746.3
 867.6
 2.9
 (4.3) 14.7
 880.9
Mortgage and asset-backed securities 986.9
 .8
 (7.9) —
 979.8
 697.2
 1.6
 (4.1) —
 694.7
Municipal obligations 238.7
 1.1
 (1.3) —
 238.5
 252.0
 3.7
 (.8) —
 254.9
Foreign government, agency and provincial obligations 12.0
 .1
 —
 —
 12.1
 2.6
 —
 —
 .1
 2.7
Total fixed maturity investments $2,101.7
 $4.3
 $(20.4) $2.1
 $2,087.7
 $2,117.2
 $8.2
 $(10.5) $14.8
 $2,129.7
Less: fixed maturity investments reclassified to assets
held for sale related to SSIE
         (6.6)
Total fixed maturity investments         $2,081.1

The following tables present the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses),losses, and carrying values of White Mountains’s common equity securities and other long-term investments as of September 30, 20172018 and December 31, 2016 were as follows:2017:
 September 30, 2017 September 30, 2018
Millions 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 Net foreign
currency
losses		 
Carrying
value
 
Cost or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 Net foreign
currency
losses		 
Carrying
value
Common equity securities $693.8
 $82.6
 $(2.0) $—
 $774.4
 $873.4
 $171.1
 $(1.0) $—
 $1,043.5
Other long-term investments $254.5
 $13.1
 $(21.2) $(16.8) $229.6
 $303.8
 $34.8
 $(47.2) $(1.7) $289.7
 December 31, 2016 December 31, 2017
Millions Cost or
amortized
cost		 Gross
unrealized
gains		 Gross
unrealized
losses		 Net foreign
currency
losses		 
Carrying
value
 Cost or
amortized
cost		 Gross
unrealized
gains		 Gross
unrealized
losses		 Net foreign
currency
losses		 
Carrying
value
Common equity securities $258.6
 $29.0
 $(2.0) $—
 $285.6
 $739.7
 $129.4
 $(3.0) $—
 $866.1
Other long-term investments $194.0
 $7.9
 $(25.2) $(3.9) $172.8
 $246.6
 $6.8
 $(39.7) $(4.9) $208.8


Other Long-termLong-Term Investments
Other
The following table presents the carrying values of White Mountains’s other long-term investments as of September 30, 20172018 and December 31, 2016 were as follows:2017:
  Carrying Value at
Millions September 30, 2017 December 31, 2016
Hedge funds and private equity funds, at fair value $154.9
 $82.6
Private equity securities and limited liability companies, at fair value (1)(2)
 59.1
 57.6
Private convertible preferred securities, at fair value (1)
 27.2
 30.6
Forward Contracts (15.4) (1.2)
Other 3.8
 3.2
Total other-long term investments $229.6
 $172.8
  Carrying Value at
Millions September 30, 2018 December 31, 2017
Hedge funds and private equity funds, at fair value $151.6
 $125.3
Private equity securities, at fair value (1)(2)
 126.4
 83.2
Foreign currency forward contracts —
 (3.7)
Other 11.7
 4.0
Total other long-term investments $289.7
 $208.8
(1) See Fair Value Measurements by Level table.
(2) Includes White Mountains holds a 20% ownership interestMountains's non-controlling interests in OneTitle Holdings LLC (“OTH”)common equity securities, limited liability companies and has provided a $10.0 million surplus note facility under which OTH’s wholly-owned insurance subsidiary, OneTitle National Guaranty Company, Inc. may, under certain circumstances, draw funds. At September 30, 2017, no funds had been drawn on the surplus note facility.private convertible preferred securities.

Hedge Funds and Private Equity Funds
White Mountains holds investmentsinvests in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments is generally estimated using the net asset value (“NAV”)NAV of the funds. As of September 30, 2017,2018, White Mountains held investments in twoone hedge fundsfund and tenthirteen private equity funds.  The largest investment in a single fund was $54.7$59.6 million as of September 30, 20172018 and $21.5$54.9 million as of December 31, 2016. 2017.
The following table summarizespresents investments in hedge funds and private equity funds by investment objective and sector as of September 30, 20172018 and December 31, 20162017:
  September 30, 2018 December 31, 2017
Millions Fair Value 
Unfunded
Commitments
 Fair Value 
Unfunded
Commitments
Hedge funds  
  
  
  
Long/short banks and financials $59.6
 $—
 $54.9
 $—
Total hedge funds 59.6
 —
 54.9
 —
         
Private equity funds  
  
  
  
Manufacturing/Industrial 49.6
 10.5
 43.3
 10.4
Aerospace/Defense/Government 25.5
 34.9
 15.8
 12.9
Direct lending 10.6
 19.9
 7.1
 23.1
Financial services 6.3
 15.7
 4.2
 11.7
Real estate —
 50.0
 —
 —
Total private equity funds 92.0
 131.0
 70.4
 58.1
Total hedge funds and private equity funds
    included in other long-term investments
 $151.6
 $131.0
 $125.3
 $58.1
  September 30, 2017 December 31, 2016
Millions Fair Value 
Unfunded
Commitments
 Fair Value 
Unfunded
Commitments
Hedge funds  
  
  
  
Long/short banks and financials $54.7
 $—
 $21.5
 $—
Long/short equity REIT 19.1
 —
 19.9
 —
Total hedge funds 73.8
 —
 41.4
 —
         
Private equity funds  
  
  
  
Manufacturing/Industrial 42.7
 12.1
 19.4
 22.9
Aerospace/Defense/Government 28.7
 15.6
 19.4
 25.9
Direct lending 6.7
 23.3
 1.4
 28.6
Financial Services 3.0
 13.0
 1.0
 5.0
Insurance —
 41.2
 —
 41.2
Total private equity funds 81.1
 105.2
 41.2
 123.6
Total hedge funds and private equity funds
    included in other long-term investments
 $154.9
 $105.2
 $82.6
 $123.6


Redemption of investments in certainmost hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. As of September 30, 2017,2018, White Mountains held one active hedge fund with a fair value of $54.7 million was$59.6 million. The hedge fund is subject to a lock-up period that expiressemi-annual restriction on September 1, 2018.
The following table summarizes the fair value of hedge funds subject to restrictions on redemption frequencyredemptions and an advance notice period requirements for investments in active hedge funds asrequirement of September 30, 2017:
  Notice Period
Millions
Redemption frequency
 
30-59 days
notice
 
60-89 days
notice
 Total
Semi-annual $54.7
 $19.1
 $73.8

White Mountains has submitted a redemption request for its investment in a long/short equity REIT hedge fund. As of September 30, 2017, the redemption of $19.1 million is outstanding and is subject to market fluctuation. The bulk of the redemption proceeds are expected to be received in the first quarter of 2018 with the balance expected in the second quarter of 2018.45 days.
Investments in private equity funds are generally subject to a lock-up period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund’s underlying investments. In addition, certain private equity funds provide anhave the option to extend the lock-up period at either, the sole discretion of the fund manager or upon agreement between the fund and the investors.period.
The following table summarizespresents investments in private equity funds that were subject to lock-up periods as of September 30, 2017:2018:
Millions 1-3 years 3 – 5 years 5 – 10 years >10 years Total 1 – 3 years 3 – 5 years 5 – 10 years >10 years Total
Private Equity Funds — expected lock-up period remaining $4.0 $18.2 $33.5 $25.4 $81.1
Private equity funds — expected lock-up period remaining $14.2 $5.0 $55.9 $16.9 $92.0

Investors in private equity funds are generally subject to indemnification obligations outside of the capital commitment period and prior to the winding up of the fund. As of September 30, 2018 and December 31, 2017, White Mountains is not aware of any indemnification claims relating to its investments in private equity funds.  Any future indemnification obligations would be disclosed separately as opposed to being included in the Unfunded Commitments balance.

Fair Value Measurements as of September 30, 20172018
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 or liabilities 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”). As of September 30, 20172018 and December 31, 2016,2017, White Mountains used quoted market prices or other observable inputs to determine fair value for approximately 93%89% and 94% of itsthe investment portfolio. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, short-term investments, which include U.S. Treasury Bills and common equity securities. Investments valued using Level 2 inputs include fixed maturity investments, which have been disaggregated into classes, including debt securities issued by corporations, mortgage and asset-backed securities, municipal obligations, and foreign government, agency and provincial obligations. Investments valued using Level 2 inputs also include certain passive exchange traded funds (“ETFs”) that track U.S. stock indices such as the S&P 500 but are traded on foreign exchanges, which management values using the fund manager’s published NAV to account for the difference in market close times. Fair value estimates for investments that trade infrequently and have few or no observable market prices 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, equity securities and other long-term investments where quoted market prices are unavailable or are not considered reasonable. Transfers between levels are based on investments held as of the beginning of the period.
White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services White Mountains uses have indicated that they will only provide prices where observable inputs are available. 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 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 on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1.0 million from the expected price based on these assessment procedures are considered outliers. Also considered outliers 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, it relies upon its own 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.


Mortgage and asset-backed securities: The fair value of mortgage and asset-backed securities 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.

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.

Foreign government, agency and provincial obligations:The fair value of foreign government, agency and provincial obligations is determined from a pricing evaluation technique that uses feeds from data sources in each respective country, including active market makers and inter-dealer brokers. Key inputs include benchmark yields, reported trades, broker-dealer quotes, two-sided markets, benchmark securities, bids, offers, local exchange prices, foreign exchange rates and reference data including coupon, credit quality ratings, duration and market research publications.

Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect White Mountains’s assumptions that market participants would use in valuing the investment. Generally, certain 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.
White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing periodic and audited annual financial statements of hedge funds and private equity funds and discussing each fund’s pricing with the fund manager throughout the year. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. The fair value of White Mountains’s investments in hedge funds and private equity funds has generally been determined using the fund manager’s NAV. In the event White Mountains believes that its estimate of NAV of a hedge fund or private equity fund differs from that reported by the fund manager due to illiquidity or other factors, White Mountains will adjust the reported NAV to more appropriately represent the fair value of its investment in the hedge fund or private equity fund. As of September 30, 2017 and December 31, 2016, White Mountains did not have any adjustments to the reported NAV of its investments in hedge funds and private equity funds.


Fair Value Measurements by Level
The following tables summarizepresent White Mountains’s fair value measurements for investments as of September 30, 20172018 and December 31, 20162017 by level. The major security types were based on the legal form of the securities. White Mountains has disaggregated its fixed maturity investments based on the issuing entity type, which impacts credit quality, with debt securities issued by U.S. governmentGovernment entities carrying minimal credit risk, while the credit and other risks associated with other issuers, such as corporations, foreign governments, municipalities or entities issuing mortgage and asset-backed securities vary depending on the nature of the issuing entity type. White Mountains further disaggregates debt securities issued by corporations and common equity securities by industry sector because investors often reference commonly used benchmarks and their subsectors to monitor risk and performance. Accordingly, White Mountains has further disaggregated these asset classes into subclasses based on the similar sectors and industry classifications it uses to evaluate investment risk and performance against commonly used benchmarks, such as the Bloomberg Barclays U.S. Intermediate Aggregate and S&P 500 indices. The fair value measurements for derivative assets associated with White Mountains’s variable annuity business are presented in Note 7.

 September 30, 2017 September 30, 2018
Millions Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3
Fixed maturity investments:  
  
  
  
  
  
  
  
U.S. Government and agency obligations $217.8
 $217.8
 $—
 $—
 $125.4
 $125.4
 $—
 $—
                
Debt securities issued by corporations:  
        
      
Financials 145.9
 —
 145.9
 —
Consumer 121.9
 —
 121.9
 —
 84.2
 —
 84.2
 —
Utilities 109.3
 —
 109.3
 —
Health Care 85.6
 —
 85.6
 —
Technology 60.4
 —
 60.4
 —
Energy 54.6
 —
 54.6
 —
Healthcare 53.9
 —
 53.9
 —
Industrial 39.5
 —
 39.5
 —
Communications 81.7
 —
 81.7
 —
 22.4
 —
 22.4
 —
Materials 68.6
 —
 68.6
 —
 22.2
 —
 22.2
 —
Financials 55.6
 —
 50.0
 5.6
Technology 52.0
 —
 52.0
 —
Industrial 38.3
 —
 38.3
 —
Energy 12.0
 —
 12.0
 —
Utilities 16.9
 —
 16.9
 —
Total debt securities issued by corporations 625.0
 —
 619.4
 5.6
 500.0
 —
 500.0
 —
                
Mortgage and asset-backed securities 387.9
 —
 387.9
 —
 128.5
 —
 128.5
 —
Municipal obligations 254.7
 —
 254.7
 —
 278.0
 —
 278.0
 —
Foreign government, agency and provincial obligations 4.6
 —
 4.6
 —
Total fixed maturity investments 1,490.0
 217.8
 1,266.6
 5.6
 1,031.9
 125.4
 906.5
 —
                
Short-term investments(1)
 786.5
 764.5
 22.0
 —
 313.7
 300.7
 13.0
 —
                
Common equity securities:  
  
  
  
  
  
  
  
Exchange traded funds (2)
 492.5
 434.6
 57.9
 —
 742.9
 675.3
 67.6
 —
Health Care 17.1
 17.1
 —
 —
Technology 16.8
 16.8
 —
 —
Financials 14.9
 14.9
 —
 —
 16.7
 16.7
 —
 —
Healthcare 16.4
 16.4
 —
 —
Industrial 15.6
 15.6
 —
 —
Communications 14.8
 14.8
 —
 —
Consumer 13.0
 13.0
 —
 —
 9.8
 9.8
 —
 —
Technology 11.7
 11.7
 —
 —
Communications 10.3
 10.3
 —
 —
Industrial 10.2
 10.2
 —
 —
Energy 4.0
 4.0
 —
 —
 6.6
 6.6
 —
 —
Other(3)
 200.7
 —
 200.7
 —
 203.9
 —
 203.9
 —
Total common equity securities 774.4
 515.8
 258.6
 —
 1,043.5
 772.0
 271.5
 —
                
Other long-term investments (4)(5)
 90.1
 —
 —
 90.1
Other long-term investments (4)
 138.1
 —
 —
 138.1
Total investments $3,141.0
 $1,498.1
 $1,547.2
 $95.7
 $2,527.2
 $1,198.1
 $1,191.0
 $138.1
(1) Short-term investments are measured at amortized cost, which approximates fair value.
(2) ETFs traded on foreign exchanges are priced using the fund's published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(3) Consists of two investments in unit trusts that primarily invest in international equities.
(4) Excludes carrying value of $(15.4) related to foreign currency forward contracts.
(5) Excludes carrying value of $154.9$151.6 associated with hedge funds and private equity funds for which fair value is measured at NAV using the practical expedient.


 December 31, 2016 December 31, 2017
Millions Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3
Fixed maturity investments:  
  
  
  
  
  
  
  
U.S. Government and agency obligations $111.0
 $101.5
 $9.5
 $—
 $296.5
 $296.5
 $—
 $—
                
Debt securities issued by corporations:  
  
  
  
  
  
  
  
Consumer 190.8
 —
 190.8
 —
 185.1
 —
 185.1
 —
Communications 127.8
 —
 127.8
 —
Financials 114.8
 —
 114.8
 —
Utilities 140.8
 —
 140.8
 —
 108.9
 —
 108.9
 —
Health Care 114.9
 —
 114.9
 —
Financials 79.7
 —
 79.7
 —
Communications 72.0
 —
 72.0
 —
Materials 65.0
 —
 65.0
 —
 95.5
 —
 95.5
 —
Healthcare 94.3
 —
 94.3
 —
Technology 48.8
 —
 48.8
 —
 80.5
 —
 80.5
 —
Energy 48.1
 —
 48.1
 —
Industrial 28.2
 —
 28.2
 —
 25.9
 —
 25.9
 —
Energy 6.1
 —
 6.1
 —
Total debt securities issued by corporations 746.3
 —
 746.3
 —
 880.9
 —
 880.9
 —
                
Mortgage and asset-backed securities 979.8
 —
 979.8
 —
 694.7
 —
 694.7
 —
Municipal obligations 238.5
 —
 238.5
 —
 254.9
 —
 254.9
 —
Foreign government, agency and provincial obligations 12.1
 —
 12.1
 —
 2.7
 —
 2.7
 —
Total fixed maturity investments(1)
 2,087.7
 101.5
 1,986.2
 —
 2,129.7
 296.5
 1,833.2
 —
                
Short-term investments(2)(1)
 175.0
 162.3
 12.7
 —
 176.1
 151.0
 25.1
 —
                
Common equity securities:  
  
  
  
  
  
  
  
Exchange traded funds(3)(2)
 157.2
 129.4
 27.8
 —
 569.7
 508.1
 61.6
 —
Health Care 13.9
 13.9
 —
 —
Consumer 8.6
 8.6
 —
 —
Healthcare 17.1
 17.1
 —
 —
Financials 7.7
 7.7
 —
 —
 16.3
 16.3
 —
 —
Technology 7.3
 7.3
 —
 —
 15.1
 15.1
 —
 —
Industrial 11.9
 11.9
 —
 —
Communications 7.0
 7.0
 —
 —
 10.9
 10.9
 —
 —
Consumer 10.7
 10.7
 —
 —
Energy 2.5
 2.5
 —
 —
 3.8
 3.8
 —
 —
Industrial 1.5
 1.5
 —
 —
Other(4)(3)
 79.9
 —
 79.9
 —
 210.6
 —
 210.6
 —
Total common equity securities 285.6
 177.9
 107.7
 —
 866.1
 593.9
 272.2
 —
                
Other long-term investments (6)(4)
 91.4
 —
 —
 91.4
 87.2
 —
 —
 87.2
Total investments(1)
 $2,639.7
 $441.7
 $2,106.6
 $91.4
 $3,259.1
 $1,041.4
 $2,130.5
 $87.2
(1)Includes carrying value of $6.6 in fixed maturity investments and $0.1 in short-term investments that are classified as assets held for sale related to SSIE.
(2) Short-term investments are measured at amortized cost, which approximates fair value.
(3)(2) ETFs traded on foreign exchanges are priced using the fund’s published NAV to account for the difference in market close times and are therefore designated a level 2 measurement.
(3) Consists of one investmenttwo investments in a unit trusttrusts that primarily invests in international equities.
(5)(4) Excludes carrying value of $(1.2)$(3.7) related to foreign currency forward contracts.
(6) Excludes carrying value of $82.6contracts and $125.3 associated with hedge funds and private equity funds for which fair value is measured at NAV using the practical expedient.







Debt Securities Issued by Corporations

The following table summarizespresents the ratings of debt securities issued by corporations held in White Mountains’s investment portfolio as of September 30, 20172018 and December 31, 20162017:
 Fair Value at Fair Value at
Millions September 30, 2017 December 31, 2016 September 30, 2018 December 31, 2017
AAA $8.1
 $1.6
AA $26.7
 $37.3
 83.6
 42.6
A 119.4
 212.8
 273.3
 192.5
BBB 291.9
 335.6
 135.0
 465.2
BB 165.4
 143.2
 —
 161.7
B 21.6
 17.4
 —
 17.3
Debt securities issued by corporations(1)(2)
 $625.0
 $746.3
Debt securities issued by corporations (1)
 $500.0
 $880.9
(1) Credit ratings are assigned based on the following hierarchy: (1) Standard & Poor’s Financial Services LLC ("Standard & Poor's"(“S&P”) and (2) Moody's Investor Service, Inc. ("Moody’s"(“Moody’s”).
(2)
Includes carrying value of $4.2 of fixed maturity investments at December 31, 2016 that is classified as assets held for sale related to SSIE.

Mortgage and Asset-backed Securities

The following table presents the fair value of White Mountains purchases commercialMountains’s mortgage and asset-backed securities as of September 30, 2018 and December 31, 2017:
  September 30, 2018 December 31, 2017
Millions Fair Value Level 2 Level 3 Fair Value Level 2 Level 3
Mortgage-backed securities:  
  
  
  
  
  
Agency:  
  
  
  
  
  
GNMA $24.5
 $24.5
 $—
 $46.3
 $46.3
 $—
FNMA 53.6
 53.6
 —
 84.5
 84.5
 —
FHLMC 39.0
 39.0
 —
 62.0
 62.0
 —
Total agency (1)
 117.1
 117.1
 —
 192.8
 192.8
 —
Non-agency:  
  
  
  
  
  
Commercial —
 —
 —
 70.5
 70.5
 —
Total non-agency —
 —
 —
 70.5
 70.5
 —
             
Total mortgage-backed securities 117.1
 117.1
 —
 263.3
 263.3
 —
Other asset-backed securities:  
      
    
Credit card receivables 8.9
 8.9
 —
 206.0
 206.0
 —
Vehicle receivables 2.5
 2.5
 —
 142.4
 142.4
 —
Other —
 —
 —
 83.0
 83.0
 —
Total other asset-backed securities 11.4
 11.4
 —
 431.4
 431.4
 —
Total mortgage and asset-backed securities $128.5
 $128.5
 $—
 $694.7
 $694.7
 $—
(1)  Represents publicly traded mortgage-backed securities (“CMBS”)which carry the full faith and residential mortgage-backed securities (“RMBS”) withcredit guaranty of the goal of maximizing risk adjusted returns in the context ofU.S. Government (i.e., GNMA) or are guaranteed by a diversified portfolio. government sponsored entity (i.e., FNMA, FHLMC).

White Mountains considers sub-prime mortgage-backed securities as those that have underlying loan pools that exhibit weak credit characteristics, or those that are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., White Mountains considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics). As of September 30, 2018, White Mountains did not hold any RMBSmortgage-backed securities categorized as sub-prime as of September 30, 2017.sub-prime.
White Mountains categorizesconsiders mortgage-backed securities as “non-prime” (also called “Alt A” or “A-”) if they are backed by collateral that has overall credit quality between prime and sub-prime based on White Mountains’s review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. As of September 30, 2017,2018, White Mountains did not hold any RMBSmortgage-backed securities classified as non-prime. White Mountains’s non-agency RMBS portfolio is generally moderate-term and structurally senior. White Mountains does not own any collateralized loan obligations or any collateralized debt obligations.
The following table summarizes the carrying value of White Mountains’s mortgage and asset-backed securities as of September 30, 2017 and December 31, 2016:
  September 30, 2017 December 31, 2016
Millions Fair Value Level 2 Level 3 Fair Value Level 2 Level 3
Mortgage-backed securities:  
  
  
  
  
  
Agency:  
  
  
  
  
  
GNMA $51.0
 $51.0
 $—
 $70.3
 $70.3
 $—
FNMA 88.9
 88.9
 —
 235.5
 235.5
 —
FHLMC 59.7
 59.7
 —
 59.5
 59.5
 —
Total Agency(1)
 199.6
 199.6
 —
 365.3
 365.3
 —
Non-agency:  
  
  
  
  
  
Residential 70.1
 70.1
 —
 70.3
 70.3
 —
Commercial 39.0
 39.0
 —
 3.9
 3.9
 —
Total Non-agency 109.1
 109.1
 —
 74.2
 74.2
 —
             
Total mortgage-backed securities 308.7
 308.7
 —
 439.5
 439.5
 —
Other asset-backed securities:  
      
    
Credit card receivables 40.5
 40.5
 —
 214.2
 214.2
 —
Vehicle receivables 22.7
 22.7
 —
 205.9
 205.9
 —
Other 16.0
 16.0
 —
 120.2
 120.2
 —
Total other asset-backed securities 79.2
 79.2
 —
 540.3
 540.3
 —
Total mortgage and asset-backed securities $387.9
 $387.9
 $—
 $979.8
 $979.8
 $—
(1)  Represents publicly traded 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).


Non-agency Mortgage-backed Securities
The following table summarizes the security issuance years of White Mountains’s investments in non-agency RMBS and non-agency CMBS securities as of September 30, 2017:
      Security Issuance Year      
Millions Fair Value 2004  2013 2014 2015 2016 2017
Non-agency RMBS $70.1
 $.3
  $1.3
 $20.6
 $47.9
 $—
 $—
Non-agency CMBS 39.0
 —
  —
 —
 —
 3.7
 35.3
Total $109.1
 $.3
  $1.3
 $20.6
 $47.9
 $3.7
 $35.3
Non-agency Residential Mortgage-backed Securities
The following table summarizes the classification of the underlying collateral quality and the tranche levels of White Mountains’s non-agency RMBS securities as of September 30, 2017:
Millions Fair Value 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Prime $70.1
 $58.4
 $11.7
 $—
Non-prime —
 —
 —
 —
Sub-prime —
 —
 —
 —
Total $70.1
 $58.4
 $11.7
 $—
(1) At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch Ratings, Inc. (“Fitch”) and were senior to other “AAA” or “Aaa” bonds.
(2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 

Non-agency Commercial Mortgage-backed Securities
White Mountains’s non-agency CMBS portfolio is generally moderate-term and structurally senior, with more than 30 points of subordination on average for both fixed rate and floating rate as of September 30, 2017. In general, subordination represents the percentage principal loss on the underlying collateral that would have to be absorbed by other securities lower in the capital structure before the more senior security incurs a loss.  As of September 30, 2017, none of the underlying loans of the non-agency CMBS held by White Mountains were reported as non-performing.
The following table summarizes the amount of fixed and floating rate securities and their tranche levels of White Mountains’s non-agency CMBS securities as of September 30, 2017:
Millions Fair Value 
Super Senior (1)
 
Senior (2)
 
Subordinate (3)
Fixed rate CMBS $17.8
 $—
 $16.2
 $1.6
Floating rate CMBS 21.2
 —
 —
 21.2
Total $39.0
 $—
 $16.2
 $22.8
(1)  At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to other “AAA” or “Aaa” bonds.
(2) At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were senior to non-“AAA” or non-“Aaa” bonds.
(3) At issuance, Subordinate were not rated “AAA” by Standard & Poor’s, “Aaa” by Moody’s or “AAA” by Fitch and were junior to “AAA” or “Aaa” bonds. 


Rollforward of Fair Value Measurements by Level

 White Mountains uses quoted market prices where available as the inputs to estimate fair value for its investments in active markets. Such measurements are considered to be either Level 1 or Level 2 measurements, depending on whether the quoted market price inputs are for identical securities (Level 1) or similar securities (Level 2). Level 3 measurements for fixed maturity investments, common equity securities and other long-term investments as of September 30, 20172018 and 20162017 consist of securities for which the estimated fair value has not been determined based upon quoted market price inputs for identical or similar securities.
The following tables summarizepresent the changes in White Mountains’s fair value measurements by level for the nine months ended September 30, 20172018 and 2016:2017:
 Level 3 Investments  Level 3 Investments 
MillionsLevel 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
 Total Level 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
 Total 
Balance at January 1, 2017$279.5
$2,093.8
$—
$91.4
$82.6
 $2,547.3
(1)(2)(4) 
Balance at December 31, 2017$890.4
$2,105.4
$—
$87.2
$125.3
 $3,208.3
(1)(2) 
Net realized and unrealized gains (losses)52.4
59.8
—
(2.2)15.6
 125.6
 51.9
(33.6)—
(4.2)17.2
 31.3
(4) 
Amortization/Accretion—
(6.6)—
—
—
 (6.6) .1
(2.3)—
—
—
 (2.2) 
Purchases940.7
1,038.5
31.2
2.9
64.9
 2,078.2
 412.6
673.5
—
55.1
10.7
 1,151.9
 
Sales(539.0)(1,668.2)(12.5)(2.0)(8.2) (2,229.9) (457.6)(1,565.0)—
—
(1.6) (2,024.2) 
Deconsolidation of SSIE—
(5.2)—
—
—
 (5.2) 
Transfers in—
13.1
—
—
—
 13.1
  
—
—
—
—
—
 —
  
Transfers out—
—
(13.1)—
—
 (13.1)
  
—
—
—
—
—
 —
  
Balance at September 30, 2017$733.6
$1,525.2
$5.6
$90.1
$154.9
 $2,509.4
(1)(2) 
Balance at September 30, 2018$897.4
$1,178.0
$—
$138.1
$151.6
 $2,365.1
(2) 
(1)  Excludes carrying value of $(1.2) and $(15.4)$(3.7) as of January 1, 2017 and September 30,December 31, 2017 associated with foreign currency forward contracts.
(2)  Excludes carrying value of $175.0$176.1 and $786.5$313.7 at January 1,December 31, 2017 and September 30, 2017 associated with short-term investments, of which $0.1 is2018 classified as held for sale at January 1, 2017.short-term investments.
(3) Investments for which fair value is measured at NAV using the practical expedient are no longer classified within the fair value hierarchy. See Note 1 — “Summary“Basis of Presentation and Significant Accounting Policies”.
(4)Includes carrying value Excludes realized and unrealized losses associated with foreign currency forward contracts, foreign currency on cash and open trades and short-term investments of $6.6 of fixed maturity investments at January 1, 2017 that is classified as assets held$3.5, $4.2 and $0.7 for sale related to SSIE.the nine months ended September 30, 2018.

 Level 3 Investments   Level 3 Investments  
MillionsLevel 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(2)
Total Level 1 investments
Level 2 
investments
Fixed
maturity investments
Other long-term
investments
Hedge Funds and Private Equity Funds measured at NAV(3)
Total 
Balance at January 1, 2016$789.0
$585.6
$—
$103.6
$65.3
$1,543.5
(1)(3) 
Net realized and unrealized gains7.2
17.4
.1
.8
1.7
27.2
 
Balance at December 31, 2016$279.5
$2,093.8
$—
$91.4
$82.6
$2,547.3
(1)(2)(4) 
Net realized and unrealized gains (losses)52.4
59.8
—
(2.2)15.6
125.6
(5) 
Amortization/Accretion.1
(3.8)—
—
—
(3.7) —
(6.6)—
—
—
(6.6) 
Purchases1,387.8
2,228.5
70.0
2.2
38.4
3,726.9
 940.7
1,038.5
31.2
2.9
64.9
2,078.2
 
Sales(1,992.7)(884.1)—
(.1)(10.1)(2,887.0) (539.0)(1,668.2)(12.5)(2.0)(8.2)(2,229.9) 
Deconsolidation of SSIE—
(5.2)—
—
—
(5.2) 
Transfers in—
68.0
—
—
—
68.0
 —
13.1
—
—
—
13.1
 
Transfers out—
—
(68.0)—
—
(68.0) —
—
(13.1)—
—
(13.1) 
Balance at September 30, 2016$191.4
$2,011.6
$2.1
$106.5
$95.3
$2,406.9
(1)(3) 
Balance at September 30, 2017$733.6
$1,525.2
$5.6
$90.1
$154.9
$2,509.4
(1)(2) 
(1) Excludes carrying value of $142.0$175.0 and $230.0$786.5 at January 1,December 31, 2016 and September 30, 2016 associated with2017 classified as short-term investments, of which $0.1 and $0.1 is classified as held for sale at January 1,December 31, 2016.
(2)  Excludes carrying value of $(1.2) and $(15.4) as of December 31, 2016 and September 30, 2016.2017 associated with foreign currency forward contracts.
(2)(3) Investments for which fair value is measured at NAV using the practical expedient are no longer classified within the fair value hierarchy. See Note 1 — “Summary“Basis of Presentation and Significant Accounting Policies”.
(3)(4)  Includes carrying value of $9.5 and $8.3$6.6 of fixed maturity investments at January 1, 2016 and September 30,December 31, 2016 that is classified as assets held for sale related to SSIE.
(5) Excludes realized and unrealized losses associated with foreign currency forward contracts of $23.1 for the nine months ended September 30, 2017.


Fair Value Measurements — Transfers Between Levels - Nine-month PeriodNine-months ended September 30, 20172018 and 20162017
Transfers between levels are recorded using the fair value measurement as of the end of the quarterly period in which the event or change in circumstance giving rise to the transfer occurred.
During the first nine months of 2018, there were no fixed maturity investments or other long-term investments classified as Level 3 measurements in the prior period that were transferred to Level 2 measurements.
During the first nine months of 2017, two fixed maturity investmentsinvestment classified as a Level 3 measurement in the prior period werewas transferred to Level 2 measurement because quoted market prices for similar securities that were considered reliable and could be validated against an alternative source were available atas of September 30, 2017. These measurements comprise “Transfers out” of Level 3 and “Transfers in” to Level 2 of $13.1 million for the period ended September 30, 2017.
During the first nine months of 2016, there were two fixed maturity investments classified as Level 3 measurements in the prior period that were transferred to Level 2 measurements. These investments comprise the “Transfers out” of Level 3 and “Transfers in” to Level 2 of $68.0 million for the period ended September 30, 2016.

Significant Unobservable Inputs

The following table summarizestables present significant unobservable inputs used in estimating the fair value of investment securities,other long-term investments, other than hedge funds and private equity funds, classified within Level 3 as of September 30, 20172018 and December 31, 2016.2017. The fair value of investments in hedge funds and private equity funds are generally estimated using the NAV of the funds.

$ in millions, except share price September 30, 2018
Description September 30, 2017 Valuation Technique(s) 
Fair Value (1)
 Unobservable Input
$ in millions, except share price 
Rating(2)
 Valuation Technique(s) 
Fair 
Value(3)
 Unobservable Input
Debt securities issued
by corporations (1)
 BBB Broker pricing $5.6 Broker quote-133.792
Private equity security NR Share price of most recent transaction $21.0 Share price-$1.00 Share price of most recent transaction $28.3 Share price-$56.60
Private equity security NR Discounted cash flow $22.1 Discount rate-25.0% Discounted cash flow $21.0 Discount rate-25.0%
Private equity security NR Share price of most recent transaction $3.6 Share price-$2.52 Discounted cash flow $22.1 Discount rate-35.0%
Private convertible preferred security NR Multiple of EBITDA $0.2 EBITDA multiple-6.00 Discounted cash flow $14.5 Discount rate-30.0%
Private convertible preferred security NR Share price of most recent transaction $27.0 Share price-$3.83
Private equity security NR 
Discounted cash flow/
Option pricing method
 $10.4 Discount rate-21.0% Recent transaction $15.8 Share price-€338.85
 Time until expiration-4 years
 Volatility/Standard deviation-50.0%
 Risk free rate-1.00%
Private preferred security Multiple of EBITDA $3.5 EBITDA multiple-6.00
Private debt instrument Discounted cash flow $10.5 Discount rate-9.62%
(1)As of September 30, 2017, asset type consists of one security.
(2) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor's and 2) Moody’s.
(3) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.


$ in millions, except share price December 31, 2017
Description December 31, 2016 Valuation Technique(s) 
Fair Value (1)
 Unobservable Input
$ in millions, except share price Valuation Technique(s) 
Fair Value (1)
 Unobservable Input
Private equity security Share price of most recent transaction $21.0 Share price-$1.00 Discounted cash flow $21.0 Discount rate-25.0%
Private equity security Discounted cash flow $22.1 Discount rate-25.0% Discounted cash flow $22.1 Discount rate-35.0%
Private equity security Share price of most recent transaction $3.2 Share price-$2.52
Private convertible preferred security Multiple of EBITDA $3.6 EBITDA multiple-6.00
Private convertible preferred security Share price of most recent transaction $27.0 Share price-$3.83 Discounted cash flow $14.5 Discount rate-30.0%
Private equity security Discounted cash flow/
Option pricing method		 $9.3 Discount rate-21.0% 
Discounted cash flow/
Option pricing method
 $11.3 Discount rate-21.0%
 Time until expiration-4 years Time until expiration-4 years
 Volatility/Standard deviation-50.0% Volatility/Standard deviation-50.0%
 Risk free rate-1.00% Risk free rate-1.77%
Private preferred security Multiple of EBITDA $0.6 EBITDA multiple-6.00
Private equity security Share price of most recent transaction $3.6 Share price-$2.52
(1) Includes the net unrealized investment gains (losses) associated with foreign currency; foreign currency effects based on observable inputs.









Note 4. Goodwill and Other Intangible Assets

White Mountains has recognized goodwill and other intangible assets at the acquisition date fair values in connection with its purchases of subsidiaries.
On January 15, 2016, MediaAlpha acquired certain assets from Oversee.net for a purchase price of $3.9 million. The majority of assets acquired, which are included in other intangible assets, consists of customer relationships, a customer contract, a non-compete agreement from the seller, domain names and technology.
On August 4, 2016,May 11, 2018, White Mountains acquired a 70.9% ownership share in Buzzmove for a purchase pricecompleted its acquisition of GBP 6.1 million (approximately $8.1 million based upon the foreign exchange spot rate at the date of acquisition). White Mountains recognized total assets acquired related to Buzzmove of $11.5 million, including $7.6NSM, recognizing $383.0 million of goodwill and $1.1 million ofother intangible assets, and total liabilities assumed of $0.1 million, reflecting acquisition date fair values.
On May 18, 2018, NSM completed its acquisition of Fresh Insurance, recognizing $54.6 million of goodwill and other intangible assets, reflecting acquisition date fair values. The following table showstables presents the change in goodwill and other intangible assets:
  Three Months Ended September 30,
  2017 2016
Millions Goodwill Other intangible assets Total Goodwill Other intangible assets Total
Beginning balance $25.9
 $14.4
 $40.3
 $18.3
 $23.3
 $41.6
Acquisition of businesses —
 —
 —
 7.6
 1.1
 8.7
Amortization, including foreign currency translation —
 (2.5) (2.5) —
 (2.6) (2.6)
Ending balance $25.9
 $11.9
 $37.8
 $25.9
 $21.8
 $47.7
  Nine Months Ended September 30,
  2017 2016
Millions Goodwill Other intangible assets Total Goodwill Other intangible assets Total
Beginning balance $25.9
 $19.3
 $45.2
 $18.6
 $26.9
 $45.5
Add: Amounts held for sale at
         beginning of the period (1)
 —
 —
 —
 —
 .4
 .4
Acquisition of businesses 
 
 —
 7.6
 5.0
 12.6
Wobi write off —
 —
 —
 (.3) (2.5) (2.8)
Amortization, including foreign currency translation —
 (7.4) (7.4) —
 (8.0) (8.0)
Ending balance $25.9
 $11.9
 $37.8
 $25.9
 $21.8
 $47.7
  Three Months Ended September 30,
  2018 2017
Millions Goodwill Other intangible assets  Unallocated acquisition date fair value of intangible assets Total Goodwill and other intangible assets Goodwill Other intangible assets Total Goodwill and other intangible assets
Beginning balance $25.9
 $30.7
 436.2
 $492.8
 $25.9
 $14.4
 $40.3
Attribution of acquisition date fair value
   estimates between goodwill and other
   intangible assets
 295.3
 140.9
 (436.2) —
 —
 —
 —
Foreign currency translation (1.2) (.4) —
 (1.6) —
 —
 —
Adjustments to reflect acquisition date fair value 1.4
 —
 —
 1.4
 —
 —
 —
Amortization (1)
 —
 (7.4) —
 (7.4) —
 (2.5) (2.5)
Ending balance $321.4
 $163.8
 —
 $485.2
 $25.9
 $11.9
 $37.8
(1) See Note 15 — “HeldIncludes the NSM intangible assets amortization of $1.8 related to the period from May 11, 2018 through June 30, 2018 and $3.2 for Sale and Discontinued Operations”the three months ended September 30, 2018..

  Nine Months Ended September 30,
  2018 2017
Millions Goodwill Other intangible assets Total Goodwill and other intangible assets Goodwill Other intangible assets Total Goodwill and other intangible assets
Beginning balance $25.9
 $36.2
 $62.1
 $25.9
 $19.3
 $45.2
Attribution of acquisition date fair value estimates
   between goodwill and other intangible assets
 295.3
 140.9
 436.2
 —
 —
 —
Foreign currency translation (1.2) (.4) (1.6) —
 —
—
—
Adjustments to reflect acquisition date fair value 1.4
 —
 1.4
 —
 —
—
—
Amortization —
 (12.9) (12.9) —
 (7.4) (7.4)
Ending balance $321.4
 $163.8
 $485.2
 $25.9
 $11.9
 $37.8



The following table is a summary of goodwillpresents the acquisition date values, accumulated amortization and net carrying values for other intangible assets and goodwill, by company as of September 30, 2017,2018 and December 31, 2016, and September 30, 2016:2017:
Millions September 30, 2017 December 31, 2016
Goodwill    
MediaAlpha $18.3
 $18.3
Buzzmove 7.6
 7.6
Total goodwill 25.9
 25.9
Other intangible assets    
MediaAlpha 11.0
 18.3
Buzzmove .9
 1.0
Total other intangible assets 11.9
 19.3
Total goodwill and other intangible assets 37.8
 45.2
Goodwill and other intangible assets held for sale —
 1.2
Goodwill and other intangible assets attributed to non-controlling interests (13.7) (17.1)
Goodwill and other intangible assets included in White Mountains's
common shareholders' equity		 $24.1
 $29.3
$ in millions September 30, 2018 December 31, 2017
Acquisition date fair value Accumulated amortization Net carrying value Acquisition date fair value Accumulated amortization Net carrying value
Goodwill:            
NSM (1)
 $295.5
 $—
 $295.5
 $—
 $—
 $—
MediaAlpha 18.3
 —
 18.3
 18.3
 —
 18.3
Buzzmove 7.6
 —
 7.6
 7.6
 —
 7.6
Total goodwill 321.4
 —
 321.4
 25.9
 —
 25.9
             
Other intangible assets:            
NSM (1)
            
   Customer relationships 85.5
 3.6
 81.9
 —
 —
 —
   Trade names 51.2
 1.1
 50.1
 —
 —
 —
   Information technology 3.8
 .3
 3.5
 —
 —
 —
      Subtotal 140.5
 5.0
 135.5
 —
 —
 —
             
MediaAlpha            
   Customer relationships 26.8
 4.3
 22.5
 26.8
 2.4
 24.4
   Information technology 33.3
 29.2
 4.1
 33.3
 24.3
 9.0
Other 9.8
 8.8
 1.0
 9.8
 7.8
 2.0
      Subtotal 69.9
 42.3
 27.6
 69.9
 34.5
 35.4
             
Buzzmove            
   Trade names .6
 .1
 .5
 .6
 .1
 .5
   Information technology .5
 .3
 .2
 .5
 .2
 .3
       Subtotal 1.1
 .4
 .7
 1.1
 .3
 .8
             
Total other intangible assets211.5
 47.7
 163.8
 71.0
 34.8
 36.2
            
Total goodwill and other
   intangible assets 
$532.9
 $47.7
 485.2
 $96.9
 $34.8
 62.1
             
Goodwill and other intangible assets
  attributed to non-controlling interests
    (40.6)     (21.1)
             
Goodwill and other intangible assets
   included in White Mountains’s common
   shareholders’ equity
    $444.6
     $41.0
(1) Includes the effect of foreign currency translation from the date of acquisition of $1.2 for goodwill and $0.4 for other intangible assets.





Note 5.  Debt
 
The following table presents White Mountains’s debt outstanding as of September 30, 20172018 and December 31, 20162017 consisted of the following::
Millions September 30,
2017		 
Effective
  Rate (1)
 December 31,
2016		 
Effective
  Rate (1)
 September 30,
2018		 
Effective
  Rate (1)
 December 31,
2017		 
Effective
  Rate (1)
WTM Bank Facility $—
 N/A $—
 N/A $—
 N/A $—
 N/A
Unamortized issue costs —
 —
 
WTM Bank Facility, carrying value —
 —
 
NSM Bank Facility 150.6
 7.5% —
 
Unamortized issuance cost (3.3) —
 
NSM Bank Facility, carrying value 147.3
 —
 
Other NSM debt 2.0
 —
 
MediaAlpha Bank Facility 9.4
 5.5% —
 N/A 15.1
 6.8% 23.9
 5.6%
Unamortized issuance cost —
 —
  (.1) (.1) 
MediaAlpha Bank Facility, carrying value 9.4
 —
  15.0
 23.8
 
Previous MediaAlpha Bank Facility —
 N/A 12.9
 5.7%
Unamortized issuance cost —
 (.2) 
Previous MediaAlpha Bank Facility, carrying value —
 12.7
 
Total debt $9.4
 $12.7
  $164.3
 $23.8
 
 (1) Effective rate considers the effect of the debt issuance costs.

WTM Bank Facility

On August 14, 2013, White Mountainsthe Company entered into a revolving credit facility with a syndicate of lenders administered by Wells Fargo Bank, N.A., which hashad a total commitment of $425.0 million and has a maturity date of August 14, 2018 (the “WTM Bank Facility”). During the third quarter of 2017, White Mountains borrowed $350.0 million underterminated the WTM Bank Facility on May 8, 2018.

NSM Bank Facility

On May 11, 2018, NSM entered into a secured credit facility (the “NSM Bank Facility”) with Ares Capital Corporation in order to partiallyrefinance NSM’s debt and to fund the acquisition of Fresh Insurance. The NSM Bank Facility is comprised of a tender offerterm loan of $100.0 million, a delayed-draw term loan of $51.0 million to fund the Fresh Insurance acquisition and subsequentlya revolving credit loan commitment of $10.0 million, under which NSM initially borrowed $2.0 million. The term loans under the NSM Bank Facility mature on May 11, 2024, and the revolving loan under the NSM Bank Facility matures on May 11, 2023. During the three months ended September 30, 2018 and the period from May 11, 2018 through September 30, 2018, NSM repaid $0.4 million on the $350term loans. During the period from May 11, 2018 through September 30, 2018, NSM repaid $2.0 million after receivingon the proceeds from the OneBeacon Transaction.revolving credit loan. As of September 30, 2017,2018, $150.6 million of term loans were outstanding and no revolving credit loans were outstanding under the WTMNSM Bank Facility.
Interest on the NSM Bank Facility accrues at a floating interest rate equal to the three month LIBOR or the Prime Rate, as published by the Wall Street Journal plus, in each case, an applicable margin. The margin over LIBOR may vary between 4.25% and 4.75%, and the margin over the Prime Rate may vary between 3.25% and 3.75%, in each case, depending on the consolidated total leverage ratio of the borrower.
On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on its variable rate term loans. Under the terms of the swap agreement, NSM pays a fixed rate of 2.97% and receives a variable rate, which is reset monthly, based on based on then-current LIBOR. The variable rate received by NSM under the swap agreement was undrawn.2.07%. As of September 30, 2018, NSM’s blended interest rate on the outstanding term loan principal amount of $150.6 million was 6.69%, and 7.47% after consideration of the interest rate swap. See Note 7 — “Derivatives — NSM Interest Rate Swap”.
The WTMNSM Bank Facility is secured by all property of the loan parties and contains various affirmative, negative and financial covenants whichthat White Mountains considers to be customary for such borrowings, including certain minimum net worth anda maximum debt to capitalization standards.consolidated total leverage ratio covenant.


MediaAlpha Bank Facility

On May 12, 2017, MediaAlpha entered into a secured credit facility (the “MediaAlpha Bank Facility”) with Western Alliance Bank, which hashad a total commitment of $20.0 million and has a maturity date of May 12, 2020.  On October 5, 2017, MediaAlpha refinanced the MediaAlpha Bank Facility in order to fund the acquisition of certain assets associated with the Health, Life and Medicare insurance business of Healthplans.com. The total commitment of the MediaAlpha Bank Facility was increased to $28.4 million and has a maturity date of October 6, 2020. The MediaAlpha Bank Facility replaced MediaAlpha’s previousconsists of a $18.4 million term loan facility, which has an outstanding balance of $15.1 million as of September 30, 2018, and a revolving credit loan facility (the “Previous MediaAlpha Bank Facility”),for $10.0 million, which had a total commitmentwas undrawn as of $20.0 million. September 30, 2018.
The MediaAlpha Bank Facility carries a variable interest rate that is based on the Prime Rate, as published by the Wall Street Journal, plus a spread of 1.5%1.50% on the term loan facility and 0.25% on the revolving credit loan facility as of September 30, 2017.2018.
The MediaAlpha Bank Facility consists of a $5.0 million term loan facility, which has an outstanding balance of $3.4 million as of September 30, 2017, and a revolving loan facility for $15.0 million, which has an outstanding balance of $6.0 million as of September 30, 2017. During the three and nine months ended September 30, 2017,2018, MediaAlpha borrowed $5.0repaid $0.8 million and $2.8 million on the term loan and $4.0 million and $6.0 million on the revolving loan under the MediaAlpha Bank Facility. During the nine months ended September 30, 2017, MediaAlpha repaid $12.9 million under the Previous MediaAlpha Bank Facility and $1.6 million on the termcredit loan under the MediaAlpha Bank Facility.
The MediaAlpha Bank Facility is secured by intellectual property and the common stock of MediaAlpha’s subsidiaries, and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a fixed charge coverage ratio and an asset coverage ratio.ratio covenant.

Other

On December 12, 2016, in connection with the acquisition of a wholly-owned subsidiary, NSM assumed a secured term loan facility with Ageas Insurance Limited, which has a maturity date of May 11, 2024. As of September 30, 2018, the secured term loan facility has an outstanding balance of $2.3 million. The acquisition date fair value of the debt was $2.0 million.

Compliance

At September 30, 2017,2018, White Mountains was in compliance with the covenants under all of its debt instruments.


Note 6.  Income Taxes
 
The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. In the eventIf there is a change in the current law such that taxes are imposed,to impose tax, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 31, 2035, pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966. The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate.  The jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Barbados, Gibraltar, Ireland, Israel, Luxembourg, the Netherlands, the United Kingdom and the United States.
White Mountains’s income tax benefit related to pre-tax income from continuing operations for the three months ended September 30, 2018 and pre-tax loss from continuing operations for the nine months ended September 30, 2018 represented an effective tax rate of (8.1)% and 1.2%. The effective tax rate was different from the current U.S. statutory rate of 21%, primarily due to a full valuation allowance on most of the net deferred tax assets at U.S. operations, withholding taxes and a tax benefit recorded at BAM.  For BAM, member surplus contributions (“MSC”) and the related taxes thereon are recorded directly to non-controlling interest equity, while the valuation allowance on such taxes is recorded through the income statement. For the three and nine months ended September 30, 2018, BAM recorded a tax benefit of $1.8 million and $4.0 million associated with the valuation allowance on taxes related to MSC that is included in the effective tax rate.
White Mountains’s income tax benefit related to pre-tax income from continuing operations for the three and nine months ended September 30, 2017 represented an effective tax ratesrate of (47.6)% and (203.9)%. The effective tax rates wererate was different from the 2017 U.S. statutory rate of 35%, primarily due to a full valuation allowance on all net deferred tax assets at U.S. operations, pre-tax income from continuing operations being near break-even and a tax benefit recorded at BAM. For BAM, MSC and consolidated pre-taxthe related taxes thereon are recorded directly to non-controlling interest equity, while the valuation allowance on such taxes is recorded through the income being near break-even.statement. For the three and nine months ended September 30, 2017, BAM had amounts recorded in shareholders’ equity related to member surplus contributions that were available to partially offset its loss from continuing operations.  As a result, for the three and nine months ended September 30, 2017, BAM recorded a tax benefit of $2.1 million and $6.9 million in net income from continuing operations,associated with an offsetting amount recorded in shareholders’ equity.
White Mountains’s income tax benefit related to pre-tax loss from continuing operations for the three and nine months ended September 30, 2016 represented effective tax rates of (123.9)% and (31.2)%. The effective tax rates were different from the U.S. statutory rate of 35%, primarily due to a tax benefit recorded at BAM and a $14.0 million tax benefit recognized in continuing operations related to the reversal of a valuation allowance that resulted from income that was recognized within discontinued operations. ASC 740 includes an exception to the general principle of intra-period tax allocations that requires a company with a current period loss from continuing operations to consider income recorded in other categories, including discontinued operations, in determining the tax benefit that is allocated to continuing operations. The valuation allowance reversal relates to a consolidated tax group within White Mountains that has a current period loss within continuing operations. Accordingly, the tax benefit resulting from the valuation allowance reversal was recorded in continuing operations with an offsetting tax expense for the same amount in discontinued operations. For the three and nine months ended September 30, 2016, BAM had amounts recorded in shareholders’ equityon taxes related to member surplus contributionsMSC that were available to partially offset its loss from continuing operations. As a result, foris included in the three and nine months ended September 30, 2016, BAM recorded aeffective tax benefit of $3.3 million and $8.2 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity.rate.
In arriving at the effective tax rate for the three and nine months ended September 30, 20172018 and 2016,2017, White Mountains forecasted all income and expense items including the change in unrealized investment gains (losses) and realized investment gains (losses) for the years ending December 31, 20172018 and 2016.2017.

White Mountains records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. In determining whether or not a valuation allowance, or change therein, is warranted, White Mountains considers factors such as prior earnings history, expected future earnings, carryback and carryforward periods and strategies that if executed would result in the realization of a deferred tax asset.
In the second quarter of 2016, White Mountains recorded an increase in deferred tax assets of $0.6 million and a corresponding increase in valuation allowance of $0.6 million related to the settlement of the IRS audit of Guilford Holdings, Inc. and subsidiaries for tax year 2012.
With few exceptions, White Mountains is no longer subject to U.S. federal, state, or non-U.S. income tax examinations by tax authorities for years before 2013.


Note 7. Derivatives

Variable Annuity ReinsuranceNSM Interest Rate Swap
White Mountains
On May 11, 2018, NSM entered into agreementsthe NSM Bank Facility. Interest on the NSM Bank Facility accrues at a floating interest rate equal to reinsure deaththe three month LIBOR or the Prime Rate, as published by the Wall Street Journal plus, in each case, an applicable margin. The margin over LIBOR may vary between 4.25% and living benefit guarantees4.75%, and the margin over the Prime Rate may vary between 3.25% and 3.75%, in each case, depending on the consolidated total leverage ratio of the borrower.
On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on its variable rate term loans. Under the terms of the swap agreement, NSM pays a fixed rate of 2.97% and receives a variable rate, which is reset monthly, based on then-current LIBOR. The variable rate received by NSM under the swap agreement was 2.07% at September 30, 2018. Over the term of the swap, the notional amount decreases in accordance with the principal repayments NSM expects to make on its term loans. As of September 30, 2018, NSM’s blended interest rate on the outstanding term loan principal amount of $150.6 million was 6.69%, and 7.47% after consideration of the interest rate swap. NSM’s obligations under the swap are secured by the same collateral securing the NSM Bank Facility on a pari passu basis. NSM does not currently hold any collateral deposits from or provide any collateral deposits to the swap counterparty.
NSM evaluated the effectiveness of the swap to hedge its interest rate risk associated with certainits variable annuitiesrate debt and concluded at the swap inception date that the swap was highly effective in Japan. Duringhedging that risk. NSM will evaluate the third quartereffectiveness of 2015, the variable annuity contracts reinsured by WM Life Re began to mature and were fully runoff by September 30, 2016. The reinsurance agreement was commuted in December 2016. WM Life Re was liquidated inhedging relationship on an ongoing basis.
For the third quarter of 2017.
The following table summarizes the pre-tax operating results of WM Life Re for the three and nine months ended September 30, 2016.
  Three Months Ended Nine Months Ended
Millions September 30, 2016 September 30, 2016
Fees, included in other revenue $—
 $1.2
Change in fair value of variable annuity liability, included in other revenue —
 (.3)
Change in fair value of derivatives, included in other revenue —
 (2.0)
Foreign exchange, included in other revenue —
 1.4
Total revenue —
 .3
Death benefit claims paid, included in general and administrative expenses —
 (.3)
General and administrative expenses (.5) (2.4)
Pre-tax loss $(.5) $(2.4)
The following summarizes realized and unrealized derivative gains (losses) recognized in other revenue for the three and nine months ended September 30, 2016 and the carrying values, included in other assets, as of December 31, 2016 by type of instrument:
  Gains (losses) Carrying Value
  Three Months Ended Nine Months Ended As of
Millions September 30, 2016 September 30, 2016 December 31, 2016
Fixed income/interest rate $—
 $1.8
 $—
Foreign exchange —
 (4.8) —
Equity —
 1.0
 —
Total $—
 $(2.0) $—

The following tables summarize the changes in White Mountains’s variable annuity reinsurance liabilities and derivative instruments for the nine months ended September 30, 2016.
  Nine Months Ended September 30, 2016
  
Variable Annuity
Liabilities
 Derivative Instruments
Millions Level 3 
Level 3 (1)
 
Level 2 (1)(2)
 
Level 1 (3)
 Total
Beginning of period $.3
 $2.7
 $16.5
 $.9
 $20.1
Purchases —
 —
 —
 —
 —
Realized and unrealized (losses) gains (.3) 2.9
 (.7) (4.2) (2.0)
Transfers in —
 —
 —
 —
 —
Sales/settlements —
 (5.6) (15.8) 3.3
 (18.1)
End of period $—
 $—
 $—
 $—
 $—
(1) Consists of over-the-counter instruments.
(2) Consists of interest rate swaps, total return swaps, foreign currency forward contracts, and bond forwards. Fair value measurement based upon bid/ask pricing quotes for similar instruments that are actively traded, where available.  Swaps for which an active market does not exist have been priced using observable inputs including the swap curve2018 and the underlying bond index.
(3) Consistsperiod from May 11, 2018 through September 30, 2018, NSM recognized net interest expense of exchange traded equity index, foreign currency$0.3 million and interest rate futures. Fair value measurements based upon quoted prices$0.4 million for identical instruments that are actively traded.

Allthe periodic net settlement payments on the swap. As of White Mountains’s variable annuity reinsurance liabilities were classified as Level 3 measurements. TheSeptember 30, 2018, the estimated fair value of White Mountains’s variable annuity reinsurance liabilities were estimated using actuarialthe swap and capital market assumptions related to the projected discounted cash flows over the termaccrual of the reinsurance agreement. Actuarial assumptions regarding future policyholder behavior, including surrender and lapse rates, were generally unobservable inputs and significantly impacted the fair value estimates. Generally, theperiodic net settlement payments recorded in other liabilities associated with these guarantees increased with declineswas $0.1 million. There was no ineffectiveness in the equity markets, interest rateshedge for the three months ended September 30, 2018 and currencies against the Japanese yen, as well as with increases in market volatilities. White Mountains used derivative instruments to mitigateperiod from May 11, 2018 through September 30, 2018. Accordingly, the risks associated with changesfull amount of the change in the fair value of the reinsured variable annuity guarantees. The typesswap of inputs used to estimate$1.0 million and $(0.1) million for the fair value of these derivative instruments, withthree months ended September 30, 2018 and the exception of actuarial assumptions regarding policyholder behavior and risk margins, were generally the same as those used to estimate the fair value of variable annuity liabilities.period from May 11, 2018 through September 30, 2018 are included within accumulated other comprehensive income (loss).

Foreign Currency Forward Contracts

White Mountains’s investment portfolio includes certain investment grade fixed maturity investments denominated in British Pound Sterling (GBP) and common equity securities denominated in Japanese Yen, (JPY), Euro (EUR),Euros, GBP and other foreign currencies. White Mountains haspreviously entered into foreign currency forward contracts to manage its foreign currency exposure related to these investments. The contracts do not meetIn conjunction with the criteria to be accounted for as a hedge.liquidation of the GBP investment grade corporate bond mandate in the first quarter of 2018, White Mountains actively manages its net foreign currency exposure and adjusts its foreign currency positions within ranges established by senior management. Mismatches between currency driven movements in foreign denominated investments andclosed the associated foreign currency forward contracts may result in netcontract.
White Mountains no longer has any open foreign currency positions being outside pre-defined ranges and/or may result in net foreign currency gains/(losses). At September 30,forward contracts. As of December 31, 2017, White Mountains held $261.8$206.3 million (GBP 160.7 million, EUR 18.9 million and JPY 2,646.4 million)total gross notional value of a foreign currency forward contracts.
White Mountains’s foreign currency forward contracts are traded over-the-counter. The faircontract with a carrying value of $(3.7) million.
The derivative (losses) gains recognized in net realized and unrealized investment gains (losses) for the contracts has been estimated using OTC quotes for similar instruments and accordingly, the measurements have been classified as Level 2 measurements as ofnine months ended September 30, 2017.
2018 were $(3.5) million. The net realized derivative loss(losses) gains recognized in net realized and unrealized investment gains (losses) for the three and nine months ended September 30, 2017 was $7.2were $(10.0) million and $8.9$(23.1) million. The net unrealized derivative loss recognized in net realized and unrealized investment gains (losses) for the three and nine months ended September 30, 2017 was $2.8 million and $14.2 million. White Mountains’s forward contracts are subject to master netting agreements. As of September 30, 2017 and December 31, 2016, there were no offsets to the gross liability amount under the master netting agreement and the resulting net amount recognized in other long-term investments was $15.4 million and $1.2 million.
White Mountains does not hold or provide any collateral under its forward contracts.  The following table summarizes the gross notional amount associated with the forward currency contracts as of September 30, 2017:
  September 30, 2017
Millions Notional Amount Carrying Value 
Standard & Poor's Rating (1)
Barclays Bank PLC $201.3
 $(14.1) A-
JP Morgan Chase Bank N.A. 60.5
 (1.3) A+
Total $261.8
 $(15.4)  
(1) Standard & Poor’s ratings as detailed above are: “A+” (Strong, which is the fifth highest of twenty-three creditworthiness ratings) and “A-” (Strong, which is the seventh highest of twenty-three creditworthiness ratings).


Note 8. Municipal Bond Guarantee Insurance

In 2012, HG Global was capitalized with $594.5 million from White Mountains and $14.5 million from non-controlling interests to fund BAM, a newly formed mutual municipal bond insurer. As of September 30, 20172018, White Mountains owned 96.9% of HG Global’s preferred equity and 88.4% of its common equity. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of BAM Surplus Notes. ThroughAt inception, BAM and HG Re also entered into a first loss reinsurance treaty (“FLRT”). HG GlobalRe provides first loss reinsurance protection for policies underwritten by BAM of up to 15% of par outstanding on each municipal bond insured by BAM. In return, BAM cedes 60% of the risk premium charged for insuring the municipal bond, net of a per policy basis.ceding commission. During 2017, HG Global and BAM made certain changes to the ceding commission arrangements under the FLRT. These changes serve to accelerate growth in BAM's statutory capital but do not impact the net risk premium ceded from BAM to HG Re. HG Re’s obligations to BAM are collateralized in trusts, and there is an aggregate loss limit that is equal to the total assets in the collateral trusts at any point in time.
For the three and nine months ended September 30, 2017, HG Global had pre-tax income of $7.0 million and $20.3 million, which included $4.8 million and $14.3 million of interest income on the BAM Surplus Notes. For the three and nine months ended September 30, 2016, HG Global had pre-tax income of $5.2 million and $18.4 million, which included $4.5 million and $13.4 million of interest income on the BAM Surplus Notes.
For the three and nine months ended September 30, 2017, White Mountains reported pre-tax losses of $11.9 million and $35.6 million on BAM that were recorded in net loss attributable to non-controlling interests, which included $4.8 million and $14.3 million of interest expense on the BAM Surplus Notes. For the three and nine months ended September 30, 2016, White Mountains reported pre-tax losses of $13.7 million and $30.3 million on BAM that were recorded in net loss attributable to non-controlling interests, which included $4.5 million and $13.4 million of interest expense on the BAM Surplus Notes.
Effective January 1, 2014, HG Global and BAM agreed to change theThe interest rate on the BAM Surplus Notes for the five years ending December 31, 2018 from a fixed rate of 8.0% tois a variable rate equal to the one-year U.S. treasury rate plus 300 basis points, set annually, which is 3.54%4.60% for 2018 and was 3.78% for 2016 and 2017. Prior to the end of 2018, BAM has the option to extend the variable rate period for an additional three years.  At the end of the variable rate period, the interest rate will be fixed at the higher of the then current variable rate or 8.0%. No payment of interest or principal on the BAM Surplus Notes may be made without the approval of the New York State Department of Financial Services.Services (“NYDFS”). BAM has stated its intention to seek regulatory approval to pay interest and principal on its surplus notes only to the extent that (1) its remaining qualified statutory capital (“QSC”) exceeds $500 million and (2) its remaining QSC and other capital resources continue to support its outstanding obligations, business plan and its AA stable rating from S&P. BAM repaid $4.0 million of the BAM Surplus Notes and $1.0 million of the related accrued interest in 2017. There were no repayments for the three and nine months ended September 30, 2018.
During the second quarter of 2017, inIn order to further support BAM’s long-term capital position and business prospects, in 2017 HG Global agreed to contribute the $203.0 million of Series A BAM Surplus Notes (“Series A Notes”) into the supplemental collateral trust (the “Supplemental Trust”) at HG Re, HG Global’s wholly owned reinsurance subsidiary.Re. The Supplemental Trust already holdsheld the $300.0 million of Series B BAM Surplus Notes (“Series B Notes” and, collectively with the Series A Notes, the “BAM Surplus Notes”). Assets held in the Supplemental Trust serve to collateralize HG Re’s obligations to BAM under the first loss reinsurance treaty between BAM and HG Re.FLRT. HG Global and BAM also agreed to changechanged the payment terms of the Series B Notes, so that payments will reduce principal and accrued interest on a pro rata basis, consistent with the payment terms on the Series A Notes. The terms of the Series B Notes had previously stipulated that payments would first reduce interest owed, then reduce principal owed once all accrued interest had been paid.  The New York Department of Financial Services approved the change during the third quarter of 2017.
During the second quarter of 2017, HG Global and BAM also made certain changesSupplemental Trust target balance is equal to the ceding commission arrangements under the reinsurance treaty between HG Re and BAM. These changes will accelerate growth in BAM’s statutory capital but will not impact the net risk premium ceded from BAM to HG Re. 

Under GAAP, if the terms of a debt instrument are amended, unless there is a greater than 10% change in the expected discounted future cash flows of such instrument, a change in the instrument’s carrying value is not permitted. White Mountains has determined that the impact of the changes made in the second quarter of 2017 to the terms ofapproximately $603.0 million.  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 collateral trust balances must be at target levels before capital can be distributed out of the Supplemental Trust. In connection with the contribution, the Series A Notes were merged with the Series B Notes.
As of September 30, 2018 and December 31, 2017, the collateral trusts held assets of $741.7 million and $715.1 million, which both included $499.0 million of BAM Surplus Notes. As of September 30, 2018 and December 31, 2017, HG Global has accrued $143.2 million and $126.0 million of interest receivable on the expected discounted future cash flows is not greater than 10%.
All of the contracts issued by BAM are accounted for as insurance contracts under ASC 944-605, Financial Guarantee Insurance Contracts. Premiums are received upfront and an unearned premium revenue liability, equal to the amount of the cash received, is established at contract inception. Premium revenues are recognized in revenue over the period of the contracts in proportion to the amount of insurance protection provided using a constant rate. The constant rate is calculated based on the relationship between the par outstanding in a given reporting period compared with the sum of each of the par amounts outstanding for all periods.Surplus Notes.
The following table providespresents a schedule of BAM’s insured obligations:
 September 30, 2017 December 31, 2016 September 30, 2018 December 31, 2017
Contracts outstanding 5,907
 4,807
 7,184
 6,371
Remaining weighted average contract period outstanding (in years) 10.9
 10.8
 10.8
 10.9
Contractual debt service outstanding (in millions):        
Principal $39,207.5
 $33,057.3
 $47,259.1
 $42,090.6
Interest 19,681.0
 16,396.6
 23,707.4
 21,057.1
Total debt service outstanding $58,888.5
 $49,453.9
 $70,966.5
 $63,147.7
        
Gross unearned insurance premiums $118.5
 $82.9
 $156.2
 $136.8


The following table ispresents a schedule of BAM’s future premium revenues as of September 30, 2018:
Millions September 30, 2018
October 1, 2018 - December 31, 2018 $3.3
   
January 1, 2019 - March 31, 2019 3.3
April 1, 2019 - June 30, 2019 3.3
July 1, 2019 - September 30, 2019 3.3
October 1, 2019 - December 31, 2019 3.2
     Total 2019 13.1
   
2020 12.6
2021 12.1
2022 11.5
2023 and thereafter 103.6
Total gross unearned insurance premiums $156.2

The following table presents a schedule of net written premiums included in White Mountains’s HG Global/BAM segment for the three months years ended September 30, 2018 and 2017:
Millions September 30, 2017
October 1, 2017 - December 31, 2017 $2.5
   
January 1, 2018 - March 31, 2018 2.5
April 1, 2018 - June 30, 2018 2.5
July 1, 2018 - September 30, 2018 2.5
October 1, 2018 - December 31, 2018 2.4
  9.9
   
2019 9.5
2020 9.2
2021 8.7
2022 and thereafter 78.7
Total gross unearned insurance premiums $118.5
  Three Months Ended September 30, Nine Months Ended September 30,
Millions 2018 2017 2018 2017
Gross written premiums $3.9
 $10.9
 $28.9
 $42.0
Assumed (ceded) written premiums —
 —
 —
 —
Net written premiums $3.9
 $10.9
 $28.9
 $42.0


In April 2018, BAM entered into a collateralized financial guarantee excess of loss reinsurance agreement with Fidus Re, a special purpose insurer. The agreement has a term of twelve years, but is callable by BAM after five years, and covers all polices written prior to December 31, 2017, excluding non-investment grade bonds and surety policies. Under the agreement, BAM retains the first $165.0 million of aggregate losses, before giving effect to HG’s reinsurance coverage, on the ceded business. Losses above BAM's $165.0 million retention will be split pro rata between BAM and Fidus Re, with BAM retaining 10% and Fidus Re assuming the remaining 90% of the losses under the agreement. The losses covered under the agreement may not exceed the principal and interest amount of the underlying bond guarantee during the risk period. The aggregate loss limit under the agreement is $276.1 million. Because the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance, the agreement is accounted for using deposit accounting and any related financing expenses are recorded in general and administrative expenses.


Note 9. Earnings Per Share
 
White Mountains calculates earnings per share using the two-class method, which allocates earnings between common shares and unvested restricted common shares. Both classes of shares participate equally in dividends and earnings on a per share basis. Basic earnings per share amounts are based on the weighted average number of common shares outstanding adjusted for unvested restricted common shares. Diluted earnings per share amounts are also impacted by the net effect of potentially dilutive common shares outstanding.
The following table outlinespresents the Company’s computation of earnings per share from continuing operations for the three and nine months ended September 30, 20172018 and 2016.2017. See Note 1516 — “Held for Sale and Discontinued Operations”.
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
 2017 2016 2017 2016 2018 2017 2018 2017
Basic and diluted earnings per share numerators (in millions):      
        
  
Net income attributable to White Mountains’s common shareholders $562.1
 $90.8
 $604.7
 $440.7
Net income (loss) attributable to White Mountains’s
common shareholders
 $40.8
 $562.1
 $(3.7) $604.7
Less: total income from discontinued operations, net of tax (539.1) (84.4) (573.2) (515.4) (17.3) 539.1
 (17.2) 573.2
Net income (loss) from continuing operations attributable to
White Mountains’s common shareholders
 $23.0
 $6.4
 $31.5
 $(74.7)
Net income from continuing operations attributable to
White Mountains’s common shareholders
 $58.1
 $23.0
 $13.5
 $31.5
Allocation of earnings to participating restricted common shares(1)
 (.3) (.1) (.4) .8
 (.8) (.3) (.2) (.4)
Basic and diluted earnings per share numerators $22.7
 $6.3
 $31.1
 $(73.9) $57.3
 $22.7
 $13.3
 $31.1
Basic earnings per share denominators (in thousands):                
Total average common shares outstanding during the period 4,297.2
 4,867.4
 4,477.0
 5,166.6
 3,180.4
 4,297.2
 3,450.8
 4,477.0
Average unvested restricted common shares(2)
 (53.7) (68.1) (54.5) (62.9) (41.5) (53.7) (39.7) (54.5)
Basic earnings per share denominator 4,243.5
 4,799.3
 4,422.5
 5,103.7
 3,138.9
 4,243.5
 3,411.1
 4,422.5
Diluted earnings per share denominator (in thousands):                
Total average common shares outstanding during the period(3)
 4,297.2
 4,879.4
 4,477.0
 5,174.8
Total average common shares outstanding during the period 3,180.4
 4,297.2
 3,450.8
 4,477.0
Average unvested restricted common shares(2)
 (53.7) (68.1) (54.5) (62.9) (41.5) (53.7) (39.7) (54.5)
Diluted earnings per share denominator(3)
 4,243.5
 4,811.3
 4,422.5
 5,111.9
 3,138.9
 4,243.5
 3,411.1
 4,422.5
Basic earnings per share (in dollars) - continuing operations:        
Net income (loss) attributable to White Mountains’s common shareholders $5.36
 $1.31
 $7.03
 $(14.47)
Dividends declared and paid —
 —
 (1.00) (1.00)
Undistributed earnings (loss) $5.36
 $1.31
 $6.03
 $(15.47)
Diluted earnings per share (in dollars) - continuing operations:        
Net income (loss) attributable to White Mountains’s common shareholders $5.36
 $1.31
 $7.03
 $(14.47)
Dividends declared and paid —
 —
 (1.00) (1.00)
Undistributed earnings (loss) $5.36
 $1.31
 $6.03
 $(15.47)
Basic and diluted earnings per share (in dollars) - continuing operations:        
Distributed earnings - dividends declared and paid $—
 $—
 $1.00
 $1.00
Undistributed earnings (losses) 18.27
 5.36
 2.90
 6.03
Basic and diluted earnings per share $18.27
 $5.36
 $3.90
 $7.03
(1) Restricted shares issued by White Mountains receive dividends, and therefore, are considered participating securities.
(2) Restricted shares outstanding vest either in equal annual installments or upon a stated date. See Note 1310 — “Employee Share-Based Incentive Compensation Plans”.
(3) The diluted earnings per share denominator for the three and nine months ended September 30, 2016 includes the impact of 120,000 common shares issuable upon exercise of the non-qualified options outstanding, which resulted in 11,943 and 8,208 incremental shares outstanding over the period.










The following table summarizespresents the undistributed net earnings (loss)(losses) from continuing operations for the three and nine months ended September 30, 20172018 and 2016.2017. See Note 1516 — “Held for Sale and Discontinued Operations”.

  Three Months Ended Nine Months Ended
  September 30, September 30,
Millions 2017 2016 2017 2016
Undistributed net earnings - continuing operations:        
Net income (loss) attributable to White Mountains’s common shareholders,
     net of restricted common share amounts
 $22.7
 $6.3
 $31.1
 $(73.9)
Dividends declared net of restricted common share amounts (1)
 —
 —
 (4.5) (5.9)
Total undistributed net earnings (loss), net of restricted common
     share amounts
 $22.7
 $6.3
 $26.6
 $(79.8)
  Three Months Ended Nine Months Ended
  September 30, September 30,
Millions 2018 2017 2018 2017
Undistributed net income (losses) - continuing operations:        
Net income attributable to White Mountains’s common shareholders,
     net of restricted common share amounts
 $57.3
 $22.7
 $13.3
 $31.1
Dividends declared net of restricted common share amounts (1)
 —
 —
 (3.7) (4.5)
Total undistributed net losses, net of restricted common
     share amounts
 $57.3
 $22.7
 $9.6
 $26.6
(1) Restricted shares issued by White Mountains receive dividends, and therefore, are considered participating securities.


Note 10. Non-controlling InterestsEmployee Share-Based Incentive Compensation Plans
White Mountains’s Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees of White Mountains. As of September 30, 2018, White Mountains’s share-based compensation incentive awards consist of performance shares and restricted shares.

Performance Shares

Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Awards generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, and are valued based on the market value of common shares at the time awards are approved for payment. 
The following table presents the performance share activity for the three and nine months endedSeptember 30, 2018 and 2017 for performance shares granted under the WTM Incentive Plan:
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Millions, except share amounts Target Performance
Shares Outstanding		 
Accrued
Expense
 Target Performance
Shares Outstanding		 
Accrued
Expense
 
Target
Performance
Shares
Outstanding
 
Accrued
Expense
 
Target
Performance
Shares
Outstanding
 
Accrued
Expense
Beginning of period 40,616
 $27.2
 50,575
 $31.2
 50,515
 $45.8
 80,353
 $42.4
Shares paid (1)
 —
 —
 —
 —
 (23,186) (28.4) (30,838) (21.6)
New grants —
 —
 —
 —
 14,105
 —
 17,510
 —
Forfeitures and cancellations(2)
 —
 (.1) (256) (.4) (818) .1
 (16,706) (9.4)
Expense recognized —
 7.8
 —
 7.0
 —
 17.4
 —
 26.4
End of period(3)
 40,616
 $34.9
 50,319
 $37.8
 40,616
 $34.9
 50,319
 $37.8
(1) WTM performance share payments in 2018 for the 2015-2017 performance cycle, which were paid in March 2018, ranged from 145% to 147% of target.  WTM performance share payments in 2017 for the 2014-2016 performance cycle, which were paid in March 2017, ranged from 34% to 76% of target. 
(2) Amounts include changes in assumed forfeitures, as required under GAAP.
(3) Outstanding performance share awards as of September 30, 2017 excludes 2,195 performance share awards granted to employees of Sirius Group.

For performance shares earned in the 2015-2017 and 2014-2016 performance cycles, all performance shares earned were settled in cash. If all the outstanding WTM performance shares had vested on September 30, 2018, the total additional compensation cost to be recognized would have been $20.4 million, based on accrual factors (common share price and payout assumptions) at September 30, 2018.
The following table presents performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at September 30, 2018 for each performance cycle:
Millions, except share amounts 
Target Performance
Shares Outstanding
 
Accrued
Expense
Performance cycle:  
  
2016 – 2018 13,715
 $18.9
2017 – 2019 14,070
 13.3
2018 – 2020 13,450
 3.2
Sub-total 41,235
 35.4
Assumed forfeitures (619) (.5)
September 30, 2018 40,616
 $34.9


Restricted Shares

The following table detailspresents the balanceunrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months endedSeptember 30, 2018 and 2017:
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Millions, 
except share amounts
 Restricted
Shares		 Unamortized
Issue Date Fair Value		 Restricted
Shares		 Unamortized
Issue Date Fair Value		 Restricted
Shares		 Unamortized
Issue Date
Fair Value		 Restricted
Shares		 Unamortized
Issue Date
Fair Value
Non-vested,          
  
  
  
Beginning of period 41,510
 $19.0
 53,815
 $23.5
 53,755
 $14.3
 70,620
 $19.7
Issued —
 —
 —
 —
 14,105
 11.4
 17,785
 16.7
Vested —
 —
 (260) —
 (25,381) —
 (28,846) —
Forfeited —
 —
 —
 —
 (969) (.2) (6,004) (3.5)
Expense recognized —
 (3.2) —
 (3.8) —
 (9.7) —
 (13.2)
End of period (1)
 41,510
 $15.8
 53,555
 $19.7
 41,510
 $15.8
 53,555
 $19.7
(1) Restricted share awards outstanding as of non-controlling interests included inSeptember 30, 2017 includes 2,195 restricted shares issued to employees of Sirius Group, which was accounted for as discontinued operations.

During the first quarter of 2018, White Mountains’s total equityMountains issued 13,450 restricted shares that vest on January 1, 2021, 290 restricted shares that vest on January 1, 2020 and 365 restricted shares that vest on January 1, 2019. During the related percentagesecond quarter of each consolidated entity’s total equity owned by non-controlling shareholders as2017, White Mountains issued 550 restricted shares that vest on January 1, 2020, 250 restricted shares that vest on January 1, 2019 and 250 restricted shares that vest on January 1, 2018. During the first quarter of 2017, White Mountains issued 16,735 restricted shares that vest on January 1, 2020. The unamortized issue date fair value at September 30, 20172018 and December 31, 2016:is expected to be recognized ratably over the remaining vesting periods. 

  September 30, 2017 December 31, 2016
$ in millions Non-controlling Percentage Non-controlling Equity Non-controlling Percentage Non-controlling Equity
OneBeacon Ltd. —% $—
 23.9% $244.6
  

 

 

 

Other, excluding mutuals and reciprocals        
HG Global 3.1
 16.1
 3.1
 16.6
MediaAlpha 40.0
 9.5
 40.0
 11.7
Buzzmove 22.9
 3.0
 29.1
 2.9
Wobi 5.0
 —
 5.0
 .1
Dewar (1)
 —
 —
 18.8
 3.9
Total other, excluding mutuals and reciprocals   28.6
   35.2
Mutuals and reciprocals        
BAM 100.0
 (160.2) 100.0
 (150.9)
SSIE —
 —
 100.0
 4.4
Total mutuals and reciprocals   (160.2)   (146.5)
Total non-controlling interests 

 $(131.6)   $133.3
Non-Qualified Options

As of January 20, 2017, the 125,000 Non-Qualified options issued to the Company’s former Chairman and CEO were exercised. During the first quarter of 2017, 40,000 Non-Qualified Options, with an intrinsic value of $4.4 million, were exercised in exchange for 5,142 common shares with an equal total market value. The intrinsic value represents the difference between the market price of the Company’s common shares at the date of exercise and the fixed strike price of $742 per common share. The Non-Qualified Options were fully amortized as of 2011.

MediaAlpha Class B Unit Awards

(1) DewarMediaAlpha has issued Class B unit awards to certain employees. The units entitle the award recipient to participate in distributions from MediaAlpha, subject to a cumulative distribution threshold, which is a subsidiaryperformance condition, and a service period. The grant date fair value of OneBeacon.the awards is determined when it is deemed probable that the distribution threshold will be met. The service period ranges from 36 months to 48 months. For the three and nine months ended September 30, 2018, MediaAlpha recognized $0.2 million and $6.9 million of compensation expense for the vested portion of the awards for which achievement of the performance award is now probable, and $0.1 million of unearned compensation expense for unvested awards, which will be recognized over the remaining service periods of the awards.


Note 11. Non-controlling Interests

Non-controlling interests consist of the ownership interests of non-controlling shareholders in consolidated entities and are presented separately on the balance sheet.
The following table presents the balance of non-controlling interests included in White Mountains’s total equity and the related percentage of each consolidated entity’s total equity owned by non-controlling shareholders as of September 30, 2018 and December 31, 2017:
  September 30, 2018 December 31, 2017
$ in millions Non-controlling Percentage Non-controlling Equity Non-controlling Percentage Non-controlling Equity
Other, excluding mutuals        
HG Global 3.1% $14.8
 3.1% $15.9
NSM 5.0
 14.1
 —
 —
MediaAlpha 37.8
 15.3
 35.7
 13.1
Buzzmove 22.9
 1.5
 22.9
 2.5
Total other, excluding mutuals   45.7
   31.5
Mutuals        
BAM 100.0
 (190.1) 100.0
 (163.2)
Total non-controlling interests 

 $(144.4)   $(131.7)

Note 12. Segment Information
 
White Mountains has determined that its reportable segments are HG Global/BAM, NSM, MediaAlpha and Other Operations. As a result of the Sirius Group and Tranzact sales and the OneBeacon Transaction, the results of operations for Sirius Group and OneBeacon, previously reported in their own respective segments, and Tranzact, previously reported in the Other Operations segment, have been classified as discontinued operations and are now presented, net of related income taxes, as such in the statement of operations and comprehensive income. Beginning in the second quarter of 2017, MediaAlpha’s results have been presented as a separate segment within White Mountains’s consolidated financial statements. Prior year amounts have been reclassified to conform to the current period’s presentation. See Note 15 — “Held for Sale and Discontinued 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 chief operating decision makers and the Board of Directors.
Significant intercompany transactions among White Mountains’s segments have been eliminated herein. FinancialThe following table presents the financial information for White Mountains’s segments follows:segments:
 HG Global/BAM      
Millions HG Global 
BAM(1)
 MediaAlpha Other Operations Total HG Global/BAM NSM MediaAlpha Other Operations Total
Three Months Ended September 30, 2017          
Three Months Ended September 30, 2018          
Earned insurance premiums $1.8
 $.6
 $—
 $—
 $2.4
 $3.3
 $—
 $—
 $—
 $3.3
Net investment income 1.0
 2.3
 —
 8.9
 12.2
 4.8
 —
 —
 8.6
 13.4
Net investment income (loss) - BAM Surplus Note interest 4.8
 (4.8) —
 —
 —
Net realized and unrealized investment gains .1
 .7
 —
 31.7
 32.5
Advertising and commission revenues —
 —
 37.9
 .9
 38.8
Net realized and unrealized investment (losses) gains (4.1) —
 —
 70.2
 66.1
Advertising and commission revenues (1)
 —
 36.6
 74.5
 1.1
 112.2
Other revenue —
 .2
 —
 1.4

1.6
 .2
 3.1
 —
 .4

3.7
Total revenues 7.7
 (1.0) 37.9
 42.9
 87.5
 4.2
 39.7
 74.5
 80.3
 198.7
Insurance acquisition expenses .4
 .5
 —
 —
 .9
 1.2
 —
 —
 —
 1.2
Other underwriting expenses —
 .1
 —
 —
 .1
 .1
 —
 —
 —
 .1
Cost of sales —
 —
 32.2
 .9
 33.1
 —
 —
 61.8
 1.1
 62.9
General and administrative expenses .3
 10.3
 6.1
 27.4

44.1
 11.3
 25.8
 5.4
 26.0

68.5
Broker commission expense —
 10.9
 —
 —
 10.9
Amortization of other intangible assets —
 5.0
 2.4
 —
 7.4
Interest expense —
 —
 .1
 .8
 .9
 —
 3.2
 .2
 —
 3.4
Total expenses .7
 10.9
 38.4
 29.1
 79.1
 12.6
 44.9
 69.8
 27.1
 154.4
Pre-tax income (loss) $7.0
 $(11.9) $(.5) $13.8
 $8.4
Pre-tax (loss) income $(8.4) $(5.2) $4.7
 $53.2
 $44.3
(1) BAM manages its affairs on a statutory accounting basis. BAM’s statutory surplus includes surplus notes and is not reduced by accruals of interest expense on the surplus notes. BAM’s statutory surplus is reduced only after a payment of principal or interest has been approved by the New York Department of Financial Services.
(1)
Approximately 30% of MediaAlpha’s advertising revenue for the three months ended September 30, 2018 was associated with one customer.

  HG Global/BAM      
Millions HG Global 
BAM(1)
 MediaAlpha Other Operations Total
Nine Months Ended September 30, 2017          
Earned insurance premiums $5.0
 $1.6
 $—
 $1.0
 $7.6
Net investment income 2.4
 6.5
 —
 30.8
 39.7
Net investment income (loss) - BAM Surplus Note interest 14.3
 (14.3) —
 —
 —
Net realized and unrealized investment gains .4
 2.8
 —
 99.3
 102.5
Advertising and commission revenues —
 —
 101.2
 2.7
 103.9
Other revenue —
 .8
 —
 5.3
 6.1
     Total revenues 22.1
 (2.6) 101.2
 139.1
 259.8
Losses and loss adjustment expenses —
 —
 —
 1.1
 1.1
Insurance acquisition expenses 1.0
 2.0
 —
 .1
 3.1
Other underwriting expenses —
 .3
 —
 —
 .3
Cost of sales —
 —
 86.0
 2.7
 88.7
General and administrative expenses .8
 30.7
 17.9
 112.8
 162.2
Interest expense —
 —
 .6
 1.2
 1.8
     Total expenses 1.8
 33.0
 104.5
 117.9
 257.2
Pre-tax income (loss) $20.3
 $(35.6) $(3.3) $21.2
 $2.6
(1) BAM manages its affairs on a statutory accounting basis. BAM’s statutory surplus includes surplus notes and is not reduced by accruals of interest expense on the surplus notes. BAM’s statutory surplus is reduced only after a payment of principal or interest has been approved by the New York Department of Financial Services.
  HG Global/BAM      
Millions HG Global 
BAM(1)
 MediaAlpha Other Operations Total
Three Months Ended September 30, 2016          
Earned insurance premiums $1.2
 $.3
 $—
 $1.9
 $3.4
Net investment income .6
 1.7
 —
 7.3
 9.6
Net investment income (loss) - BAM Surplus Note interest 4.5
 (4.5) —
 —
 —
Net realized and unrealized investment (losses) gains (.3) (1.6) —
 12.8
 10.9
Advertising and commission revenues —
 —
 27.6
 .6
 28.2
Other revenue —
 .4
 —
 4.3
 4.7
     Total revenues 6.0
 (3.7) 27.6
 26.9
 56.8
Losses and loss adjustment expenses —
 —
 —
 2.2
 2.2
Insurance acquisition expenses .2
 .6
 —
 .5
 1.3
Other underwriting expenses —
 .1
 —
 .1
 .2
Cost of sales —
 —
 23.0
 1.0
 24.0
General and administrative expenses .6
 9.3
 5.7
 26.8
 42.4
Interest expense —
 —
 .2
 .3
 .5
     Total expenses .8
 10.0
 28.9
 30.9
 70.6
Pre-tax income (loss) $5.2
 $(13.7) $(1.3) $(4.0) $(13.8)
(1) BAM manages its affairs on a statutory accounting basis. BAM’s statutory surplus includes surplus notes and is not reduced by accruals of interest expense on the surplus notes. BAM’s statutory surplus is reduced only after a payment of principal or interest has been approved by the New York Department of Financial Services.


 HG Global/BAM      
Millions HG Global 
BAM(1)
 MediaAlpha Other Operations Total HG Global/BAM MediaAlpha Other Operations Total
Nine Months Ended September 30, 2016      
    
Three Months Ended September 30, 2017        
Earned insurance premiums $3.1
 $1.0
 $—
 $6.1
 $10.2
 $2.4
 $—
 $—
 $2.4
Net investment income 1.6
 5.1
 —
 11.5
 18.2
 3.3
 —
 8.9
 12.2
Net investment income (loss) - BAM Surplus Note interest 13.4
 (13.4) —
 —
 —
Net realized and unrealized investment gains 2.3
 6.5
 —
 18.4
 27.2
 .8
 —
 31.7
 32.5
Advertising and commission revenues —
 —
 88.4
 1.2
 89.6
Advertising and commission revenues (1)
 —
 37.9
 .9
 38.8
Other revenue —
 .8
 —
 17.2
 18.0
 .2
 —
 1.4
 1.6
Total revenues 20.4
 —
 88.4
 54.4
 163.2
 6.7
 37.9
 42.9
 87.5
Losses and loss adjustment expenses —
 —
 —
 6.8
 6.8
Insurance acquisition expenses .6
 1.9
 —
 1.9
 4.4
 .9
 —
 —
 .9
Other underwriting expenses —
 .3
 —
 .1
 .4
 .1
 —
 —
 .1
Cost of sales —
 —
 74.0
 2.9
 76.9
 —
 32.2
 .9
 33.1
General and administrative expenses 1.4
 28.1
 16.3
 99.1
 144.9
 10.6
 3.8
 27.3
 41.7
Amortization of other intangible assets —
 2.3
 .1
 2.4
Interest expense —
 —
 .7
 1.9
 2.6
 —
 .1
 .8
 .9
Total expenses 2.0
 30.3
 91.0
 112.7
 236.0
 11.6
 38.4
 29.1
 79.1
Pre-tax income (loss) $18.4
 $(30.3) $(2.6) $(58.3) $(72.8)
Pre-tax (loss) income $(4.9) $(.5) $13.8
 $8.4
(1)
Approximately 32% of MediaAlpha’s advertising revenue for the three months ended September 30, 2017 was associated with one customer.
Millions HG Global/BAM 
NSM (2)
 MediaAlpha Other Operations Total
Nine Months Ended September 30, 2018          
Earned insurance premiums $9.7
 $—
 $—
 —
 $9.7
Net investment income 12.5
 —
 —
 32.4
 44.9
Net realized and unrealized investment (losses) gains (14.4) —
 —
 37.3
 22.9
Advertising and commission revenues (1)
 —
 59.2
 216.4
 3.0
 278.6
Other revenue .8
 4.0
 1.6
 .6
 7.0
     Total revenues 8.6
 63.2
 218.0
 73.3
 363.1
Insurance acquisition expenses 3.9
 —
 —
 —
 3.9
Other underwriting expenses .3
 —
 —
 —
 .3
Cost of sales —
 —
 179.1
 2.9
 182.0
General and administrative expenses 36.5
 37.9
 21.2
 79.0
 174.6
Broker commission expense —
 17.5
 —
 —
 17.5
Amortization of other intangible assets —
 5.0
 7.8
 .1
 12.9
Interest expense —
 4.8
 .9
 .3
 6.0
     Total expenses 40.7
 65.2
 209.0
 82.3
 397.2
Pre-tax (loss) income $(32.1) $(2.0) $9.0
 $(9.0) $(34.1)
(1)
Approximately 31% of MediaAlpha’s advertising revenue for the nine months ended September 30, 2018 was associated with one customer.
(1)(2) BAM manages its affairs on a statutory accounting basis. BAM’s statutory surplus includes surplus notes and is not reduced by accrualsNSM’s results are from May 11, 2018, the date of interest expense onacquisition, to the surplus notes. BAM’s statutory surplus is reduced only after a paymentend of principal or interest has been approved by the New York Department of Financial Services.third quarter.


Millions HG Global/BAM MediaAlpha Other Operations Total
Nine Months Ended September 30, 2017        
Earned insurance premiums $6.6
 $—
 $—
 $6.6
Net investment income 8.9
 —
 30.8
 39.7
Net realized and unrealized investment gains 3.2
 —
 99.3
 102.5
Advertising and commission revenues (1)
 —
 101.2
 2.7
 103.9
Other revenue .8
 —
 6.3
 7.1
     Total revenues 19.5
 101.2
 139.1
 259.8
Insurance acquisition expenses 3.0
 —
 —
 3.0
Other underwriting expenses .3
 —
 —
 .3
Cost of sales —
 86.0
 2.7
 88.7
General and administrative expenses 31.5
 10.7
 113.9
 156.1
Amortization of other intangible assets —
 7.2
 .1
 7.3
Interest expense —
 .6
 1.2
 1.8
     Total expenses 34.8
 104.5
 117.9
 257.2
Pre-tax (loss) income $(15.3) $(3.3) $21.2
 $2.6
(1)
Approximately 29% of MediaAlpha’s advertising revenue for the nine months ended September 30, 2017 was associated with one customer.

Note 12. Investment13. Investments in SymetraUnconsolidated Entities
 
White Mountains’s investmentinvestments in Symetra represented an investmentunconsolidated entities are included within other long-term investments and consist of investments in common equity securities or similar instruments, which give White Mountains had athe ability to exert significant votinginfluence over the investee’s operating and economic interest but did not control the entity.
In August 2015, Symetra announced it had entered into a definitive merger agreement with Sumitomo Life pursuant to which Sumitomo Life would acquire all of the outstanding shares of Symetra. Following the announcement and Symetra shareholders’ November 5, 2015 meeting to approve the transaction, White Mountains relinquished its representation on Symetra’s board of directors. As a result, White Mountains changed its accountingfinancial policies (“equity method eligible unconsolidated entities”). Such investments may be accounted for Symetra common shares fromunder either the equity method or, alternatively, White Mountains may elect to account for them under the fair value as of December 31, 2015. During the fourth quarter of 2015, White Mountains recognized $258.8 million ($241.1 million after tax) of unrealized investment gains through net income, representing the difference between the carrying value of Symetra common shares under the equity method at the date of change and fair value at December 31, 2015. White Mountains also received a special dividend of $0.50 per share as part of the transaction that was paid in the third quarter of 2015. On February 1, 2016, Symetra closed its definitive merger agreement with Sumitomo Life, and White Mountains received proceeds of $658.0 million, or $32.00 per common share. White Mountains recognized $4.7 million in pre-tax net investment gains associated with Symetra in the first quarter of 2016.option.


Note 13. Employee Share-Based Incentive Compensation Plans
White Mountains’s Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees of White Mountains. As of September 30, 2017, White Mountains’s share-based compensation incentive awards consist of performance shares and restricted shares.

Share-Based Compensation Based on White Mountains Common Shares
WTM Performance Shares
Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Awards generally vest at the end of a three-year period, are subject to the attainment of pre-specified performance goals, and are valued based on the market value of common shares at the time awards are approved for payment.  The following table summarizes performance share activity forpresents the three and nine months endedSeptember 30, 2017 and 2016 for performance shares granted under the WTM Incentive Plan:carrying values of investments in equity method eligible unconsolidated entities recorded within other long-term investments:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Millions, except share amounts Target Performance
Shares Outstanding		 
Accrued
Expense
 Target Performance
Shares Outstanding		 
Accrued
Expense
 
Target
Performance
Shares
Outstanding
 
Accrued
Expense
 
Target
Performance
Shares
Outstanding
 
Accrued
Expense
Beginning of period 50,575
 $31.2
 73,297
 $32.5
 80,353
 $42.4
 93,654
 $57.7
Shares paid (1)
 —
 —
 —
 —
 (30,838) (21.6) (36,294) (41.0)
New grants —
 —
 6,400
 —
 17,510
 —
 22,615
 —
Forfeitures and cancellations(2)
 (256) (.4) (160) (.1) (16,706) (9.4) (438) .2
Expense recognized —
 7.0
 —
 5.0
 —
 26.4
 —
 20.5
End of period(3)
 50,319
 $37.8
 79,537
 $37.4
 50,319
 $37.8
 79,537
 $37.4
Millions September 30, 2018 December 31, 2017
Equity method eligible private equity securities, at fair value $97.3
 $58.0
Investments, accounted for under the equity method 11.6
 4.6
     Total investments in equity method eligible unconsolidated entities 108.9
 62.6
Other unconsolidated investments (1)
 180.8
 146.2
     Total other long-term investments $289.7
 $208.8
(1) WTM performance share paymentsConsists of other long-term investments that are not equity method eligible.

The following table presents White Mountains’s investments in 2017 for the 2014-2016 performance cycle, which were paid in March 2017, ranged from 34% to 76% of target.  WTM performance share payments in 2016 for the 2013-2015 performance cycle, which were paid in April 2016, ranged from 140% to 142% of target. 
(2) Amounts include changes in assumed forfeitures, as required under GAAP.
(3) Outstanding performance share awardsequity method eligible unconsolidated entities as of September 30, 20172018 and 2016 exclude 2,195 and 7,315 performance share awards granted to employees of Sirius Group.

For performance shares earned in the 2014-2016 performance cycle, all performance shares earned were settled in cash. For the performance shares earned in the 2013-2015 performance cycle, the Company issued 5,000 common shares and settled the remainder in cash. If all the outstanding WTM performance shares had vested on September 30, 2017, the total additional compensation cost to be recognized would have been $28.7 million, based on accrual factors (common share price and payout assumptions) at September 30, 2017.
Performance Shares Granted Under the WTM Incentive Plan
The following table summarizes performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at September 30, 2017 for each performance cycle:December 31, 2017:
Millions, except share amounts 
Target Performance
Shares Outstanding
 
Accrued
Expense
Performance cycle:  
  
2015 – 2017 18,370
 $20.6
2016 – 2018 16,235
 12.1
2017 – 2019 16,480
 5.7
Sub-total 51,085
 38.4
Assumed forfeitures (766) (.6)
September 30, 2017 50,319
 $37.8
  Ownership Interest  
Investee September 30, 2018 December 31, 2017 Instrument Held
PassportCard (1)
 50.0% 50.0% Common shares
DavidShield (1)
 50.0% — Common shares
Kudu 49.5% — Units
durchblicker 45.0% 45.0% Common shares
Compare.com 22.1% 22.1% Common shares
Tuckerman Capital Fund III, L.P. 21.8% 21.3% Limited partnership interest
(1) At September 30, 2018, White Mountains's ownership interest in PassportCard comprised a 25% direct ownership interest and a 25%indirect interest through DavidShield. At December 31, 2017, White Mountains's ownership interest was a 50% direct ownership interest. See Note 2 — “Significant Transactions”.


Restricted Shares Granted UnderFor the WTM Incentive Plan
The following table summarizes the unrecognized compensation cost associated with the outstanding restricted share awards for the three and nine months endedending September 30, 20172018, White Mountains recorded $4.2 million and 2016:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Millions, except share amounts Restricted
Shares		 Unamortized
Issue Date Fair Value		 Restricted
Shares		 Unamortized
Issue Date Fair Value		 
Restricted
Shares
 
Unamortized
Issue Date
Fair Value
 
Restricted
Shares
 
Unamortized
Issue Date
Fair Value
Non-vested,          
  
  
  
Beginning of period 53,815
 $23.5
 66,470
 $24.2
 70,620
 $19.7
 70,675
 $15.7
Issued —
 —
 4,150
 3.4
 17,785
 16.7
 25,365
 19.7
Vested (260) —
 —
 —
 (28,846) —
 (24,620) —
Forfeited —
 —
 —
 —
 (6,004) (3.5) (800) .2
Expense recognized —
 (3.8) —
 (3.8) —
 (13.2) —
 (11.8)
End of period (1)
 53,555
 $19.7
 70,620
 $23.8
 53,555
 $19.7
 70,620
 $23.8
(1) Restricted share awards outstanding as of September$8.1 million associated with Tuckerman Capital Fund III L.P. (“Tuckerman III, L.P.”) within unrealized investment gains (losses) and net investment income. Financial data submitted by Tuckerman III L.P. is on a one-quarter lag. For the three and nine trailing months ended June 30, 2018, Tuckerman III L.P.’s total net income was $31.9 million and $43.7 million. For the three and nine trailing months ended June 30, 2017, Tuckerman III L.P.’s total net income was $3.2 million and 2016 include 2,195$7.1 million. As of June 30, 2018 and 5,235 restricted shares issued to employees of Sirius Group, which was accounted for as discontinued operations.

During the second quarter ofDecember 31, 2017, White Mountains issued 550 restricted shares that vest on January 1, 2020, 250 restricted shares that vest on January 1, 2019Tuckerman III, L.P.’s total assets were $61.9 million and 250 restricted shares that vest on January 1, 2018. During the first quarter of 2017, White Mountains issued 16,735 restricted shares that vest on January 1, 2020. During the first nine months of 2016, White Mountains issued 24,615 restricted shares that vest on January 1, 2019 and 750 restricted shares that vest on January 1, 2018. The unamortized issue date fair value at September 30, 2017 is expected to be recognized ratably over the remaining vesting periods. 
Stock Options
Non-Qualified Options
As January 20, 2017, the 125,000 Non-Qualified options issued to the Company’s former Chairman and CEO had been exercised. During the first quarter of 2017, 40,000 Non-Qualified Options, with an intrinsic value of $4.4 million, were exercised in exchange for 5,142 common shares with an equal total market value. During 2016, 5,000 Non-Qualified Options, with an intrinsic value of $0.4 million, were exercised at $742 per common share and 80,000 Non-Qualified Options, with an intrinsic value of $8.4 million, were exercised in exchange for 9,930 common shares with an equal total market value. Intrinsic value represents the difference between the market price of the Company’s common shares at the date of exercise and the fixed strike price of $742 per common share. The Non-Qualified Options were fully amortized as of 2011.$21.8 million.

Note 14. Fair Value of Financial Instruments
 
White Mountains accounts for all its financial instruments at fair value with the exception of the WTMNSM Bank Facility which was undrawn at September 30, 2017 and December 31, 2016, the MediaAlpha Bank Facility, and the Previous MediaAlpha Bank Facility, which isare recorded as debt at face value less unamortized original issue discount.
The following table summarizespresents the fair value and carrying value of thesethis financial instrumentsinstrument as of September 30, 20172018 and December 31, 20162017:
 September 30, 2017 December 31, 2016 September 30, 2018 December 31, 2017
Millions 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
NSM Bank Facility $147.3
 $147.3
 $—
 $—
MediaAlpha Bank Facility $9.4
 $9.4
 $—
 $—
 $15.3
 $15.0
 $23.9
 $23.8
Previous MediaAlpha Bank Facility —
 —
 13.0
 12.7

The fair value estimateestimates for the MediaAlpha Bank Facility and the Previous MediaAlphaNSM Bank Facility hashave been determined based on a discounted cash flows approach and isare considered to be a Level 3 measurement.measurements.

Note 15. Contingencies

Legal Contingencies

White Mountains is subject to litigation and arbitration in the normal course of business. White Mountains considers the requirements of ASC 450 when evaluating its exposure to litigation and arbitration. ASC 450 requires that accruals be established for litigation and arbitration if it is probable that a loss has been incurred and it can be reasonably estimated. ASC 450 also requires that litigation and arbitration be disclosed if it is probable that a loss has been incurred or if there is a reasonable possibility that a loss may have been incurred. White Mountains does not have any current litigation that may have a material adverse effect on White Mountains’s financial condition, results of operations or cash flows.
The following description presents significant legal contingencies, ongoing non-claims related litigation or arbitration as of September 30, 2018:

Sirius Group Tax Contingency
In late October 2018, the Swedish Administrative Court ruled against Sirius Group on its appeal of the Swedish Tax Agency’s denial of certain interest deductions relating to periods prior to the sale of Sirius Group to CMI in 2016. In connection with the sale, White Mountains indemnified Sirius Group against the loss of these interest deductions. As a result, in the third quarter of 2018, White Mountains recorded a loss of $17.3 million within net (loss) gain on sale of discontinued operations reflecting the value of these interest deductions. Sirius Group intends to appeal the decision to the Swedish Administrative Court of Appeal.

NSM Contingent Liability
In connection with White Mountains’s acquisition of NSM, White Mountains and NSM entered into an agreement with AIG to facilitate a sale of NSM’s U.S. collector car renewal rights owned by AIG to a third party by December 31, 2019. Under the terms of the agreement, if White Mountains and NSM are unable to facilitate a sale by December 31, 2019, AIG has the right to require NSM to purchase the renewal rights for $82.5 million. The Company has guaranteed NSM’s obligations under the agreement with AIG. The manner in which these obligations are ultimately discharged depends on a number of factors, including the market value of the renewal rights, the number of potential buyers and the current and prospective environment for U.S. collector car insurance. White Mountains believes that the estimated fair value of the renewal rights is greater than $82.5 million and, accordingly, no accrual of a liability is necessary at September 30, 2018.




Note 15.16. Held for Sale and Discontinued Operations

OneBeacon

On September 28, 2017, Intact Financial Corporation completed its previously announced acquisition of OneBeacon in an all-cash transaction for $18.10 per share. White Mountains received total proceeds of $1.3 billion and recorded a gain of $554.6 million, net of transaction costs. NetDuring the three months ended September 30, 2017, net loss from discontinued operations related to OneBeacon was $(15.2) million. For 2017 through the closing date of the transaction, net income (loss) from discontinued operations related to OneBeacon was $20.5 million and $(15.2) million though the closing date of the nine and three months ended and September 30, 2017. Net income from discontinued operations related to OneBeacon was $93.8 million and $22.5 million for the nine and three months ended September 30, 2016.

Star & Shield
On March 7, 2017, White Mountains completed the sale of Star & Shield and its investment in SSIE surplus notes to K2 Insurances LLC. White Mountains did not recognize any gain or loss on the sale. Through December 31, 2016, Star & Shield’s assets and liabilities are reported as held for sale within White Mountains's GAAP financial statements.million.

Tranzact

On July 21, 2016, White Mountains completed theits sale of Tranzact to Clayton, Dubilier & Rice, LLC and received net proceeds of $221.3 million at closing. On October 5, 2016, White Mountains received additional proceeds of $1.2 million following the release of the post-closing purchase price adjustment escrow.LLC. During 2016, White Mountains recorded a $51.9 million gain from the sale of Tranzact in discontinued operations, which included a $30.2 million tax expense for the reversal of a tax valuation allowance that is offset by a tax benefit recorded in continuing operations.
Through July 21, 2016, Tranzact’s results of operations are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements. Net loss from discontinued operations related to
Tranzact, prior to the tax benefit described below, was $2.1 million and $2.6 million for the three and nine months ended September 30, 2016.
During the third quarter of 2016, White Mountains recognized a $14.0 million tax benefit in continuing operations related to the reversal of a valuation allowance that resulted from the gain on the sale of Tranzact recognized within discontinued operations. This tax benefit was recorded in continuing operations with an offsetting amount of net tax expense recorded in discontinued operations; $30.2 million of tax expense was recorded to gain from sale of Tranzact in discontinued operations and a $16.1 million tax benefit was recorded to net income from discontinued operations.
In the nine months ended September 30, 2017, White Mountains recorded a $1.0 million reduction to the gain from sale of Tranzact in discontinued operations as a result of 2016 state tax payments.

Sirius Group

On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI for approximately $2.6 billion. $161.8 million of this amount was used to purchase certain assets to be retained by White Mountains out of Sirius Group, including shares of OneBeacon. The amount paid at closing was based on an estimate of Sirius Group’s closing date tangible common shareholder’s equity.CMI. During 2016, White Mountains recorded $363.2 million of gain from sale of Sirius Group in discontinued operations in the statement of operations and $113.3 million in other comprehensive income from discontinued operations.
Through April 18, 2016, Sirius Group’s results are reported as discontinued operations and assets and liabilities held for sale within White Mountains’s GAAP financial statements. Assets held for sale did not include White Mountains’s investment in OneBeacon and certain other investments that are in the Sirius Group legal entities. As of December 31, 2015, the value of these investments, net of related tax effects, was $686.2 million, of which $528.6 million related to Symetra. Net loss from discontinued operations does not include White Mountains’s net investment income and realized and unrealized investment gains and losses associated with these investments. For the three months and six ended June 30, 2016, $0.4 million and $3.7 million of net investment income and realized and unrealized investment gains and losses, net of related tax effects, that are included in the Sirius Group legal entities have been excluded from net loss from discontinued operations. White Mountains recorded $(4.0) million and $356.2 million of total income from discontinued operations for the three and nine months ended September 30, 20162018, White Mountains recorded a $17.3 million loss and $145.3$17.2 million loss from the sale of other comprehensive income forSirius Group which includes the tax contingency loss of $17.3 million recorded during the third quarter of 2018. See Note 15 — “Contingencies”. During the nine months ended September 30, 2016.2018, White Mountains recorded a $0.1 million gain from the sale of Sirius Group as a result of a change to the valuation of the accrued incentive compensation payable to Sirius Group employees.
During the third quarter ofthree and nine months ended September 30, 2017, White Mountains recorded a $0.2 million and $0.8 million reduction to the gain from sale of Sirius Group as a result of a change to the valuation of the accrued incentive compensation payable to Sirius Group employees.

Net Assets Held for SaleOther
The following table summarizes the assets
As of December 31, 2017, White Mountains has classified its Guilford, Connecticut property, which consists of an office building and liabilities associated with businesses classifiedadjacent land, as held for sale. Amounts presented relate to OneBeacon, Star & ShieldThe property has been measured at its estimated fair value net of costs of disposal, of $3.3 million as of September 30, 2018 and SSIE.December 31, 2017.

Millions December 31, 2016
Assets held for sale  
Fixed maturity investments, at fair value $2,175.7
Short-term investments, at amortized cost (which approximates fair value) 112.3
Common equity securities, at fair value 188.7
Other long-term investments 150.5
  Total investments 2,627.2
Cash 70.5
Reinsurance recoverable on unpaid and paid losses 179.8
Insurance and reinsurance premiums receivable 229.8
Deferred acquisition costs 96.3
Deferred tax asset 126.7
Ceded unearned insurance and reinsurance premiums 44.2
Accounts receivable on unsettled investment sales 1.4
Goodwill and other intangible assets 1.2
Accrued investment income 11.3
Other assets 211.1
Total assets held for sale $3,599.5
Liabilities held for sale 
Loss and loss adjustment expense reserves $1,370.6
Unearned insurance and reinsurance premiums 576.3
Debt 273.2
Accrued incentive compensation 44.3
Funds held under reinsurance treaties 153.0
Other liabilities 151.9
Total liabilities held for sale 2,569.3
Net assets held for sale $1,030.2


Net Income (Loss) from Discontinued Operations 

For the three and nine months ended September 30, 2018, White Mountains recognized net loss from sale of discontinued operations of $17.3 million and $17.2 million, which was primarily due to a tax contingency related to the sale of Sirius Group. See Note 15 — “Contingencies”.
The following table summarizespresents the results of operations, including related income taxes, associated with the business classified as discontinued operations. Foroperations for the three and nine months ended September 30, 2017, the amounts presented relate to OneBeacon and Sirius Group. For the three and nine months ended September 30, 2016, the2017. The amounts presented relate to OneBeacon, Sirius Group, and Tranzact. The results of discontinued operations from Sirius Group and Tranzact up to the closing date of the transaction inured to White Mountains. Given the fixed price nature of the OneBeacon Transaction, OneBeacon’s results were economically transferred to the buyer at signing.
 Three Months Ended Three Months Ended Three Months Ended Nine Months Ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2017
Millions OneBeacon Sirius Group Total OneBeacon Sirius Group Tranzact Total OneBeacon Sirius Group Total OneBeacon Sirius Group Tranzact Total
Revenues                            
Earned insurance premiums $268.4
 $—
 $268.4
 $277.9
 $—
 $—
 $277.9
 $268.4
 $—
 $268.4
 $807.6
 $—
 $—
 $807.6
Net investment income 13.0
 —
 13.0
 11.8
 —
 —
 11.8
 13.0
 —
 13.0
 39.7
 —
 —
 39.7
Net realized and unrealized gains 11.5
 —
 11.5
 15.5
 —
 —
 15.5
 11.5
 —
 11.5
 38.8
 —
 —
 38.8
Other revenue 2.2
 —
 2.2
 1.8
 —
 14.8
 16.6
 2.2
 —
 2.2
 7.7
 —
 —
 7.7
Total revenues 295.1
 —
 295.1
 307.0
 —
 14.8
 321.8
 295.1
 —
 295.1
 893.8
 —
 —
 893.8
Expenses                            
Loss and loss adjustment expenses 206.8
 —
 206.8
 162.8
 —
 —
 162.8
 206.8
 —
 206.8
 546.0
 —
 —
 546.0
Insurance and reinsurance acquisition expenses 51.9
 —
 51.9
 55.1
 —
 —
 55.1
 51.9
 —
 51.9
 145.6
 —
 —
 145.6
Other underwriting expenses 44.9
 —
 44.9
 49.4
 —
 —
 49.4
 44.9
 —
 44.9
 156.2
 —
 —
 156.2
General and administrative expenses 7.4
 —
 7.4
 3.5
 —
 16.2
 19.7
 7.4
 —
 7.4
 21.2
 —
 —
 21.2
Interest expense 3.4
 —
 3.4
 3.3
 —
 .5
 3.8
 3.4
 —
 3.4
 10.0
 —
 —
 10.0
Total expenses 314.4
 —
 314.4
 274.1
 —
 16.7
 290.8
 314.4
 —
 314.4
 879.0
 —
 —
 879.0
Pre-tax (loss) income (19.3) —
 (19.3) 32.9
 —
 (1.9) 31.0
 (19.3) —
 (19.3) 14.8
 —
 —
 14.8
Income tax benefit (expense) 4.1
 —
 4.1
 (10.4) —
 15.9
 5.5
Income tax benefit 4.1
 —
 4.1
 5.7
 —
 —
 5.7
Net (loss) income from discontinued operations (15.2) —
 (15.2) 22.5
 —
 14.0
 36.5
 (15.2) —
 (15.2) 20.5
 —
 —
 20.5
Net gain (loss) from sale of discontinued
operations
 554.5
 (.2) 554.3
 —
 (4.0) 51.9
 47.9
 554.5
 (.2) 554.3
 554.5
 (.8) (1.0) 552.7
Total income (loss) from discontinued
operations
 539.3
 (.2) 539.1
 22.5
 (4.0) 65.9
 84.4
 539.3
 (.2) 539.1
 575.0
 (.8) (1.0) 573.2
Change in foreign currency translation and other
from discontinued operations
 .1
 —
 .1
 (.3) —
 —
 (.3) .1
 —
 .1
 .3
 —
 —
 .3
Recognition of benefit plan assets and obligations
from the sale of OneBeacon, net of tax		 2.9
 —
 2.9
 —
 —
 —
 —
 2.9
 —
 2.9
 2.9
 —
 —
 2.9
Comprehensive income (loss)
from discontinued operations
 $542.3
 $(.2) $542.1
 $22.2
 $(4.0) $65.9
 $84.1
 $542.3
 $(.2) $542.1
 $578.2
 $(.8) $(1.0) $576.4


  Nine Months Ended Nine Months Ended
  September 30, 2017 September 30, 2016
Millions OneBeacon Sirius Group Tranzact Total OneBeacon Sirius Group Tranzact Total
Revenues                
Earned insurance premiums $807.6
 $—
 $—
 $807.6
 $827.9
 $240.1
 $—
 $1,068.0
Net investment income 39.7
 —
 —
 39.7
 38.3
 14.4
 —
 52.7
Net realized and unrealized gains
   (losses)
 38.8
 —
 —
 38.8
 56.8
 (1.5) —
 55.3
Other revenue 7.7
 —
 —
 7.7
 3.5
 .6
 119.6
 123.7
Total revenues 893.8
 —
 —
 893.8
 926.5
 253.6
 119.6
 1,299.7
Expenses                
Loss and loss adjustment expenses 546.0
 —
 —
 546.0
 501.3
 154.9
 —
 656.2
Insurance and reinsurance
   acquisition expenses
 145.6
 —
 —
 145.6
 154.8
 59.0
 —
 213.8
Other underwriting expenses 156.2
 —
 —
 156.2
 155.6
 30.9
 —
 186.5
General and administrative expenses 21.2
 —
 —
 21.2
 10.9
 10.4
 116.7
 138.0
Interest expense 10.0
 —
 —
 10.0
 9.8
 7.9
 3.2
 20.9
Total expenses 879.0
 —
 —
 879.0
 832.4
 263.1
 119.9
 1,215.4
Pre-tax income (loss) 14.8
 —
 —
 14.8
 94.1
 (9.5) (.3) 84.3
Income tax benefit (expense) 5.7
 —
 —
 5.7
 (.3) 3.1
 13.8
 16.6
Net income (loss) from
   discontinued operations
 20.5
 —
 —
 20.5
 93.8
 (6.4) 13.5
 100.9
Net gain (loss) from sale of
   discontinued operations
 554.5
 (.8) (1.0) 552.7
 —
 362.6
 51.9
 414.5
Total income (loss) from discontinued
   operations
 575.0
 (.8) (1.0) 573.2
 93.8
 356.2
 65.4
 515.4
Change in foreign currency translation
   and other from discontinued
   operations
 .3
 —
 —
 .3
 .5
 32.0
 —
 32.5
Recognition of foreign currency
   translation and other from sale of
   Sirius Group, net of tax
 —
 —
 —
 —
 —
 113.3
   113.3
Recognition of benefit plan assets
   and obligations from the sale of
   OneBeacon, net of tax
 2.9
 —
 —
 2.9
 —
 —
 —
 —
Comprehensive income (loss)
   from discontinued operations
 $578.2
 $(.8) $(1.0) $576.4
 $94.3
 $501.5
 $65.4
 $661.2

Net Change in Cash from Discontinued Operations

The following summarizestable presents the net change in cash, including income tax paymentpayments to national governments and interest paid associated with the business classified as discontinued operations:
 Nine Months Ended Nine Months Ended
 September 30, September 30,
Millions 2017 2016 2018 2017
Net cash provided from operations $157.0
 $38.1
Net cash provided from investing activities 3.0
 269.7
Net cash provided from (used for) operations $—
 $157.0
Net cash (used for) provided from investing activities —
 3.0
Net cash used for financing activities (61.9) (72.7) —
 (61.9)
Net change in cash during the period 98.1
 235.1
 —
 98.1
Cash balances at beginning of period 70.5
 245.4
 —
 70.5
Net change in cash held for sale, excluding discontinued operations (.9) 2.6
 —
 (.9)
Cash sold as part of sale of consolidated subsidiaries 167.7
 345.8
 —
 167.7
Cash balances at end of period $—
 $137.3
 $—
 $—
Supplemental cash flows information:        
Interest paid $—
 $(7.7) $—
 $—
Net income tax payment to national governments $—
 $(18.3) $—
 $—

Earnings Per Share from Discontinued Operations

White Mountains calculates earnings per share using the two-class method, which allocates earnings between common and unvested restricted common shares. Both classes of shares participate equally in earnings on a per share basis. Basic earnings per share amounts are based on the weighted average number of common shares outstanding adjusted for unvested restricted common shares. Diluted earnings per share amounts are also impacted by the net effect of potentially dilutive common shares outstanding.
The following table outlinespresents the Company’s computation of earnings per share for discontinued operations for the three and nine months ended September 30, 20172018 and 2016:2017:
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
 2017 2016 2017 2016 2018 2017 2018 2017
Basic and diluted earnings per share numerators (in millions):                
Net income attributable to White Mountains’s common shareholders $562.1
 $90.8
 $604.7
 $440.7
Less: total income from continuing operations, net of tax (23.0) (6.4) (31.5) 74.7
Net income (loss) from discontinued operations attributable to
White Mountains’s common shareholders
 $539.1
 $84.4
 $573.2
 $515.4
Net income (loss) attributable to White Mountains’s
common shareholders
 $40.8
 $562.1
 $(3.7) $604.7
Less total loss from continuing operations, net of tax 58.1
 23.0
 13.5
 31.5
Net income from discontinued operations attributable to
White Mountains’s common shareholders
 $(17.3) $539.1
 $(17.2) $573.2
Allocation of earnings to participating restricted common shares (1)
 (6.7) (1.2) (7.0) (6.3) .2
 (6.7) .2
 (7.0)
Basic and diluted earnings per share numerators $532.4
 $83.2
 $566.2
 $509.1
 $(17.1) $532.4
 $(17.0) $566.2
Basic earnings per share denominators (in thousands):        
        
Total average common shares outstanding during the period 4,297.2
 4,867.4
 4,477.0
 5,166.6
 3,180.4
 4,297.2
 3,450.8
 4,477.0
Average unvested restricted common shares (3)
 (53.7) (68.1) (54.5) (62.9) (41.5) (53.7) (39.7) (54.5)
Basic earnings per share denominator 4,243.5
 4,799.3
 4,422.5
 5,103.7
 3,138.9
 4,243.5
 3,411.1
 4,422.5
Diluted earnings per share denominator (in thousands):        
        
Total average common shares outstanding during the period (4)
 4,297.2
 4,879.4
 4,477.0
 5,174.8
Total average common shares outstanding during the period 3,180.4
 4,297.2
 3,450.8
 4,477.0
Average unvested restricted common shares (3)
 (53.7) (68.1) (54.5) (62.9) (41.5) (53.7) (39.7) (54.5)
Diluted earnings per share denominator(4)
 4,243.5
 4,811.3
 4,422.5
 5,111.9
 3,138.9
 4,243.5
 3,411.1
 4,422.5
Basic earnings per share (in dollars) - discontinued operations: $125.45
 $17.34
 $128.03
 $99.75
Diluted earnings per share (in dollars) - discontinued operations: $125.45
 $17.30
 $128.03
 $99.60
Basic and diluted earnings per share (in dollars) -
discontinued operations:
 $(5.44) $125.45
 $(4.98) $128.03
(1) Restricted shares issued by White Mountains contain dividend participation features, and therefore, are considered participating securities.
(2) Net earnings attributable to White Mountains’s common shareholders, net of restricted share amounts, is equal to undistributed earnings for the three and nine months ended September 30, 20172018 and 2016.2017.
(3) Restricted common shares outstanding vest either in equal annual installments or upon a stated date. See Note 1310 — “Employee Share-Based Incentive Compensation Plans”.
(4) The diluted earnings per share denominator for the three and nine months ended September 30, 2016 includes the impact of 120,000 common shares issuable upon exercise of the non-qualified options outstanding, which resulted in 11,943 and 8,208 incremental shares outstanding over the period.

Fair Value of Financial Instruments in Liabilities Held for Sale
The OBH Senior Notes are recorded as debt at face value less unamortized original issue discount. The following table summarizes the fair value and carrying value of this financial instrument as of December 31, 2016:
  December 31, 2016
Millions 
Fair
Value
 
Carrying
Value
OBH Senior Notes $274.2
 $273.2

The fair value estimate for the OBH Senior Notes has been determined using quoted market prices. The OBH Senior Notes are considered a Level 2 measurement.


OneBeacon Surplus Notes in Assets Held for Sale
In the fourth quarter of 2014, in conjunction with OneBeacon’s sale of its runoff business to an affiliate of Armour Group Holdings Limited (the “OneBeacon Runoff Transaction”), OneBeacon provided financing in the form of surplus notes (the “OneBeacon Surplus Notes”) with a par value of $101.0 million which had a fair value of $71.9 million as of December 31, 2016. The OneBeacon Surplus Notes, issued by one of the transferred entities, Bedivere Insurance Company (the “Issuer”) were in the form of both seller priority and pari passu notes.
Subsequent to closing, the OneBeacon Surplus Notes are included in OneBeacon’s investment portfolio, classified within other long-term investments. The internal valuation model used to estimate the fair value of the OneBeacon Surplus Notes is based on discounted expected cash flows using information as of the measurement date.
Below is a table illustrating the valuation adjustments taken to arrive at estimated fair value of the OneBeacon Surplus Notes as of December 31, 2016:
Millions Total as of December 31, 2016
Par Value $101.0
Fair value adjustments to reflect:  
Current market rates on public debt and contract-based repayments (1)
 5.1
Regulatory approval (2)
 (15.6)
Liquidity adjustment (3)
 (18.6)
Total adjustments (29.1)
Fair value $71.9
(1)
Represents the value of the surplus notes, at current market yields on comparable publicly traded debt, and assuming issuer is allowed to make principal and interest payments when its financial capacity is available, as measured by statutory capital in excess of a 250% RBC score under the National Association of Insurance Commissioners’ risk-based capital standards for property and casualty companies. The favorable year-to-date change in impact is due principally to the narrowing of non-investment grade credit spreads as well as the time value of money benefit from moving three months closer to modeled cash receipts.
(2)
Represents anticipated delay in securing regulatory approvals of interest and principal payments to reflect graduated changes in Issuer's statutory surplus. The monetary impact of the anticipated delay is measured based on credit spreads of public securities with roughly equivalent percentages of discounted payments missed. The favorable year-to-date change in impact is driven primarily by the narrowing of non-investment grade credit spreads, which causes negative valuation impact from the anticipated delay in securing regulatory approval to be lower.
(3) Represents impact of liquidity spread to account for OneBeacon's sole ownership of the notes, lack of a trading market, and unique nature of the ongoing regulatory approval process.

Note 16. Financial Statement Revisions

In October 2017, White Mountains discovered that the former CEO of Wobi, one of its overseas portfolio companies, had been reporting overstated commission revenues and related receivables to White Mountains. As a result, White Mountains has revised certain of its previously issued financial statements. The revisions resulted in reductions to commission revenues (included in advertising and commission revenues) and commissions receivable (included in other assets). In addition, the overstatements led White Mountains to write down the goodwill and other intangible assets related to Wobi to zero. This write down is recorded in general and administrative expenses in the years ended December 31, 2016 and 2015.
White Mountains evaluated the impact of the misstatements resulting from the overstatements at Wobi on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Materiality, and concluded the misstatements were not material to any previously reported financial statements. However, while not material to any previously reported annual or quarterly period, the aggregate amount of prior period misstatements could be material to White Mountains's results for the full fiscal year ended December 31, 2017. White Mountains has therefore revised all periods impacted including its consolidated balance sheet as of June 30, 2017 and December 31, 2016 and 2015; and its consolidated statements of operations and comprehensive income, consolidated statements of changes in equity, cash flows and earnings per share for the years ended December 31, 2016, 2015 and 2014, the six month period ended June 30, 2017, and the three and nine month periods ended September 30, 2016. The revisions also reflect a previously recorded out of period adjustment in 2015 and 2014. The impact of these revisions to each of the previously reported consolidated statements are disclosed below. Amounts previously reported reflect the reclassification of OneBeacon, Sirius Group and Tranzact to discontinued operations for all applicable periods presented.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

  Three months ended Nine months ended
  September 30, 2016
Millions, except for per share amounts As previously reported Adjustments As revised As previously reported Adjustments As revised
Revenues:            
Earned insurance premiums $3.4
 $—
 3.4
 $10.2
 $—
 $10.2
Net investment income 9.6
 —
 9.6
 18.2
 —
 18.2
Net realized and unrealized investment gains 10.9
 —
 10.9
 27.2
 —
 27.2
Advertising and commission revenues 29.4
 (1.2) 28.2
 92.4
 (2.8) 89.6
Other revenue 4.7
 —
 4.7
 18.0
 —
 18.0
Total revenues 58.0
 (1.2) 56.8
 166.0
 (2.8) 163.2
Expenses:            
Loss and loss adjustment expenses 2.2
 —
 2.2
 6.8
 —
 6.8
Insurance and acquisition expenses 1.3
 —
 1.3
 4.4
 —
 4.4
Other underwriting expenses .2
 —
 .2
 .4
 —
 .4
Cost of sales 24.0
 —
 24.0
 76.9
 —
 76.9
General and administrative expenses 42.7
 (.3) 42.4
 142.6
 2.3
 144.9
Interest expense on debt .5
 —
 .5
 2.6
 —
 2.6
Total expenses 70.9
 (.3) 70.6
 233.7
 2.3
 236.0
Pre-tax loss (12.9) (.9) (13.8) (67.7) (5.1) (72.8)
Income tax benefit 17.1
 —
 17.1
 22.7
 —
 22.7
Net income (loss) from continuing operations 4.2
 (.9) 3.3
 (45.0) (5.1) (50.1)
Gain on sale of discontinued operations 47.9
 —
 47.9
 414.5
 —
 414.5
Net income from discontinued operations 36.5
 —
 36.5
 100.9
 —
 100.9
Net income (loss) (1)
 88.6
 (.9) 87.7
 470.4
 (5.1) 465.3
Net loss (income) attributable to
   non-controlling interests
 3.1
 —
 3.1
 (24.6) —
 (24.6)
Net income (loss) attributable to
   White Mountains's common shareholders
 91.7
 (.9) 90.8
 445.8
 (5.1) 440.7
Other comprehensive income (loss), net of tax .2
 (.2) —
 145.6
 (.2) 145.4
Comprehensive income (loss) 91.9
 (1.1) 90.8
 591.4
 (5.3) 586.1
Comprehensive loss attributable to
   non-controlling interests
 .1
 —
 .1
 .1
 —
 .1
Comprehensive income (loss) attributable to
   White Mountains's common shareholders
 $92.0
 $(1.1) $90.9
 $591.5
 $(5.3) $586.2
             
Basic and diluted earnings per share -
   continuing operations
 $1.50
 $(.18) $1.32
 $(13.49) $(1.00) $(14.49)
(1) The adjustment to net income resulted in a corresponding adjustment in the statement of cash flows, with an offsetting adjustment to the change in other assets and liabilities within the operating cash flows section. There was no change to cash flows from operations, cash flows from investing activities or cash flows from financing activities.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

  Six months ended June 30, 2017
Millions, except for per share amounts As previously reported Adjustments As revised
Revenues:      
Earned insurance premiums $5.2
 $—
 $5.2
Net investment income 27.5
 —
 27.5
Net realized and unrealized investment gains 70.0
 —
 70.0
Advertising and commission revenues 71.7
 (6.6) 65.1
Other revenue 4.5
 —
 4.5
Total revenues 178.9
 (6.6) 172.3
Expenses:      
Loss and loss adjustment expenses 1.1
 —
 1.1
Insurance and acquisition expenses 2.2
 —
 2.2
Other underwriting expenses .2
 —
 .2
Cost of sales 55.6
 —
 55.6
General and administrative expenses 117.9
 .1
 118.0
Interest expense on debt .9
 —
 .9
Total expenses 177.9
 .1
 178.0
Pre-tax income (loss) 1.0
 (6.7) (5.7)
Income tax benefit 1.3
 —
 1.3
Net income (loss) from continuing operations 2.3
 (6.7) (4.4)
Loss on sale of discontinued operations (1.6) —
 (1.6)
Net income from discontinued operations 35.7
 —
 35.7
Net income (loss) 36.4
 (6.7) 29.7
Net loss (income) attributable to non-controlling interests 13.4
 (.4) 13.0
Net income (loss) attributable to White Mountains's common shareholders 49.8
 (7.1) 42.7
Other comprehensive income (loss), net of tax 1.7
 (1.3) .4
Comprehensive income (loss) 51.5
 (8.4) 43.1
Comprehensive income attributable to non-controlling interests (.1) —
 (.1)
Comprehensive income (loss) attributable to White Mountains's
   common shareholders
 $51.4
 $(8.4) $43.0
       
Basic and diluted earnings per share - continuing operations $3.42
 $(1.59) $1.83



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  As previously reported Adjustments As revised
   Years ended December 31,
Millions, except for per share amounts 2016 2015 2014 2016 2015 2014 2016 2015 2014
Revenues:                  
Earned insurance premiums $13.4
 $12.0
 $7.9
 $—
 $—
 $—
 $13.4
 $12.0
 $7.9
Net investment income 32.1
 10.9
 12.2
 —
 —
 —
 32.1
 10.9
 12.2
Net realized and unrealized
   investment gains
 (27.4) 260.5
 38.1
 —
 —
 —
 (27.4) 260.5
 38.1
Advertising and commission
   revenues
 126.9
 110.1
 65.7
 (8.6) (2.7) (.2) 118.3
 107.4
 65.5
Other revenue (1)
 21.3
 41.8
 20.5
 —
 7.4
 (6.9) 21.3
 49.2
 13.6
Total revenues 166.3
 435.3
 144.4
 (8.6) 4.7
 (7.1) 157.7
 440.0
 137.3
Expenses:                  
Loss and loss adjustment expenses 8.0
 8.2
 8.9
 —
 —
 —
 8.0
 8.2
 8.9
Insurance and acquisition
   expenses
 5.6
 6.3
 2.9
 —
 —
 —
 5.6
 6.3
 2.9
Other underwriting expenses .5
 .4
 .4
 —
 —
 —
 .5
 .4
 .4
Cost of sales 102.0
 93.6
 57.8
 —
 —
 —
 102.0
 93.6
 57.8
General and administrative
   expenses
 183.7
 193.2
 144.9
 2.2
 7.5
 —
 185.9
 200.7
 144.9
Interest expense on debt 3.0
 1.6
 1.2
 —
 —
 —
 3.0
 1.6
 1.2
Total expenses 302.8
 303.3
 216.1
 2.2
 7.5
 —
 305.0
 310.8
 216.1
Pre-tax income (136.5) 132.0
 (71.7) (10.8) (2.8) (7.1) (147.3) 129.2
 (78.8)
Income benefit (expense) 32.9
 (12.7) 2.5
 —
 —
 —
 32.9
 (12.7) 2.5
Net income from
   continuing operations
 (103.6) 119.3
 (69.2) (10.8) (2.8) (7.1) (114.4) 116.5
 (76.3)
Gain on sale of discontinued operations 415.1
 17.9
 17.2
 —
 —
 —
 415.1
 17.9
 17.2
Net income from discontinued operations 108.3
 117.2
 296.4
 —
 —
 —
 108.3
 117.2
 296.4
Income (loss) before equity
   in earnings of
   unconsolidated affiliates
 419.8
 254.4
 244.4
 (10.8) (2.8) (7.1) 409.0
 251.6
 237.3
Equity in earnings of
   unconsolidated affiliates
 —
 25.1
 45.6
 
 —
 —
 —
 25.1
 45.6
Net income (loss)(2)
 419.8
 279.5
 290.0
 (10.8) (2.8) (7.1) 409.0
 276.7
 282.9
Net (income) loss attributable to
   non-controlling interests
 (7.3) 18.1
 22.2
 .1
 .4
 .1
 (7.2) 18.5
 22.3
Net income (loss) attributable to
   White Mountains's
   common shareholders
 412.5
 297.6
 312.2
 (10.7) (2.4) (7.0) 401.8
 295.2
 305.2
Other comprehensive income,
   net of tax (1)
 145.6
 (100.4) (104.9) —
 (7.4) 6.9
 145.6
 (107.8) (98.0)
Comprehensive income (loss) 558.1
 197.2
 207.3
 (10.7) (9.8) (.1) 547.4
 187.4
 207.2
Comprehensive (income) loss
   attributable to
   non-controlling interests
 (.3) —
 3.3
 —
 —
 —
 (.3) —
 3.3
Comprehensive income (loss)
  attributable to White
  Mountains's common shareholders
 $557.8
 $197.2
 $210.6
 $(10.7) $(9.8) $(.1) $547.1
 $187.4
 $210.5
                   
Basic and diluted earnings per
   share - continuing operations
 $(22.13) $27.63
 $(.24) $(2.15) $(.42) $(1.16) $(24.28) $27.21
 $(1.40)
(1) In 2015 and 2014, White Mountains recorded a foreign currency translation gain related to its investment in Symetra in net income when it should have been recorded through other comprehensive income. The correction to properly reflect the translation amount through other comprehensive income did not have any impact on comprehensive income attributable to White Mountains's common shareholders or to book value per share.
(2) The adjustment to net income resulted in a corresponding adjustment in the statement of cash flows, with an offsetting adjustment to the change in other assets and liabilities within the operating cash flows section. There was no change to cash flows from operations, cash flows from investing activities or cash flows from financing activities.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

  As previously reported Adjustments As revised
   Years ended December 31,
Millions 2016 2015 2014 2016 2015 2014 2016 2015 2014
                   
Common shares and
   paid-in surplus
 $810.7
 $978.2
 $1,034.7
 $—
 $—
 $—
 $810.7
 $978.2
 $1,034.7
                   
Retained earnings,
  beginning of year
 3,084.9
 3,010.5
 2,801.9
 (9.9) (7.5) (.5) 3,075.0
 3,003.0
 2,801.4
Share repurchases (694.8) (217.2) (97.4) —
 —
 —
 (694.8) (217.2) (97.4)
Net income (loss) 412.5
 297.6
 312.2
 (10.7) (2.4) (7.0) 401.8
 295.2
 305.2
Dividends (5.4) (6.0) (6.2) —
 —
 —
 (5.4) (6.0) (6.2)
Retained earnings, end of year 2,797.2
 3,084.9
 3,010.5
 (20.6) (9.9) (7.5) 2,776.6
 3,075.0
 3,003.0
                   
Accumulated other
   comprehensive income,
   after tax, beginning of year
 (149.9) (49.5) 52.1
 —
 7.4
 .5
 (149.9) (42.1) 52.6
Net change in
   foreign currency translation
 31.4
 (65.8) (168.2) —
 (7.4) 6.9
 31.4
 (73.2) (161.3)
Net other changes in AOCI 113.9
 (34.6) 66.6
 —
 —
 —
 113.9
 (34.6) 66.6
Accumulated other
   comprehensive income,
   after tax, end of year
 (4.6) (149.9) (49.5) —
 —
 7.4
 (4.6) (149.9) (42.1)
                   
Total White Mountains
   Common Shareholders'
   Equity
 3,603.3
 3,913.2
 3,995.7
 (20.6) (9.9) (.1) 3,582.7
 3,903.3
 3,995.6
                   
Non-controlling interests,
   beginning of year
 454.8
 542.7
 491.7
 (.5) (.1) —
 454.3
 542.6
 491.7
Net income (loss) 7.3
 (18.1) (22.2) (.1) (.4) (.1) 7.2
 (18.5) (22.3)
Other changes in NCI (328.2) (69.8) 73.2
 —
 —
 —
 (328.2) (69.8) 73.2
Non-controlling interests,
   end of year
 133.9
 454.8
 542.7
 (.6) (.5) (.1) 133.3
 454.3
 542.6
                   
Total equity $3,737.2
 $4,368.0
 $4,538.4
 $(21.2) $(10.4) $(.2) $3,716.0
 $4,357.6
 $4,538.2



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

  Nine months ended September 30, 2016 Six months ended June 30, 2017
Millions As previously reported Adjustments As revised As previously reported Adjustments As revised
             
Common shares and paid-in surplus $809.8
 $—
 $809.8
 $815.1
 $.7
 $815.8
             
Retained earnings, beginning of year 3,084.9
 (9.9) 3,075.0
 2,797.2
 (20.6) 2,776.6
Share repurchases (678.6) —
 (678.6) (7.2) —
 (7.2)
Net income (loss) 445.8
 (5.1) 440.7
 49.8
 (7.1) 42.7
Dividends (5.4) —
 (5.4) (4.6) —
 (4.6)
Retained earnings, end of period 2,846.7
 (15.0) 2,831.7
 2,835.2
 (27.7) 2,807.5
             
Accumulated other comprehensive income,
   after tax, beginning of year
 (149.9) —
 (149.9) (4.6) —
 (4.6)
Net change in foreign currency translation 32.0
 (.2) 31.8
 1.6
 (1.3) .3
Net other changes in AOCI 113.6
 —
 113.6
 —
 —
 —
Accumulated other comprehensive
   income, after tax, end of year
 (4.3) (.2) (4.5) (3.0) (1.3) (4.3)
             
Total White Mountains Common
   Shareholders' Equity
 3,652.2
 (15.2) 3,637.0
 3,647.3
 (28.3) 3,619.0
             
Non-controlling interests,
   beginning of year
 454.8
 (.5) 454.3
 133.9
 (.6) 133.3
Net income (loss) 24.6
 —
 24.6
 (13.4) .4
 (13.0)
Other changes in NCI (330.2) —
 (330.2) (3.7) (.7) (4.4)
Non-controlling interests, end of period 149.2
 (.5) 148.7
 116.8
 (.9) 115.9
             
Total equity $3,801.4
 $(15.7) $3,785.7
 $3,764.1
 $(29.2) $3,734.9



CONSOLIDATED BALANCE SHEETS

  December 31, 2016 December 31, 2015
Millions As previously reported Adjustments As revised As previously reported Adjustments As revised
Assets            
Investments $2,714.4
 $—
 $2,714.4
 $1,679.7
 $—
 $1,679.7
Cash 80.2
 —
 80.2
 77.8
 —
 77.8
Insurance premiums receivable 1.6
 —
 1.6
 1.3
 —
 1.3
Deferred acquisition costs 10.6
 —
 10.6
 6.9
 —
 6.9
Deferred tax asset —
 —
 —
 —
 —
 —
Accrued investment income 14.8
 —
 14.8
 3.8
 —
 3.8
Accounts receivable on unsettled investment sales 4.8
 —
 4.8
 11.4
 —
 11.4
Goodwill 31.7
 (5.8) 25.9
 24.1
 (5.5) 18.6
Intangible assets 23.0
 (3.7) 19.3
 28.9
 (2.0) 26.9
Assets held for sale 3,599.5
 —
 3,599.5
 8,365.6
 —
 8,365.6
Other assets 64.1
 (15.0) 49.1
 83.1
 (3.9) 79.2
Total assets $6,544.7
 $(24.5) $6,520.2
 $10,282.6
 $(11.4) $10,271.2
Liabilities            
Unearned insurance premiums $82.9
 $—
 $82.9
 $50.2
 $—
 $50.2
Debt 12.7
 —
 12.7
 64.7
 —
 64.7
Deferred tax liability —
 —
 —
 27.4
 —
 27.4
Accrued incentive compensation 95.7
 —
 95.7
 96.2
 —
 96.2
Liabilities held for sale 2,569.3
 —
 2,569.3
 5,618.1
 —
 5,618.1
Other liabilities 46.9
 (3.3) 43.6
 58.0
 (1.0) 57.0
Total liabilities 2,807.5
 (3.3) 2,804.2
 5,914.6
 (1.0) 5,913.6
             
Equity            
White Mountains's common shares 4.6
 —
 4.6
 5.6
 —
 5.6
Paid in surplus 806.1
 —
 806.1
 972.6
 —
 972.6
Retained earnings 2,797.2
 (20.6) 2,776.6
 3,084.9
 (9.9) 3,075.0
Accumulated other comprehensive income,
   net of tax
 (4.6) —
 (4.6) (149.9) —
 (149.9)
Total White Mountains's
   common shareholders' equity
 3,603.3
 (20.6) 3,582.7
 3,913.2
 (9.9) 3,903.3
Non-controlling interests 133.9
 (.6) 133.3
 454.8
 (.5) 454.3
Total equity 3,737.2
 (21.2) 3,716.0
 4,368.0
 (10.4) 4,357.6
Total liabilities and equity $6,544.7
 $(24.5) $6,520.2
 $10,282.6
 $(11.4) $10,271.2


CONSOLIDATED BALANCE SHEET (Unaudited)

  June 30, 2017
Millions As previously reported Adjustments As revised
Assets      
Investments $2,692.9
 $—
 $2,692.9
Cash 53.3
 —
 53.3
Insurance and reinsurance premiums receivable 2.8
 —
 2.8
Deferred acquisition costs 13.0
 —
 13.0
Accrued investment income 16.0
 —
 16.0
Accounts receivable on unsettled investment sales 199.5
 —
 199.5
Goodwill 31.7
 (5.8) 25.9
Intangible assets 17.8
 (3.4) 14.4
Assets held for sale 3,696.4
 —
 3,696.4
Other assets 62.8
 (19.7) 43.1
Total assets $6,786.2
 $(28.9) $6,757.3
Liabilities      
Unearned insurance premiums $109.9
 $—
 $109.9
Debt 10.6
 —
 10.6
Accrued incentive compensation 63.3
 —
 63.3
Accounts payable for unsettled investment purchases 114.6
 —
 114.6
Liabilities held for sale 2,678.8
 —
 2,678.8
Other liabilities 44.9
 .3
 45.2
Total liabilities 3,022.1
 .3
 3,022.4
       
Equity      
White Mountains's common shares 4.6
 —
 4.6
Paid in surplus 810.5
 .7
 811.2
Retained earnings 2,835.2
 (27.7) 2,807.5
Accumulated other comprehensive income, net of tax (3.0) (1.3) (4.3)
Total White Mountains's common shareholders' equity 3,647.3
 (28.3) 3,619.0
Non-controlling interests 116.8
 (.9) 115.9
Total equity 3,764.1
 (29.2) 3,734.9
Total liabilities and equity $6,786.2
 $(28.9) $6,757.3

Note 17. Contingencies

Legal Contingencies
White Mountains is subject to litigation and arbitration in the normal course of business. White Mountains considers the requirements of ASC 450 when evaluating its exposure to litigation and arbitration. ASC 450 requires that accruals be established for litigation and arbitration if it is probable that a loss has been incurred and it can be reasonably estimated. ASC 450 also requires that litigation and arbitration be disclosed if it is probable that a loss has been incurred or if there is a reasonable possibility that a loss may have been incurred. White Mountains does not have any current litigation that may have a material adverse effect on White Mountains’s financial condition, results of operations or cash flows.



Item 2.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” for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.
The following discussion also include sixincludes four non-GAAP financial measures (i) adjusted book value per share, (ii) percentage change in adjusted book value per share for the third quarter of 2017, which includes the estimated gaingross written premiums and MSC from the OneBeacon Transaction as if it had closed on June 30, 2017, new business(iii) adjusted capital, and (iv) return on common equity securities and other long-term investments including high-yield fixed maturity investments, (v) return on fixed maturity investments excluding high-yield fixed maturity investments and (vi)adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"(“adjusted EBITDA”), that have been reconciled from their most comparable GAAP financial measures on page 76.64. White Mountains believes these measures to be useful in evaluating White Mountains’s financial performance and condition.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172018 AND 20162017

Overview

White Mountains is engaged in the business of making opportunistic and value-oriented acquisitions of businesses and assets in the insurance, financial services and related sectors, operating these businesses and assets through our subsidiaries and, if and when attractive exit valuations become available, disposing of these businesses and assets.
White Mountains ended the third quarter of 20172018 with book value per share of $925$938 and adjusted book value per share of $906.$926. Book value per share and adjusted book value per share both increased 17%2% in the third quarter of 2018 and 18%1% in the first nine months of 2018, including dividends.
Gross written premiums and MSC in the HG Global/BAM segment totaled $16 million and $56 million in the third quarter and first nine months of 2018, compared to $19 million and $68 million in the third quarter and first nine months of 2017. BAM insured municipal bonds with par value of $2.2 billion and $6.6 billion in the third quarter and first nine months of 2018, compared to $2.0 billion and $7.1 billion in the third quarter and first nine months of 2017. Total pricing, which is gross written premiums and MSC adjusted to include the present value of future installment MSC not yet collected and to exclude the impact of gross written premium adjustments on existing policies, weighted by the par value of municipal bonds insured, was 75 and 91 basis points in the third quarter and first nine months of 2018, compared to 103 and 99 basis points in the third quarter and first nine months of 2017. BAM’s total claims paying resources were $835 million at September 30, 2018, compared to $708 million at December 31, 2017 and $687 million at September 30, 2017. The increase in claims paying resources was primarily driven by the $100 million reinsurance agreement BAM entered into with Fidus Reinsurance Ltd. (“Fidus Re”), in the second quarter of 2018.
NSM reported pre-tax loss of $5 million and $2 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM’s adjusted EBITDA was $6 million and $11 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM reported revenues of $40 million and $63 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018..
MediaAlpha reported pre-tax income of $5 million and $9 million in the third quarter and first nine months of 2018, compared to pre-tax loss of $1 million and $3 million in the third quarter and first nine months of 2017. MediaAlpha’s adjusted EBITDA was $8 million and $25 million in the third quarter and first nine months of 2018, compared to $2 million and $5 million in the third quarter and first nine months of 2017. MediaAlpha reported revenues of $75 million and $218 million in the third quarter and first nine months of 2018, compared to $38 million and $101 million in the third quarter and first nine months of 2017. The increases in pre-tax income, adjusted EBITDA and revenues for both periods were primarily driven by growth in the P&C vertical and the Health, Medicare and Life vertical, which includes the impact of the acquisition of assets from Healthplans.com in the fourth quarter of 2017.
The pre-tax total return on invested assets was 3.1% and 2.8% in the third quarter and first nine months of 2018 compared to 1.4% and 4.3% in the third quarter and first nine months of 2017.

White Mountains’s portfolio of common equity securities returned 6.1% and 7.4% for the third quarter and first nine months of 2017, including dividends,2018, underperforming the S&P 500 Index return of 7.7% and adjusted book value per share increased 17% and 15% for the third quarter and first nine months of 2017, including dividends. On September 28, 2017, OneBeacon was acquired by Intact Financial Corporation10.6%, primarily due to underperformance in an all-cash transaction for $18.10 per share (the “OneBeacon Transaction”). The increases in book value per share and adjusted book value per share were primarily driven by the gain from the OneBeacon Transaction, good investment returns, and share repurchases at a discount to book value per share and adjusted book value per share as of September 30, 2017.
During the second quarter of 2017, White Mountains changed its calculation of adjusted book value per share (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. See “NON-GAAP FINANCIAL MEASURES” on page 76.
Including the estimated net gain from the OneBeacon Transaction as if it had closed on June 30, 2017, book value per share would have been approximately $908 and adjusted book value per share would have been approximately $890 as of June 30, 2017. Had the OneBeacon Transaction closed on June 30, 2017, White Mountains’s book value per share would have increased 1.9% and adjusted book value per share would have increased 1.8% for the third quarter of 2017, driven primarily by good investment returns. See NON-GAAP FINANCIAL MEASURES on page 76.
The net gain from the OneBeacon Transaction recorded in the third quarter of 2017 increased by $34 per share to $150 per share from the estimated net gain reported in the second quarter of 2017. Approximately $26 per share was attributable to the decrease in the book value per share denominator from share repurchases in the third quarter of 2017. The remainder of the increase was attributable to (1) $4 per share from OneBeacon’s regular dividend, which was paid during the third quarter of 2017, and (2) $4 per share from OneBeacon’s loss from operations. OneBeacon’s results from operations reduced OneBeacon’snon-U.S. common equity in the period between signing and closing, thereby increasing the gain recorded on the OneBeacon Transaction because the OneBeacon Transaction was a fixed price deal.
The GAAP total return on invested assets, including continuing operations and discontinued operations, was 1.4% and 4.3% for the third quarter and first nine months of 2017 compared to 0.9% and 3.3% for the third quarter and first nine months of 2016.

The fixed income portfolio returned 0.9% and 2.7% for the third quarter and first nine months of 2017, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index returns of 0.7% and 2.3%, as interest rates rose in both periods.securities. White Mountains’s portfolio of common equity securities other long-term investmentsreturned 4.3% and high-yield fixed maturity investments returned 2.4% and 8.6%14.4% for the third quarter and first nine months of 2017, underperforming the S&P 500 Index returnsreturn of 4.5% for the third quarter and 14.2%. The underperformance versusoutperforming the S&P 500 Index return of 14.2% for the first nine months of 2017.
White Mountains’s other long-term investments portfolio returned 6.5% and 3.7% for the third quarter and first nine months of 2018. The results for the third quarter of 2018 were primarily attributable to gains from private equity funds. The results for the first nine months of 2018 were primarily attributable to gains from private equity funds and a long/short hedge fund, partially offset by losses from the foreign currency forward contract closed during the first quarter. White Mountains’s other long-term investments portfolio returned -2.3% and -2.9% for the third quarter and first nine months of 2017. The results were primarily attributable to losses from foreign currency forward contracts, partially offset by a favorable mark-to-market adjustment to the OneBeacon surplus notes during the third quarter of 2017 and strong private equity fund and hedge fund results for the first nine months of 2017.
White Mountains’s fixed income portfolio returned 0.4% and 0.0% for the third quarter and first nine months of 2018, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 0.1% and -0.9%. Outperformance in both periods was driven by White Mountains’s overweight exposure to debt securities issued by corporations coupled with the short duration positioning of its fixed income portfolio, which mitigated the adverse impact of rising interest rates. White Mountains’s fixed income portfolio returned 1.0% and 3.0% for the third quarter and first nine months of 2017, was primarilyoutperforming the Bloomberg Barclays U.S. Intermediate Aggregate Index return of 0.7% and 2.3% as short-term yields rose in both periods.
In late October 2018, the Swedish Administrative Court ruled against Sirius Group on its appeal of the Swedish Tax Agency’s denial of certain interest deductions relating to periods prior to the sale of Sirius Group to CMI in 2016. In connection with the sale, White Mountains indemnified Sirius Group against the loss of these interest deductions. As a result, of asset allocation, as high yield fixed maturity investments failed to keep pace with the S&P 500 Index, and unfavorable performance in other long-term investments, primarily attributable to losses from foreign currency forward contracts. The losses from the foreign currency forward contracts were offset by the currency gains from non-USD denominated fixed maturity investments and non-USD denominated common equity securities. See Summary of Investment Results on page 65.
During the third quarter of 2017,2018, White Mountains recorded a loss of $17 million within net (loss) gain on sale of discontinued operations reflecting the value of these interest deductions. Sirius Group intends to appeal the decision to the Swedish Administrative Court of Appeal.
White Mountains did not repurchase any common shares in the third quarter of 2018. During the first nine months of 2018, White Mountains repurchased and retired 821,842585,033 of its common shares for $715
$513 million at an average share price of $877,or approximately 93% of White Mountains’s September 30, 2018 book value per share of $870, orand approximately 94% of White Mountains’s September 30, 2017 book value per share and 96% of White Mountains’s September 30, 20172018 adjusted book value per share.
BAM’s gross written premiums and member surplus contributions totaled $19 million and $68 million in the third quarter and first nine months of 2017, compared to $21 million and $53 million in the third quarter and first nine months of 2016. Total pricing, which is premiums plus member surplus contributions weighted by the par value of bonds insured, was 103 and 99 basis points in the third quarter and first nine months of 2017, up from 69 and 63 basis points in the third quarter and first nine months of 2016. BAM insured municipal bonds with par value of $2.0 billion and $7.1 billion in the third quarter and first nine months of 2017, compared to $3.0 billion and $8.5 billion in the third quarter and first nine months of 2016. For the third quarter of 2017, the decrease was primarily due to lower new municipal bond issuance volume compared to the third quarter of 2016. For the first nine months of 2017, the lower insured volume was also due to rating uncertainty during Standard & Poor's review of BAM in the second quarter of 2017. BAM’s total claims paying resources increased $43 million to $687 million in the first nine months of 2017, compared to an increase of $28 million to $629 million in the first nine months of 2016.
MediaAlpha’s pre-tax loss was $1 million and $3 million in the third quarter and first nine months of 2017, compared to $1 million and $3 million in both the third quarter and first nine months of 2016. MediaAlpha’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $2 million and $5 million in the third quarter and first nine months of 2017, compared to $1 million and $6 million in the third quarter and first nine months of 2016. For the third quarter of 2017, the increase in EBITDA was primarily driven by increased gross profit contributions from the P&C and Health/Life verticals of $1 million. For the first nine months of 2017, the decrease in EBITDA was primarily driven by increased operating expenses of $2 million, partially offset by an increase in gross profit of $1 million.
In October 2017, White Mountains discovered that the former CEO of Wobi, one of its overseas portfolio companies, had been reporting overstated commission revenues and related receivables to White Mountains. As a result, White Mountains has revised certain of its previously issued financial statements. The revisions resulted in reductions to commission revenues and commissions receivable. In addition, the overstatements led White Mountains to write down the goodwill and other intangible assets related to Wobi to zero. See Note 16 — “Financial Statement Revisions” on page 43. Upon discovery of the overstatements, White Mountains initiated an investigation, conducted by outside counsel, of the reporting of these overstatements by Wobi to White Mountains. That investigation is complete. Wobi is conducting a separate investigation with the assistance of Israeli counsel to support the preparation of Wobi’s standalone financial statements. The results of that separate investigation, which is ongoing, are not expected to impact White Mountains’s financial statements.


 Adjusted Book Value Per Share
During the second quarter of 2017, White Mountains changed its calculation of adjusted book value per share (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. See NON-GAAP FINANCIAL MEASURES on page 76.
The following table presents White Mountains’s book value per share and reconciles it to adjusted book value per share, a non-GAAP measure. See NON-GAAP FINANCIAL MEASURES on page 64.
 September 30, 2017 June 30, 2017 December 31, 2016 September 30, 2016 September 30, 2018 June 30, 2018 December 31, 2017 September 30, 2017
Book value per share numerators (in millions):                
White Mountains’s common shareholders’ equity $3,468.8
 $3,619.0
 $3,582.7
 $3,637.0
 $2,984.0
 $2,940.1
 $3,492.5
 $3,468.8
Future proceeds from options (1)
 —
 —
 29.7
 89.0
Time-value of money discount on expected future payments
on the BAM Surplus Notes (2)
 (161.8) (166.7) N/A N/A
HG Global’s unearned premium reserve (2)
 88.4
 81.5
 N/A N/A
HG Global’s net deferred acquisition costs (2)
 (19.6) (17.6) N/A N/A
Time value of money discount on expected future payments
on the BAM Surplus Notes (1)
 (146.3) (150.1) (157.0) (161.8)
HG Global’s unearned premium reserve (1)
 120.2
 119.5
 103.9
 88.4
HG Global’s net deferred acquisition costs (1)
 (29.4) (29.1) (24.3) (19.6)
Adjusted book value per share numerator $3,375.8
 $3,516.2
 $3,612.4
 $3,726.0
 $2,928.5
 $2,880.4
 $3,415.1
 $3,375.8
Book value per share denominators (in thousands of shares):    
  
  
    
    
Common shares outstanding 3,750.0
 4,571.6
 4,563.8
 4,578.7
Unearned restricted shares (22.7) (27.4) (25.9) (31.8)
Options assumed issued (1)
 —
 —
 40.0
 120.0
Common shares outstanding - GAAP book value per share denominator 3,180.5
 3,180.4
 3,750.2
 3,750.0
Unearned restricted common shares (18.5) (22.4) (16.8) (22.7)
Adjusted book value per share denominator 3,727.3
 4,544.2
 4,577.9
 4,666.9
 3,162.0
 3,158.0
 3,733.4
 3,727.3
GAAP book value per share $925.04
 $791.61
 $785.01
 $794.33
 $938.19
 $924.46
 $931.30
 $925.04
Adjusted book value per share $905.72
 $773.77
 $789.08
 $798.40
 $926.14
 $912.08
 $914.75
 $905.72
Year-to-date dividends paid per share $1.00
 $1.00
 $1.00
 $1.00
 $1.00
 $1.00
 $1.00
 $1.00
(1)Adjusted book value per share at December 31, 2016 and September 30, 2016 includes the impact of non-qualified stock options that were exercisable for $742 per common share. All non-qualified options were exercised prior to their expiration date of January 20, 2017.
(2) Amount reflects White Mountains’s preferred share ownership in HG Global of 96.9%.


Goodwill and Other Intangible Assets

During the quarter ended September 30, 2018, White Mountains completed the analysis of the acquisition date fair values associated with its purchase of NSM, including the fair values attributed to goodwill and separately identifiable intangible assets. The following table ispresents a summary of goodwill and other intangible assets that are included in White Mountains’s book value as of September 30, 2017,2018, June 30, 2018, December 31, 2016,2017, and September 30, 2016:2017:
Millions September 30, 2017 December 31, 2016 September 30, 2016
Goodwill      
MediaAlpha $18.3
 $18.3
 $18.3
Buzzmove 7.6
 7.6
 7.6
Total goodwill 25.9
 25.9
 25.9
Other intangible assets      
MediaAlpha 11.0
 18.3
 20.7
Buzzmove 0.9
 1.0
 1.1
Total other intangible assets 11.9
 19.3
 21.8
Total goodwill and other intangible assets (1)
 37.8
 45.2
 47.7
Goodwill and other intangible assets held for sale —
 1.2
 6.7
Goodwill and other intangible assets attributed to non-controlling interests (13.7) (17.1) (18.2)
Goodwill and other intangible assets included in White Mountains's
common shareholders' equity		 $24.1
 $29.3
 $36.2
Millions September 30, 2018 
June 30,
2018
 December 31, 2017 September 30, 2017
Summary of goodwill and other intangible assets:        
Goodwill:        
NSM $295.5
 $436.2
 $—
 $—
MediaAlpha 18.3
 18.3
 18.3
 18.3
Other 7.6
 7.6
 7.6
 7.6
Total goodwill 321.4
 462.1
 25.9
 25.9
         
Other intangible assets:        
NSM 135.5
 —
 —
 —
MediaAlpha 27.6
 30.0
 35.4
 11.0
Other .7
 .7
 .8
 .9
Total other intangible assets 163.8
 30.7
 36.2
 11.9
         
Total goodwill and other intangible assets 485.2
 492.8
 62.1
 37.8
Goodwill and other intangible assets attributed to
non-controlling interests		 (40.6) (41.7) (21.1) (13.7)
Goodwill and other intangible assets included in
White Mountains's common shareholders' equity		 $444.6
 $451.1
 $41.0
 $24.1
(1) See Note 4 — “Goodwill and Other Intangible Assets” for details of other intangible assets.


ReviewSummary of Consolidated Results
 
The following table presents White Mountains’s consolidated financial results for the three and nine months ended September 30, 20172018 and 2016 follow:2017:
  Three Months Ended Nine Months Ended
  September 30, September 30,
Millions 2017 2016 2017 2016
Gross written premiums $10.9
 $12.3
 $42.9
 $35.9
Net written premiums $10.9
 $10.7
 $43.7
 $30.3
Revenues      
  
Earned insurance premiums $2.4
 $3.4
 $7.6
 $10.2
Net investment income 12.2
 9.6
 39.7
 18.2
Net realized and unrealized investment gains 32.5
 10.9
 102.5
 27.2
Advertising and commission revenues 38.8
 28.2
 103.9
 89.6
Other revenue 1.6
 4.7
 6.1
 18.0
Total revenues 87.5
 56.8
 259.8
 163.2
Expenses      
  
Loss and loss adjustment expenses —
 2.2
 1.1
 6.8
Insurance acquisition expenses .9
 1.3
 3.1
 4.4
Other underwriting expenses .1
 .2
 .3
 .4
Cost of sales 33.1
 24.0
 88.7
 76.9
General and administrative expenses 41.7
 39.9
 154.9
 137.0
General and administrative expenses—intangible asset amortization 2.4
 2.5
 7.3
 7.9
Interest expense .9
 .5
 1.8
 2.6
Total expenses 79.1
 70.6
 257.2
 236.0
Pre-tax (loss) income from continuing operations 8.4
 (13.8) 2.6
 (72.8)
Income tax benefit 4.0
 17.1
 5.3
 22.7
Net income (loss) from continuing operations 12.4
 3.3
 7.9
 (50.1)
Income on sale of discontinued operations, net of tax 554.3
 47.9
 552.7
 414.5
Net (loss) income from discontinued operations, net of tax (15.2) 36.5
 20.5
 100.9
Net income 551.5
 87.7
 581.1
 465.3
Net loss (income) attributable to non-controlling interests 10.6
 3.1
 23.6
 (24.6)
Net income attributable to White Mountains’s common shareholders 562.1
 90.8
 604.7
 440.7
Change in foreign currency translation, net of tax —
 .2
 .2
 (.4)
Change in foreign currency translation and other from
    discontinued operations, net of tax
 3.0
 (.3) 3.2
 145.8
Comprehensive income 565.1
 90.7
 608.1
 586.1
Comprehensive income attributable to non-controlling interests —
 .1
 (.1) .1
Comprehensive income attributable to White Mountains’s
    common shareholders
 $565.1
 $90.8
 $608.0
 $586.2

Consolidated Results - Three Months EndedSeptember 30, 2017 versus Three Months EndedSeptember 30, 2016
White Mountains’s total revenues increased 54% to $88 million in the second quarter of 2017, driven by higher investment returns. Net realized and unrealized investment gains increased to $33 million in the third quarter of 2017, compared to $11 million in the third quarter of 2016. Net investment income was $12 million in the third quarter of 2017 compared to $10 million in the third quarter of 2016. The improved investment results were driven primarily by higher equity returns in the third quarter of 2017 compared to the third quarter of 2016. See Summary of Investment Results on page 65. Advertising and commission revenues were $39 million in the third quarter of 2017, compared to $28 million in third quarter of 2016. The increase was primarily driven by $6 million of revenue growth in MediaAlpha's property and casualty (“P&C”) verticals, which includes auto, motorcycle, and home insurance, and $5 million of revenue growth in the non-P&C verticals, which include Health/Life, Travel and other verticals.
White Mountains’s total expenses increased 12% to $79 million in the third quarter of 2017, primarily due to cost of sales, which increased 38% to $33 million in the third quarter of 2017, compared to $24 million in the third quarter of 2016. The increase in cost of sales was driven by the 37% increase in revenue at MediaAlpha.


White Mountains’s effective tax rate for the third quarter 2017 was (47.6)%. White Mountains’s effective tax rate related to pre-tax income from continuing operations for the third quarter of 2017 was different from the U.S. statutory rate of 35% primarily due to a full valuation allowance on all U.S. operations, a tax benefit recorded at BAM, and consolidated pre-tax loss being near break-even.  For the third quarter of 2017, BAM had amounts recorded in shareholders’ equity related to its member surplus contributions that were available to partially offset its loss from continuing operations.  As a result, BAM recorded a tax benefit of $2 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity. 
White Mountains’s effective tax rate for the third quarter of 2016 was (123.9)%. White Mountains’s effective tax rate related to pre-tax loss from continuing operations for the third quarter of 2016 was different from the U.S. statutory rate of 35%, primarily due to a full valuation allowance on all U.S. operations and changes in forecasted earnings by jurisdiction used in determining interim tax expense. The rate was also impacted by a $14 million tax benefit recognized in continuing operations related to the reversal of a valuation allowance on income that was recognized within discontinued operations. For the third quarter of 2016, BAM had amounts recorded in shareholders’ equity related to member surplus contributions that were available to partially offset its loss from continuing operations. As a result, BAM recorded a tax benefit of $3 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity.

Consolidated Results - Nine Months Ended September 30, 2017 versus Nine Months Ended September 30, 2016
White Mountains’s total revenues increased 59% to $260 million in the first nine months of 2017, driven by higher investment returns. Net realized and unrealized investment gains increased to $103 million in the first nine months of 2017, compared to $27 million in the first nine months of 2016. Net investment income was $40 million in the first nine months of 2017 compared to $18 million in the first nine months of 2016. The improved investment results were driven primarily by higher equity returns in the first nine months of 2017 compared to the first nine months of 2016 and a larger invested asset base after receiving the proceeds from the sale of Sirius Group in the second quarter of 2016. See Summary of Investment Results on page 65. Advertising and commission revenues were $104 million in the first nine months of 2017, compared to $90 million in the first nine months of 2016. The increase was primarily driven by the continued growth in MediaAlpha’s non-P&C verticals.
White Mountains’s total expenses increased 9% to $257 million in the first nine months of 2017, primarily due to general and administrative expenses, which increased 13% to $155 million in the first nine months of 2017, and cost of sales, which increased 15% to $89 million in the first nine months of 2017. The increase in general and administrative expenses was driven by compensation expenses related to former company executives and higher incentive compensation costs resulting from the OneBeacon Transaction.  The increase in cost of sales was driven by the 14% increase in revenue at MediaAlpha.
White Mountains’s effective tax rate for the first nine months of 2017 was (203.9)%. White Mountains’s effective tax rate related to pre-tax income from continuing operations for the first nine months of 2017 was different from the U.S. statutory rate of 35%, primarily due to a full valuation allowance on all U.S. operations, a tax benefit recorded at BAM and consolidated pre-tax income being near break-even.  For the first nine months of 2017, BAM had amounts recorded in shareholders’ equity related to its member surplus contributions that were available to partially offset its loss from continuing operations.  As a result, BAM recorded a tax benefit of $7 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity. 
White Mountains’s effective tax rate for the first nine months of 2016 was (31.2)%. White Mountains’s effective tax rate related to pre-tax loss from continuing operations for the first nine months of 2016 was different from the U.S. statutory rate of 35%, primarily due to a full valuation allowance on all U.S. operations and changes in forecasted earnings by jurisdiction used in determining interim tax expense. The rate was also impacted by a $14 million tax benefit recognized in continuing operations related to the reversal of a valuation allowance on income that was recognized within discontinued operations. For the first nine months of 2016, BAM had amounts recorded in shareholders’ equity related to member surplus contributions that were available to partially offset its loss from continuing operations. As a result, BAM recorded a tax benefit of $8 million in net income from continuing operations, with an offsetting amount recorded in shareholders’ equity.

  Three Months Ended Nine Months Ended
  September 30, September 30,
Millions 2018 2017 2018 2017
Revenues      
  
Financial Guarantee revenues $4.2
 $6.7
 $8.6
 $19.5
Specialty Insurance Distribution revenues 39.7
 —
 63.2
 —
Marketing Technology revenues 74.5
 37.9
 218.0
 101.2
Other revenues 80.3
 42.9
 73.3
 139.1
Total revenues 198.7
 87.5
 363.1
 259.8
Expenses        
Financial Guarantee expenses 12.6
 11.6
 40.7
 34.8
Specialty Insurance Distribution expenses 44.9
 —
 65.2
 —
Marketing Technology expenses 69.8
 38.4
 209.0
 104.5
Other expenses 27.1
 29.1
 82.3
 117.9
Total expenses 154.4
 79.1
 397.2
 257.2
Pre-tax income (loss)        
Financial Guarantee pre-tax loss (8.4) (4.9) (32.1) (15.3)
Specialty Insurance Distribution pre-tax loss (5.2) —
 (2.0) —
Marketing Technology pre-tax income (loss) 4.7
 (.5) 9.0
 (3.3)
Other pre-tax income (loss) 53.2
 13.8
 (9.0) 21.2
Total pre-tax income (loss) 44.3
 8.4
 (34.1) 2.6
Income tax benefit 3.6
 4.0
 .4
 5.3
Net income (loss) from continuing operations 47.9
 12.4
 (33.7) 7.9
Net (loss) gain on sale of discontinued operations, net of tax (17.3) 554.3
 (17.2) 552.7
Net (loss) income from discontinued operations, net of tax —
 (15.2) —
 20.5
Net income (loss) 30.6
 551.5
 (50.9) 581.1
Net income attributable to non-controlling interests 10.2
 10.6
 47.2
 23.6
Net income (loss) attributable to White Mountains’s common shareholders 40.8
 562.1
 (3.7) 604.7
Other comprehensive (loss) income, net of tax (.8) —
 (1.7) .2
Other comprehensive income from discontinued operations, net of tax —
 3.0
 —
 3.2
Comprehensive income (loss) 40.0
 565.1
 (5.4) 608.1
Comprehensive loss (income) attributable to non-controlling interests .2
 —
 .2
 (.1)
Comprehensive income (loss) attributable to White Mountains’s
    common shareholders
 $40.2
 $565.1
 $(5.2) $608.0

I. Summary of Operations By Segment
 
White Mountains conducts its operations through threefour segments: (1) HG Global/BAM, (2) NSM, (3) MediaAlpha and (3)(4) Other Operations. While investment results are included in HG Global/BAM and Other Operations, White Mountains manages the majority of its investments through its wholly-owned subsidiary, WM Advisors. Accordingly, aA discussion of White Mountains’s consolidated investment operations is included after the discussion of operations by segment. White Mountains’s segment information is presented in Note 1112 — “Segment Information” to the Consolidated Financial Statements.
As a result of the Sirius Group and Tranzact sales and the OneBeacon Transaction, the results of operations for Sirius Group, Tranzact and OneBeacon have been classified as discontinued operations and are now presented separately, net of related income taxes, in the statement of comprehensive income. Prior year amounts have been reclassified to conform to the current period’s presentation. See Note 15 — “Held for Sale and Discontinued Operations”.

HG Global/BAM

BAM is a mutual insurance company whose affairs are managed on a statutory accounting basis, and it 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 insures. A portion of the premium is a member surplus contribution, which is contributed to BAM’s qualified statutory capital and conveys to the issuer certain interests in BAM, including the right to receive dividends in the future, subject to regulatory approval. The remainder is a risk premium, which is recorded as gross written premiums.
During the second quarter of 2017, in order to further support BAM’s long-term capital position and business prospects, HG Global agreed to contribute the $203 million Series A BAM Surplus Notes (“Series A Notes”) into the supplemental collateral trust (the “Supplemental Trust”) at HG Re, HG Global’s wholly owned reinsurance subsidiary. The Supplemental Trust already holds the $300 million Series B BAM Surplus Notes (“Series B Notes” and, collectively with the Series A Notes, the “BAM Surplus Notes”). Assets held in the Supplemental Trust serve to collateralize HG Re’s obligations to BAM under the first loss reinsurance treaty between BAM and HG Re. HG Global and BAM also agreed to change the payment terms of the Series B Notes, so that payments will reduce principal and accrued interest on a pro rata basis, consistent with the payment terms on the Series A Notes. The terms of the Series B Notes had previously stipulated that payments would first reduce interest owed, then reduce principal owed once all accrued interest had been paid. The New York Department of Financial Services approved these changes in the third quarter of 2017.
During the second quarter of 2017, HG Global and BAM also made certain changes to the ceding commission arrangements under the reinsurance treaty between HG Re and BAM. These changes will accelerate growth in BAM’s statutory capital but will not impact the net risk premium ceded from BAM to HG Re. 
On June 6, 2017, S&P placed BAM on credit watch negative and initiated a detailed review of BAM’s financial strength rating. On June 26, 2017, S&P concluded its review and affirmed BAM’s “AA/Stable” financial strength rating.
The following table presents the components of pre-tax income (loss) included in White Mountains’s 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 three and nine months ended September 30, 20172018 and 20162017:

  Three Months Ended September 30, 2017
Millions HG Global BAM Eliminations Total
Gross written premiums $—
 $10.9
 $—
 $10.9
Assumed (ceded) written premiums 9.0
 (9.0) —
 —
Net written premiums $9.0
 $1.9
 $—
 $10.9
         
Earned insurance premiums $1.8
 $.6
 $—
 $2.4
Net investment income 1.0
 2.3
 —
 3.3
Net investment income - BAM Surplus Notes 4.8
 —
 (4.8) —
Net realized and unrealized investment gains .1
 .7
 —
 0.8
Other revenue —
 .2
 —
 .2
Total revenues 7.7
 3.8
 (4.8) 6.7
Insurance acquisition expenses .4
 .5
 —
 .9
Other underwriting expenses —
 .1
 —
 .1
General and administrative expenses .3
 10.3
 —
 10.6
Interest expense - BAM Surplus Notes —
 4.8
 (4.8) —
Total expenses .7
 15.7
 (4.8) 11.6
Pre-tax income (loss) $7.0
 $(11.9) $—
 $(4.9)
Supplemental information:        
     Member Surplus Contributions (1)
 $—
 $8.4
 $—
 $8.4
 Three Months Ended September 30, 2016 Three Months Ended September 30, 2018
Millions HG Global BAM Eliminations Total HG Global BAM Eliminations Total
Gross written premiums $—
 $9.2
 $—
 $9.2
 $—
 $3.9
 $—
 $3.9
Assumed (ceded) written premiums 6.2
 (6.2) —
 —
 3.4
 (3.4) —
 —
Net written premiums $6.2
 $3.0
 $—
 $9.2
 $3.4
 $.5
 $—
 $3.9
                
Earned insurance premiums $1.2
 $.3
 $—
 $1.5
 $2.6
 $.7
 $—
 $3.3
Net investment income .6
 1.7
 —
 2.3
 1.6
 3.2
 —
 4.8
Net investment income - BAM Surplus Notes 4.5
 —
 (4.5) —
 5.7
 —
 (5.7) —
Net realized and unrealized investment gains (.3) (1.6) —
 (1.9)
Net realized and unrealized investment losses (.7) (3.4) —
 (4.1)
Other revenue —
 .4
 —
 .4
 —
 .2
 —
 .2
Total revenues 6.0
 .8
 (4.5) 2.3
 9.2
 .7
 (5.7) 4.2
Insurance acquisition expenses .2
 .6
 —
 .8
 .6
 .6
 —
 1.2
Other underwriting expenses —
 .1
 —
 .1
 —
 .1
 —
 .1
General and administrative expenses .6
 9.3
 —
 9.9
 .2
 11.1
 —
 11.3
Interest expense - BAM Surplus Notes —
 4.5
 (4.5) —
 —
 5.7
 (5.7) —
Total expenses .8
 14.5
 (4.5) 10.8
 .8
 17.5
 (5.7) 12.6
Pre-tax income (loss) $5.2
 $(13.7) $—
 $(8.5) $8.4
 $(16.8) $—
 $(8.4)
Supplemental information:                
Member Surplus Contributions (1)
 $—
 $11.5
 $—
 $11.5
MSC collected (1)
 $—
 $12.1
 $—
 $12.1
(1) Member surplus contributionsMSC are recorded directly to BAM's equity, which is recorded as non-controlling interest on White Mountains's balance sheet.


 Nine Months Ended September 30, 2017 Three Months Ended September 30, 2017
Millions HG Global BAM Eliminations Total HG Global BAM Eliminations Total
Gross written premiums $—
 $42.0
 $—
 $42.0
 $—
 $10.9
 $—
 $10.9
Assumed (ceded) written premiums 35.4
 (35.4) —
 —
 9.0
 (9.0) —
 —
Net written premiums $35.4
 $6.6
 $—
 $42.0
 $9.0
 $1.9
 $—
 $10.9
                
Earned insurance premiums $5.0
 $1.6
 $—
 $6.6
 $1.8
 $.6
 $—
 $2.4
Net investment income 2.4
 6.5
 —
 8.9
 1.0
 2.3
 —
 3.3
Net investment income - BAM Surplus Notes 14.3
 —
 (14.3) —
 4.8
 —
 (4.8) —
Net realized and unrealized investment gains .4
 2.8
 —
 3.2
 .1
 .7
 —
 .8
Other revenue —
 .8
 —
 .8
 —
 .2
 —
 .2
Total revenues 22.1
 11.7
 (14.3) 19.5
 7.7
 3.8
 (4.8) 6.7
Insurance acquisition expenses 1.0
 2.0
 —
 3.0
 .4
 .5
 —
 .9
Other underwriting expenses —
 .3
 —
 .3
 —
 .1
 —
 .1
General and administrative expenses .8
 30.7
 —
 31.5
 .3
 10.3
 —
 10.6
Interest expense - BAM Surplus Notes —
 14.3
 (14.3) —
 —
 4.8
 (4.8) —
Total expenses 1.8
 47.3
 (14.3) 34.8
 .7
 15.7
 (4.8) 11.6
Pre-tax income (loss) $20.3
 $(35.6) $—
 $(15.3) $7.0
 $(11.9) $—
 $(4.9)
Supplemental information:                
Member Surplus Contributions (1)
 $—
 $25.7
 $—
 $25.7
MSC collected (1)
 $—
 $8.4
 $—
 $8.4
(1) Member Surplus ContributionsMSC are recorded directly to BAM's equity, which is recorded as non-controlling interest on White Mountains's balance sheet.
 Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2018
Millions HG Global BAM Eliminations Total HG Global BAM Eliminations Total
Gross written premiums $—
 $24.9
 $—
 $24.9
 $—
 $28.9
 $—
 $28.9
Assumed (ceded) written premiums 18.0
 (18.0) —
 —
 24.5
 (24.5) —
 —
Net written premiums $18.0
 $6.9
 $—
 $24.9
 $24.5
 $4.4
 $—
 $28.9
                
Earned insurance premiums $3.1
 $1.0
 $—
 $4.1
 $7.6
 $2.1
 $—
 $9.7
Net investment income 1.6
 5.1
 —
 6.7
 4.1
 8.4
 —
 12.5
Net investment income - BAM Surplus Notes 13.4
 —
 (13.4) —
 17.2
 —
 (17.2) —
Net realized and unrealized investment gains 2.3
 6.5
 —
 8.8
Net realized and unrealized investment losses (5.5) (8.9) —
 (14.4)
Other revenue —
 .8
 —
 .8
 —
 .8
 —
 .8
Total revenues 20.4
 13.4
 (13.4) 20.4
 23.4
 2.4
 (17.2) 8.6
Insurance acquisition expenses .6
 1.9
 —
 2.5
 1.8
 2.1
 —
 3.9
Other underwriting expenses —
 .3
 —
 .3
 —
 .3
 —
 .3
General and administrative expenses 1.4
 28.1
 —
 29.5
 .8
 35.7
 —
 36.5
Interest expense - BAM Surplus Notes —
 13.4
 (13.4) —
 —
 17.2
 (17.2) —
Total expenses 2.0
 43.7
 (13.4) 32.3
 2.6
 55.3
 (17.2) 40.7
Pre-tax income (loss) $18.4
 $(30.3) $—
 $(11.9) $20.8
 $(52.9) $—
 $(32.1)
Supplemental information:                
Member Surplus Contributions (1)
 $—
 $28.2
 $—
 $28.2
MSC collected (1)
 $—
 $26.9
 $—
 $26.9
(1) Member Surplus ContributionsMSC are recorded directly to BAM's equity, which is recorded as non-controlling interest on White Mountains's balance sheet.

  Nine Months Ended September 30, 2017
Millions HG Global BAM Eliminations Total
Gross written premiums $—
 $42.0
 $—
 $42.0
Assumed (ceded) written premiums 35.4
 (35.4) —
 —
Net written premiums $35.4
 $6.6
 $—
 $42.0
         
Earned insurance premiums $5.0
 $1.6
 $—
 $6.6
Net investment income 2.4
 6.5
 —
 8.9
Net investment income - BAM Surplus Notes 14.3
 —
 (14.3) —
Net realized and unrealized investment gains .4
 2.8
 —
 3.2
Other revenue —
 .8
 —
 .8
Total revenues 22.1
 11.7
 (14.3) 19.5
Insurance acquisition expenses 1.0
 2.0
 —
 3.0
Other underwriting expenses —
 .3
 —
 .3
General and administrative expenses .8
 30.7
 —
 31.5
Interest expense - BAM Surplus Notes —
 14.3
 (14.3) —
Total expenses 1.8
 47.3
 (14.3) 34.8
Pre-tax income (loss) $20.3
 $(35.6) $—
 $(15.3)
Supplemental information:        
     MSC collected (1)
 $—
 $25.7
 $—
 $25.7
(1) MSC are recorded directly to BAM's equity, which is recorded as non-controlling interest on White Mountains's balance sheet.

HG Global/BAM Results—Three Months Ended September 30, 20172018 versus Three Months Ended September 30, 20162017
BAM reports on a statutory accounting basis to 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 gross written premium. In the event of a municipal bond refunding, the MSC from the original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond. Issuers of debt insured by BAM are members of BAM so long as any of their BAM-insured debt is outstanding, and as members they have certain interests in BAM, including the right to vote for BAM’s directors and to receive dividends in the future, if declared.
Gross written premiums and MSC in the HG Global/BAM segment were $16 million during the third quarter of 2017,2018, compared to $19 million during the third quarter of 2017. BAM insured $2.2 billion of municipal bonds, $2.0 billion of which were in the primary market, during the third quarter of 2018, compared to $2.0 billion of municipal bonds, $1.9 billion of which were in the primary market, compared to $3.0 billion of municipal bonds, $2.7 billion of which were in the primary market, insured induring the third quarter of 2016. The decrease in par value insured by BAM in the third quarter of 2017 was primarily due to 22% lower new municipal bond issuance volume in the third quarter of 2017 compared to the third quarter of 2016. Gross written premiums and member surplus contributions totaled $19 million for the third quarter of 2017, compared to $21 million for the third quarter of 2016.2017. Total pricing, which is gross written premiums plus member surplus contributions,and MSC adjusted to include the present value of future installment MSC not yet collected and to exclude the impact of gross written premium adjustments on existing policies, weighted by the par value of municipal bonds insured, was 10375 basis points in the third quarter of 2017, up2018, down from103 basis points in the third quarter of 2017. Pricing in the primary market decreased to 69 basis points in the third quarter of 2016. 2018 compared to 102 basis points in the third quarter of 2017.

The following table presents the gross par value of primary and secondary market policies issued, the gross written premiums plus MSC and total pricing for the three months ended September 30, 2018 and 2017:
�� Three Months Ended September 30,
$ in millions 2018 2017
Gross par value of primary market policies issued $2,029.4
 $1,872.5
Gross par value of secondary market policies issued 144.9
 170.9
Total gross par value of market policies issued $2,174.3
 $2,043.4
Gross written premiums $3.9
 $10.9
MSC collected 12.1
 8.4
Total gross written premiums and MSC collected $16.0
 $19.3
Present value of future installment MSC collections .2
 1.7
Gross written premium adjustments on existing installment policies —
 —
Gross written premiums and MSC from new business $16.2
 $21.0
Total pricing 75 bps
 103 bps

HG Global reported GAAP pre-tax income of $8 million in the third quarter of 2018, compared to $7 million in the third quarter of 2017, compared to $5 million2017. Results during the third quarter of 2016. Results for the third quarter of 2017 and 2016 were both driven by $52018 include $6 million of interest income on the BAM Surplus Notes.Notes, compared to $5 million of interest income during the third quarter of 2017.
AsBAM is a mutual insurance company that is owned by its members,members. BAM’s results do not affectare consolidated into White Mountains’s book value per share and adjusted book value per share. However, White Mountains consolidates BAM’s results in its GAAP financial statements and its results are attributed to non-controlling interests. White Mountains reported $1217 million of GAAP pre-tax loss from BAM in the third quarter of 2017,2018, compared to $14$12 million in the third quarter of 2016.2017. The decreaseincrease in pre-tax loss was primarily due to higher driven by lower investment returns.returns in 2018, primarily from unrealized losses on fixed income investments, as interest rates rose during the third quarter of 2018.
Results for the third quarter of 20172018 include $5$6 million of interest expense on the BAM Surplus Notes and $10$11 million of operatinggeneral and administrative expenses, compared to $5 million $5 millionof interest expense and $910 million of operatinggeneral and administrative expenses in the third quarter of 2016.2017.

HG Global/BAM Results—Nine Months Ended September 30, 20172018 versus Nine Months Ended September 30, 20162017
InGross written premiums and MSC in the HG Global/BAM segment were $56 million during the first nine months of 2017, 2018, compared to $68 million during the first nine months of 2017. The decrease was primarily due to a market wide decrease in new issuance volume during the first quarter of 2018, as the uncertainty over tax reform caused many issuers to pull forward planned 2018 issuance volume into 2017. Under tax laws effective in 2018, interest income received by investors on new bonds that are issued to refinance existing municipal bonds and are issued more than 90 days before the refinanced municipal bond is scheduled to be redeemed (“advance refundings”) are now treated as taxable income to the investor.
BAM insured $6.6 billion of municipal bonds, $6.0 billion of which were in the primary market, during the first nine months of 2018, compared to $7.1 billion of municipal bonds, $6.5 billion of which were in the primary market, compared to $8.5 billion of municipal bonds, $7.9 billion of which were in the primary market, insured induring the first nine months of 2016. The decrease in par value insured by BAM in the first nine months of 2017 was primarily due to lower new municipal bond issuance volume in the third quarter of 2017 compared to the third quarter of 2016 and rating uncertainty during S&P’s review of BAM in the second quarter of 2017. Gross written premiums and member surplus contributions totaled $68 million for the first nine months of 2017, compared to $53 million for the first nine months of 2016. Total pricing was 9991 basis points in the first nine months of 2017, up2018, down from 6399 basis points in the first nine months of 2016.2017. Pricing in the primary market decreased to 67 basis points in the first nine months of 2018 compared to 76 basis points in in the first nine months of 2017.

The following table presents the gross par value of primary and secondary market policies issued, the gross written premiums plus MSC and total pricing for the nine months ended September 30, 2018 and 2017:
  Nine Months Ended September 30,
$ in millions 2018 2017
Gross par value of primary market policies issued $5,953.6
 $6,487.8
Gross par value of secondary market policies issued 605.0
 627.6
Total gross par value of market policies issued $6,558.6
 $7,115.4
Gross written premiums $28.9
 $42.0
MSC collected 26.9
 25.7
Total gross written premiums and MSC collected $55.8
 $67.7
Present value of future installment MSC collections 3.0
 2.9
Gross written premium adjustments on existing installment policies 1.1
 —
Gross written premiums and MSC from new business $59.9
 $70.6
Total pricing 91 bps
 99 bps

HG Global reported GAAP pre-tax income of $21 million in the first nine months of 2018, compared to $20 million in the first nine months of 2017, compared to $18 million in the first nine months of 2016.2017. Results for the first nine months of 2017 were driven by $142018 include $17 million of interest income on the BAM Surplus Notes, compared to $13$14 million of interest income in the first nine months of 2016. The increase in the interest income2017.
BAM is duea mutual insurance company that is owned by its members. BAM’s results are consolidated into White Mountains’s GAAP financial statements and attributed to the increase in the variable rate of the BAM Surplus Notes which is set annually. The variable rate is 3.78% for 2017 and was 3.54% for 2016.
non-controlling interests. White MountainsMountains reported $36$53 million of GAAP pre-tax loss from BAM in the first nine months of 2017,2018, compared to $30$36 million in the first nine months of 2016.2017. The increase in pre-tax loss was primarily due to lower investment returns in 2018, primarily from unrealized losses on fixed income investments, as interest rates rose during the first nine months of 2018. Results for the first nine months of 20172018 include $14$17 million of interest expense on the BAM Surplus Notes and $31$36 million of operatinggeneral and administrative expenses, compared to $13$14 millionof interest expense and $28$31 million of operatinggeneral and administrative expenses in the first nine months of 2016.2017. The increase in pre-tax loss in the first nine months of 2017general and administrative expenses was primarily due to lower realized and unrealized investment gains.financing expense from the reinsurance agreement with Fidus Re, which is accounted for using the deposit method under GAAP.


Claims Paying Resources
BAM’s “claims paying resources” represent the capital and other financial resources BAM has available to pay claims and, as such, is a key indication of BAM’s financial strength. BAM’s claims-payingclaims paying resources include BAM’s qualified statutory capital, including member surplus contributions and contingency reserves,MSC, net unearned premiums, contingency reserves, present value of future installment premiums and member surplus contributions andMSC, the first loss reinsurance protection provided by HG Re, which is collateralized and held in trusts.trusts, and the reinsurance protection provided by Fidus Re, which is collateralized and held in trust.
As of September 30, 2018, BAM’s claims paying resources increased to $835 million from $708 million as of December 31, 2017. The increase was primarily driven by the $100 million reinsurance agreement with Fidus Re. In April 2018, BAM expects member surplus contributions and HG Re’sexpanded its claims paying resources by $100 million through a collateralized reinsurance agreement with Fidus Re, a special-purpose insurer created solely to provide collateralized reinsurance protection to be the primary driversBAM.
The following table presents BAM’s total claims paying resources as of continued growth of its claims-paying resources.September 30, 2018 and December 31, 2017:
Millions September 30, 2018 December 31, 2017
Policyholders’ surplus $419.8
 $427.3
Contingency reserve 44.9
 34.8
     Qualified statutory capital 464.7
 462.1
Net unearned premiums 33.3
 30.5
Present value of future installment premiums and MSC 12.7
 9.0
HG Re, Ltd. collateral trusts at statutory value 223.9
 206.8
Fidus Re, Ltd. collateral trusts at statutory value 100.0
 —
     Claims paying resources $834.6
 $708.4

As of September 30, 2017, BAM’s claims paying resources increased 7% to $687 million from $644 million as of December 31, 2016. The increase was primarily driven by a $26 million increase in the HG Re collateral trusts and $26 million of member surplus contributions,MSC, partially offset by BAM’s $19 million statutory net loss for the nine months ended September 30, 2017.
The following table presents BAM’s total claims paying resources as of September 30, 2017 and December 31, 2016:
Millions September 30, 2017 December 31, 2016
Policyholders’ surplus $429.2
 $431.5
Contingency reserve 31.6
 22.7
     Qualified statutory capital 460.8
 454.2
Net unearned premiums 27.9
 23.2
Present value of future installment premiums and member surplus
contributions
 8.8
 3.3
Collateral trusts 189.2
 163.0
     Claims paying resources $686.7
 $643.7

As of September 30, 2016, BAM’s claims paying resources increased 5% to $629 million from $601 million as of December 31, 2015. The increase was primarily driven by $28 million of member surplus contributions and $18 million increase in the HG Re collateral trusts, partially offset by BAM’s statutory net loss for the nine months ended of $24 million.
The following table presents BAM’s total claims paying resources as of September 30, 2016 and December 31, 2015:
Millions September 30, 2016 December 31, 2015 September 30, 2017 December 31, 2016
Policyholders’ surplus $432.8
 $437.2
 $429.2
 $431.5
Contingency reserve 19.9
 12.4
 31.6
 22.7
Qualified statutory capital 452.7
 449.6
 460.8
 454.2
Net unearned statutory premiums 18.8
 12.5
 27.9
 23.2
Present value of future installment premiums and member surplus
contributions
 3.3
 2.6
Collateral trusts 154.2
 136.6
Present value of future installment premiums and MSC 8.8
 3.3
HG Re, Ltd. collateral trusts at statutory value 189.2
 163.0
Claims paying resources $629.0
 $601.3
 $686.7
 $643.7

HG Global/BAM Balance Sheets
The following table presents 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 September 30, 20172018 and December 31, 2016:2017:
 September 30, 2017 September 30, 2018
Millions HG Global BAM Eliminations and Segment Adjustment Total HG Global BAM Eliminations and Segment Adjustment Total
Assets                
Fixed maturity investments $185.1
 $446.3
 $—
 $631.4
 $206.6
 $471.1
 $—
 $677.7
Short-term investments 32.6
 43.2
 —
 75.8
 11.8
 24.1
 —
 35.9
Total investments 217.7
 489.5
 —
 707.2
 218.4
 495.2
 —
 713.6
Cash 1.1
 18.1
 —
 19.2
 .8
 17.1
 —
 17.9
BAM Surplus Notes 503.0
 —
 (503.0) —
 499.0
 —
 (499.0) —
Accrued interest receivable on BAM Surplus Notes 122.3
 —
 (122.3) —
 143.2
 —
 (143.2) —
Deferred acquisition costs 20.1
 (6.0) —
 14.1
 30.3
 17.6
 (30.3) 17.6
Insurance premiums receivable 2.6
 4.6
 (2.8) 4.4
 3.8
 6.5
 (4.0) 6.3
Accounts receivable on unsettled investment sales 12.4
 .1
 —
 12.5
Other assets .5
 7.9
 —
 8.4
 1.4
 8.7
 —
 10.1
Total assets $879.7
 $514.2
 $(628.1) $765.8
 $896.9
 $545.1
 $(676.5) $765.5
                
Liabilities                
BAM Surplus Notes(1)
 $—
 $503.0
 $(503.0) $—
 $—
 $499.0
 $(499.0) $—
Accrued interest payable on BAM Surplus Notes(2)
 —
 122.3
 (122.3) —
 —
 143.2
 (143.2) —
Preferred dividends payable to White Mountains’s subsidiaries(3)
 216.1
 —
 —
 216.1
 265.5
 —
 —
 265.5
Preferred dividends payable to non-controlling interests 6.9
 —
 —
 6.9
 9.1
 —
 —
 9.1
Unearned insurance premiums 91.3
 27.2
 —
 118.5
 124.1
 32.1
 —
 156.2
Accounts payable on unsettled investment purchases 41.8
 2.3
 —
 44.1
 —
 6.5
 —
 6.5
Other liabilities .7
 19.6
 (2.8) 17.5
 .8
 54.4
 (34.3) 20.9
Total liabilities 356.8
 674.4
 (628.1) 403.1
 399.5
 735.2
 (676.5) 458.2
                
Equity                
White Mountains’s common shareholders’ equity 506.7
 —
 —
 506.7
 482.6
 —
 —
 482.6
Non-controlling interests 16.2
 (160.2) —
 (144.0) 14.8
 (190.1) —
 (175.3)
Total equity 522.9
 (160.2) —
 362.7
 497.4
 (190.1) —
 307.3
Total liabilities and equity $879.7
 $514.2
 $(628.1) $765.8
 $896.9
 $545.1
 $(676.5) $765.5
(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) 
For segment reporting, the HG Global preferred dividend receivable at White Mountains is reclassified from the Other Operations segment to the HG Global/BAM segment. Dividends on HG Global preferred shares payable to White Mountains'sMountains’s subsidiaries are eliminated in White Mountains'sMountains’s consolidated financial statements.



 December 31, 2016 December 31, 2017
Millions HG Global BAM Eliminations and Segment Adjustment Total Segment HG Global BAM Eliminations and Segment Adjustment Total Segment
Assets                
Fixed maturity investments $155.2
 $430.0
 $—
 $585.2
 $175.5
 $448.1
 $—
 $623.6
Short-term investments 6.4
 38.1
 —
 44.5
 28.5
 41.3
 —
 69.8
Total investments 161.6
 468.1
 —
 629.7
 204.0
 489.4
 —
 693.4
Cash 1.9
 25.1
 —
 27.0
 1.9
 23.7
 —
 25.6
BAM Surplus Notes 503.0
 —
 (503.0) —
 499.0
 —
 (499.0) —
Accrued interest receivable on BAM Surplus Notes 108.0
 —
 (108.0) —
 126.0
 —
 (126.0) —
Deferred acquisition costs 11.0
 (.4) —
 10.6
 25.1
 14.9
 (25.2) 14.8
Insurance premiums receivable .9
 1.7
 (1.0) 1.6
 2.7
 4.7
 (2.9) 4.5
Accounts receivable on unsettled investment sales —
 .1
 —
 .1
Other assets .6
 38.6
 —
 39.2
 .8
 8.2
 —
 9.0
Total assets $787.0
 $533.1
 $(612.0) $708.1
 $859.5
 $541.0
 $(653.1) $747.4
Liabilities                
BAM Surplus Notes(1)
 $—
 $503.0
 $(503.0) $—
 $—
 $499.0
 $(499.0) $—
Accrued interest payable on BAM Surplus Notes(2)
 —
 108.0
 (108.0) —
 —
 126.0
 (126.0) —
Preferred dividends payable to White Mountains’s subsidiaries(3)
 180.5
 —
 —
 180.5
 227.9
 —
 —
 227.9
Preferred dividends payable to non-controlling interests 5.7
 —
 —
 5.7
 7.7
 —
 —
 7.7
Unearned insurance premiums 60.7
 22.2
 —
 82.9
 107.2
 29.6
 —
 136.8
Accounts payable on unsettled investment purchases —
 .6
 —
 .6
Other liabilities .7
 50.8
 (1.0) 50.5
 1.0
 49.0
 (28.1) 21.9
Total liabilities 247.6
 684.0
 (612.0) 319.6
 343.8
 704.2
 (653.1) 394.9
Equity                
White Mountains’s common shareholders’ equity 522.8
 —
 —
 522.8
 499.8
 —
 —
 499.8
Non-controlling interests 16.6
 (150.9) —
 (134.3) 15.9
 (163.2) —
 (147.3)
Total equity 539.4
 (150.9) —
 388.5
 515.7
 (163.2) —
 352.5
Total liabilities and equity $787.0
 $533.1
 $(612.0) $708.1
 $859.5
 $541.0
 $(653.1) $747.4
(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) 
For segment reporting, the HG Global preferred dividend receivable at White Mountains is reclassified from the Other Operations segment to the HG Global/BAM segment. Dividends on HG Global preferred shares payable to White Mountains'sMountains’s subsidiaries are eliminated in White Mountains'sMountains’s consolidated financial statements.

Par Value of Policies Issued and Priced by BAM
Periodically, BAM publishesThe following table presents the gross par value of policies priced during the period while amounts recorded for accounting purposes are based on the gross par value of policies issued. The following table reconciles the gross par value of policies issued to the gross par value of policies pricedand closed by BAM for the three and nine months ended September 30, 20172018 and 2016:2017:
 Three Months Ended Nine Months Ended
 September 30, September 30, Three Months Ended September 30, Nine Months Ended September 30,
Millions 2017 2016 2017 2016 2018 2017 2018 2017
Gross par value of primary market policies issued $1,872.5
 $2,736.6
 $6,487.8
 $7,917.0
 $2,029.4
 $1,872.5
 $5,953.6
 $6,487.8
Gross par value of secondary market policies issued 170.9
 236.7
 627.6
 574.1
 144.9
 170.9
 605.0
 627.6
Total gross par value of policies issued 2,043.4
 2,973.3
 7,115.4
 8,491.1
 2,174.3
 2,043.4
 6,558.6
 7,115.4
                
Gross par value of policies priced yet to close 535.2
 428.8
 535.2
 428.8
 327.3
 535.2
 327.3
 535.2
Less: Gross par value of policies closed that were
previously priced
 (163.7) (861.8) (353.3) (298.6) (369.1) (163.7) (114.4) (353.3)
Total gross par value of policies priced $2,414.9
 $2,540.3
 $7,297.3
 $8,621.3
 $2,132.5
 $2,414.9
 $6,771.5
 $7,297.3


NSM

The following table presents the components of GAAP net loss and adjusted EBITDA included in White Mountains’s NSM segment for the three months ended September 30, 2018 and the period from May 11, 2018 through September 30, 2018:
Millions Three Months Ended September 30, 2018 
Period Ended
September 30, 2018 (1)
Commission revenues $36.6
 $59.2
Broker commission expense 10.9
 17.5
Gross profit 25.7
 41.7
Other revenue 3.1
 4.0
General and administrative expenses 25.8
 37.9
Amortization of other intangible assets 5.0
 5.0
Interest expense 3.2
 4.8
GAAP pre-tax loss (5.2) (2.0)
Income tax benefit (1.6) (.5)
GAAP net loss (3.6) (1.5)
     
Add back:    
Change in fair value of contingent consideration earnout liabilities 2.6
 2.6
Interest expense 3.2
 4.8
Income tax benefit (1.6) (.5)
General and administrative expenses — depreciation .6
 1.0
Amortization of other intangible assets 5.0
 5.0
Adjusted EBITDA (2)
 $6.2
 $11.4
(1) NSM’s results are from May 11, 2018, the date of acquisition, to the end of the third quarter.
(2) See “NON-GAAP FINANCIAL MEASURES” on page 64.

On May 11, 2018, White Mountains acquired 95% of NSM, an insurance managing general agency and program administrator. White Mountains paid $274 million of cash consideration, subject to a customary purchase price adjustment, for its equity interest in NSM. White Mountains recognized a purchase price adjustment of $2 million during the three months ended September 30, 2018 that was paid in October of 2018. As part of the acquisition, White Mountains assumed estimated contingent consideration earnout liabilities related to NSM's previous acquisitions of its U.K.-based operations of $10 million.
On May 18, 2018, NSM acquired 100% of Fresh Insurance, an insurance broker that specializes in non-standard personal lines, motor trade, van, and travel insurance in the United Kingdom. NSM paid $50 million of upfront cash consideration for its equity interest in Fresh Insurance. NSM recognized a purchase price adjustment of $1 million during the three months ended September 30, 2018. The purchase price is subject to additional adjustments based upon growth in EBITDA during two earnout periods, ending in February 2020 and February 2022. In connection with the acquisition, NSM recorded a contingent consideration earnout liability of $8 million.
The contingent consideration earnout liabilities related to these acquisitions are subject to adjustment based upon EBITDA, EBITDA projections, and present value factors for acquired entities. For both the three months ended September 30, 2018 and the period from May 11, 2018 through September 30, 2018, NSM recognized pre-tax expense of $3 million for the change in the fair value of its contingent consideration earnout liabilities for both Fresh Insurance and its other U.K.-based operations. Any future adjustments to contingent consideration earnout liabilities under the agreements will also be recognized through pre-tax income. As of September 30, 2018, NSM recorded contingent consideration earnout liabilities of $20 million.
NSM reported pre-tax loss of $5 million and $2 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM’s adjusted EBITDA was $6 million and $11 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM reported revenues of $40 million and $63 million for the third quarter of 2018 and the period from May 11, 2018 through September 30, 2018. NSM’s pre-tax loss for the third quarter of 2018 includes $5 million of amortization of other intangible assets and $3 million of general and administrative expenses related to the change in the fair value of its contingent consideration earnout liabilities.


MediaAlpha
 
The following table presents the components of GAAP net lossincome (loss) and adjusted EBITDA included in White Mountains’s MediaAlpha segment for the three and nine months ended September 30, 20172018 and 2016:2017:
 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,
Millions 2017 2016 2017 2016 2018 2017 2018 2017
Advertising and commission revenues $37.9
 $27.6
 $101.2
 $88.4
 $74.5
 $37.9
 $216.4
 $101.2
Cost of sales 32.2
 23.0
 86.0
 74.0
 61.8
 32.2
 179.1
 86.0
Gross profit 5.7
 4.6
 15.2
 14.4
 12.7
 5.7
 37.3
 15.2
General and administrative expenses—other 3.8
 3.2
 10.7
 8.7
General and administrative expenses—amortization of intangible assets 2.3
 2.5
 7.2
 7.6
Other revenue —
 —
 1.6
 —
General and administrative expenses 5.4
 3.8
 21.2
 10.7
Amortization of other intangible assets 2.4
 2.3
 7.8
 7.2
Interest expense .1
 .2
 .6
 .7
 .2
 .1
 .9
 .6
GAAP pre-tax loss (.5) (1.3) (3.3) (2.6)
GAAP pre-tax income (loss) 4.7
 (.5) 9.0
 (3.3)
Income tax expense —
 —
 —
 —
 —
 —
 —
 —
GAAP net loss (.5) (1.3) (3.3) (2.6)
GAAP net income (loss) 4.7
 (.5) 9.0
 (3.3)
                
Add back:                
Non-cash equity-based compensation expense .2
 —
 6.9
 —
Interest expense .1
 .2
 .6
 .7
 .2
 .1
 .9
 .6
Income tax expense —
 —
 —
 —
 —
 —
 —
 —
General and administrative expenses—depreciation —
 —
 .1
 .1
General and administrative expenses—amortization of intangible assets 2.3
 2.5
 7.2
 7.6
EBITDA $1.9
 $1.4
 $4.6
 $5.8
General and administrative expenses — depreciation .2
 —
 .2
 .1
Amortization of other intangible assets 2.4
 2.3
 7.8
 7.2
Adjusted EBITDA (1)
 $7.7
 $1.9
 $24.8
 $4.6
(1) See “NON-GAAP FINANCIAL MEASURES” on page 64.

MediaAlpha Results—Three Months Ended September 30, 20172018 versus Three Months Ended September 30, 20162017
MediaAlpha reported net lossGAAP pre-tax income of $1$5 million and adjusted EBITDA of $8 million in both the third quarter of 20172018, compared to GAAP pre-tax loss of $1 million and the third quarteradjusted EBITDA of 2016. EBITDA was $2 million in the third quarter of 2017, compared to $12017. MediaAlpha reported revenues of $75 million in the third quarter of 2016. For2018, compared to $38 million in third quarter of 2017. The increase in GAAP pre-tax income, adjusted EBITDA and revenues were primarily driven by growth in MediaAlpha’s P&C verticals, driven by increased demand from advertisers, and growth in the Health, Medicare and Life vertical, driven by strong contributions from assets acquired from Healthplans.com in the fourth quarter of 2017. Revenues from MediaAlpha’s P&C verticals were $42 million in the third quarter of 2017, the increase in EBITDA was primarily driven by increased gross profit contributions from the P&C and Health/Life verticals of $1 million.
Advertising and commission revenues were $382018, compared to $23 million in the third quarter of 2017, compared to $28while revenues from the Health, Medicare and Life vertical were $24 million in the third quarter of 2016. The increase was primarily driven by $62018 compared to $9 million of revenue growth in MediaAlpha's P&C verticals and $5 million of revenue growth in the non-P&C verticals.third quarter of 2017.
MediaAlpha’s cost of sales is comprised primarily of revenue share based payments to partners.partners, which are correlated to and vary with revenue volume. Cost of sales were $62 million in the third quarter of 2018, compared to $32 million in the third quarter of 2017, compared to $232017. MediaAlpha's general and administrative expenses were $5 million in the third quarter of 2016. The 40% increase2018, compared to $4 million in costthe third quarter of sales was driven by the 37% increase in revenue.2017.

MediaAlpha Results—Nine Months Ended September 30, 20172018 versus Nine Months Ended September 30, 20162017
MediaAlpha reported net lossGAAP pre-tax income of $3$9 million and adjusted EBITDA of $25 million in both the first nine months of 20172018, compared to GAAP pre-tax loss of $3 million and the first nine monthsadjusted EBITDA of 2016. EBITDA was $5 million in the first nine months of 2017, compared to $62017. MediaAlpha reported revenues of $216 million in the first nine months of 2016. For2018, compared to $101 million in first nine months of 2017. The increase in GAAP pre-tax income, adjusted EBITDA and revenues were primarily driven by growth in MediaAlpha’s P&C verticals, driven by increased demand from advertisers, and growth in the Health, Medicare and Life vertical, driven by strong contributions from assets acquired from Healthplans.com in the fourth quarter of 2017. Revenues from MediaAlpha’s P&C verticals were $124 million in the first nine months of 2017, the decrease in EBITDA was primarily driven by increased operating expenses of $2 million, partially offset by an increase in gross profit of $1 million.
Advertising and commission revenues were $1012018, compared to $63 million in the first nine months of 2017, compared to $88while revenues from the Health, Medicare and Life vertical were $66 million in the first nine months of 2016. The increase was primarily driven by the continued growth in MediaAlpha’s non-P&C verticals. Advertising and commission revenues in MediaAlpha’s P&C verticals were flat2018, compared to $26 million in the first nine months of 2017 compared to2017.
Cost of sales were $179 million in the first nine months of 2016.
Cost of sales were2018, compared to $86 million in the first nine months of 2017, compared to $742017. MediaAlpha's general and administrative expenses were $21 million in the first nine months of 2016.2018, compared to $11 million in the first nine months of 2017. The 16% increase in cost of sales was primarily driven by the 14% increaserecognition of non-cash equity-based compensation expense of $7 million in revenue.

the first nine months of 2018.

Other Operations

AThe following table presents a summary of White Mountains’s financial results from its Other Operations segment for the three and nine months ended September 30, 20172018 and 20162017 follows::
 Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
Millions 2017 2016 2017 2016 2018 2017 2018 2017
Earned insurance premiums $—
 $1.9
 $1.0
 $6.1
Net investment income 8.9
 7.3
 30.8
 11.5
 $8.6
 $8.9
 $32.4
 $30.8
Net realized and unrealized investment gains 31.7
 12.8
 99.3
 18.4
 70.2
 31.7
 37.3
 99.3
Advertising and commission revenues 0.9
 .6
 2.7
 1.2
 1.1
 .9
 3.0
 2.7
Other revenues 1.4
 4.3
 5.3
 17.2
 .4
 1.4
 .6
 6.3
Total revenues 42.9
 26.9
 139.1
 54.4
 80.3
 42.9
 73.3
 139.1
Loss and loss adjustment expenses —
 2.2
 1.1
 6.8
Insurance acquisition expenses —
 .5
 .1
 1.9
Other underwriting expenses —
 .1
 —
 .1
Cost of sales .9
 1.0
 2.7
 2.9
 1.1
 .9
 2.9
 2.7
General and administrative expenses — other 27.3
 26.8
 112.7
 98.8
General and administrative expenses — amortization of intangible assets .1
 —
 .1
 .3
General and administrative expenses 26.0
 27.3
 79.0
 113.9
Amortization of other intangible assets

 —
 .1
 .1
 .1
Interest expense .8
 .3
 1.2
 1.9
 —
 .8
 .3
 1.2
Total expenses 29.1
 30.9
 117.9
 112.7
 27.1
 29.1
 82.3
 117.9
Pre-tax income (loss) $13.8
 $(4.0) $21.2
 $(58.3) $53.2
 $13.8
 $(9.0) $21.2

Other Operations Results—Three Months Ended September 30, 20172018 versus Three Months Ended September 30, 20162017
White Mountains’s Other Operations segment reported pre-tax income of $53 million in the third quarter of 2018, compared to pre-tax income of $14 million in the third quarter of 2017, compared to pre-tax loss of $4 million2017. The change was driven primarily by higher investment returns in the third quarter of 2016. The improved resultsprimarily were driven by higher investment returns.2018. White Mountains’s Other Operations segment reported $32$70 million of net realized and unrealized investment gains in the third quarter of 20172018, compared to $13$32 million of net realized and unrealized investment gains in the third quarter of 2016.2017. White Mountains’s Other Operations segment reported $9 million of net investment income in both the third quarter of 2017 compared to net2018 and investment income of $7 million in the third third quarter of 2016.2017. See Summary of Investment Results on page 65. White Mountains’s Other Operations segment other revenues55. General and administrative expenses were $1$26 million in the third quarter of 2017,2018, compared to $4$27 million in the third quarter of 2016, primarily driven by third party fees at WM Advisors. During the third quarter of 2016, WM Advisors received asset management fees from Symetra and Sirius Group during the transitional periods subsequent to each transaction, both of which expired before the end of 2016. 2017.

Other Operations Results—Nine Months Ended September 30, 20172018 versus Nine Months Ended September 30, 20162017
White Mountains’s Other Operations segment reported pre-tax loss of $9 million in the first nine months of 2018, compared to pre-tax income of $21 million in the first nine months of 2017, compared to pre-tax loss of $58 million2017. The change was driven primarily by lower investment returns in the first nine months of 2016.2018, partially offset by a reduction in general and administrative expenses. White Mountains’s Other Operations segment reported $37 million of net realized and unrealized investment gains of $99 million in the first nine months of 20172018, compared to $99 million of net realized and unrealized investment gains of $18 million in the first nine months of 2016.2017. White Mountains’s Other Operations segment reported $31$32 million of net investment income in the first nine months of 20172018, compared to$31 million of net investment income of $12 million in the first nine months of 2016.2017. See Summary of Investment Results on page 65. White Mountains’s Other Operations segment other revenues55. General and administrative expenses were $5$79 million in the first nine months of 2017,2018, which included $6 million of transaction costs related to the acquisition of NSM, compared to $17$114 million in the first nine months of 2016.2017. The decrease was primarily driven by lower third party fees at WM Advisors. Duringincentive compensation costs.


II. Summary of Investment Results
White Mountains’s total investment results include continuing operations and discontinued operations. OneBeacon’s investment results are included in discontinued operations for the first nine months of 2016, WM Advisors received asset2017. For purposes of discussing rates of return, all percentages are presented gross of management fees from Symetra and Sirius Group duringtrading expenses in order to produce a better comparison to benchmark returns, while all dollar amounts are presented net of management fees and trading expenses. 
The following table presents the transitional periods subsequent to each transaction, both of which expired before the end of 2016.pre-tax investment returns for White Mountains’s Other Operations segment generalconsolidated portfolio, including the returns from discontinued operations, for the three and administrative expensesnine months ended September 30, 2018 and 2017:  

Gross Investment Returns and Benchmark Returns(1)
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2018 2017 2018 2017
         
Common equity securities 6.1% 4.3 % 7.4 % 14.4 %
Other long-term investments 6.5% (2.3)% 3.7 % (2.9)%
Total common equity securities and other long-term investments 6.2% 2.6 % 6.6 % 9.0 %
S&P 500 Index (total return) 7.7% 4.5 % 10.6 % 14.2 %
         
Fixed income investments 0.4% 1.0 % — % 3.0 %
Bloomberg Barclays U.S. Intermediate Aggregate Index 0.1% 0.7 % (0.9)% 2.3 %
         
Total consolidated portfolio 3.1% 1.4 % 2.8 % 4.3 %
(1) For the 2018 periods, investment returns are calculated using a daily weighted average of investments held. For periods prior to 2018, investment returns are calculated using a quarterly weighted average of investments held.

Investment Returns—Three and Nine Months Ended September 30, 2018 versus Three and Nine Months Ended September 30, 2017
White Mountains’s pre-tax total return on invested assets was 3.1% and 2.8% in the third quarter and first nine months of 2018 compared to 1.4% and 4.3% in the third quarter and first nine months of 2017. The returns for the third quarter of 2018 were $113 milliondriven primarily by White Mountains’ exposure to U.S. equity markets through its investments in ETFs as U.S. equity markets continued to rally in the quarter. Weak performance in non-U.S. common equity securities were offset by gains from private equity funds. The returns for the first nine months of 2017, compared2018 were driven primarily by White Mountains’ exposure to $99 millionU.S. equity markets through its investments in ETFs, which more than offset losses from non-U.S. common equity securities. The returns for the third quarter and first nine months of 2016.2017 were driven primarily by strong results from common equity securities.

Common Equity Securities and Other Long-Term Investments Results
White Mountains maintains a portfolio of common equity securities and other long-term investments. White Mountains’s management believes that prudent levels of investments in common equity securities and other long-term investments are likely to enhance long-term after-tax total returns.
White Mountains’s portfolio of common equity securities and other long-term investments returned 6.2% and 6.6% for the third quarter and first nine months of 2018. White Mountains’s portfolio of common equity securities and other long-term investments returned 2.6% and 9.0% for the third quarter and first nine months of 2017. White Mountains’s portfolio of common equity securities and other long-term investments represented approximately 50%, 32% and 31% of total invested assets as of September 30, 2018, December 31, 2017 and September 30, 2017. The increase in this percentage is primarily attributable to management’s decision to add equity exposure over the period and a decline in the investment asset base due to the OneBeacon Transaction and share repurchase activity.
White Mountains’s portfolio of common equity securities primarily consists of passive ETFs and publicly-traded common equity securities that are actively managed by third party managers. White Mountains’s portfolio of common equity securities returned 6.1% and 7.4% for the third quarter and first nine months of 2018, underperforming the S&P 500 Index return of 7.7% and 10.6%. White Mountains’s portfolio of common equity securities returned 4.3% and 14.4% for the third quarter and first nine months of 2017, underperforming the S&P 500 Index return of 4.5% for the third quarter and outperforming the S&P 500 Index return of 14.2% for the first nine months of 2017.
White Mountains’s portfolio of ETFs seeks to provide investment results that, before expenses, generally correspond to the performance of broad market indices. As of September 30, 2018 and December 31, 2017, White Mountains had approximately $743 million and $570 million invested in ETFs. In the third quarter and first nine months of 2018 and 2017, the ETFs essentially earned the effective index return, before expenses, over the period in which White Mountains was invested in these funds.

White Mountains’s third party common equity manager relationships (the “actively managed common equity portfolios”) have been with Silchester International Investors (“Silchester”), who invests in value-oriented non-U.S. equity securities through a unit trust, and Lateef Investment Management, a growth at a reasonable price adviser managing a highly concentrated portfolio of mid-cap and large-cap growth companies. During the first quarter of 2017, White Mountains established a new third-party manager relationship with Lazard Asset Management (“Lazard”), to manage a Pan-European equity portfolio, of which the majority of the securities were denominated in Euros. In September 2017, White Mountains terminated its relationship with Lazard in order to concentrate its non-U.S. equity exposure in small to mid-cap international equities through other third-party managers. During the third quarter of 2017 and prior to terminating Lazard, White Mountains established a new third-party manager relationship with Highclere International Investors (“Highclere”), who invests in small to mid-cap equity securities listed in markets outside of the United States and Canada through a unit trust.
White Mountains’s actively managed common equity portfolios returned 2.8% and 1.8% for the third quarter and first nine months of 2018, underperforming the S&P 500 Index return of 7.7% and 10.6% for the comparable periods. The underperformance for both periods was primarily attributable to weak returns from White Mountains’s non-U.S. third party managers. White Mountains’s actively managed common equity portfolios returned 5.0% and 19.4% for the third quarter and first nine months 2017, outperforming the S&P 500 Index return of 4.5% and 14.2%, driven primarily by strong performance from White Mountains’s non-U.S. third party managers in both periods.
White Mountains entered into foreign currency forward contracts, which were recorded in other long-term investments, to manage its foreign currency exposure relating to the common equity portfolio managed by Lazard and a portion of the common equity portfolios managed by Silchester and Highclere. These foreign currency forward contracts were closed as of December 31, 2017.
White Mountains maintains a portfolio of other long-term investments that primarily consists of hedge funds, private equity funds and unconsolidated private capital investments. As of September 30, 2018, approximately 52% of these other long-term investments were in one long-short hedge fund and thirteen private equity funds, with a general emphasis on narrow, sector-focused funds.
White Mountains’s other long-term investments portfolio returned 6.5% and administrative expenses3.7% for the third quarter and first nine months of 2018. The results for the third quarter of 2018 were driven primarily by gains from the Tuckerman Capital and Enlightenment Capital private equity funds, two investment management businesses in which White Mountains has limited and general partnership interests. The results for the first nine months of 2018 were driven primarily by gains from the Tuckerman Capital and Enlightenment Capital private equity funds and a long/short hedge fund, partially offset by losses from the foreign currency forward contract closed during the first quarter. White Mountains’s other long-term investments portfolio returned -2.3% and -2.9% for the third quarter and first nine months of 2017. The results for the third quarter and first nine months were primarily attributable to losses from foreign currency forward contracts, partially offset by a favorable mark-to-market adjustment to the OneBeacon surplus notes during the third quarter of 2017 and strong private equity fund and hedge fund results for the first nine months of 2017.

Fixed Income Results
White Mountains maintains a high quality, short-duration fixed income portfolio. As of September 30, 2018, the fixed income portfolio duration, including short-term investments, was 3.3 years compared to 3.4 years as of December 31, 2017 and 2.9 years as of September 30, 2017.
White Mountains’s fixed income portfolio returned 0.4% and 0.0% for the third quarter and first nine months of 2018, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 0.1% and -0.9%. Outperformance in both periods was driven by additional compensation expensessolid performance from White Mountains’s overweight exposure to debt securities issued by corporations coupled with the short duration positioning of its fixed income portfolio, which mitigated the adverse impact of rising interest rates.
White Mountains’s fixed income portfolio returned 1.0% and 3.0% for the third quarter and first nine months of 2017, outperforming the Bloomberg Barclays U.S. Intermediate Aggregate Index return of 0.7% and 2.3% as short-term yields rose in both periods. In the fourth quarter of 2017, White Mountains established a U.S. investment grade corporate bond portfolio with Principal Global Investors, LLC (“Principal”), a third party manager. As of September 30, 2018, the fair value of the Principal investment grade corporate bond investments was $247 million and the duration of the Principal investment grade corporate bond portfolio was approximately 4.5 years.

In the fourth quarter of 2016, White Mountains established a medium duration GBP investment grade corporate bond mandate with Legal & General Investment Management, Ltd. (“LGIM”), a third-party manager. White Mountains also entered into a foreign currency forward contract, which was recorded in other long-term investments, to manage its GBP foreign currency exposure relating to this mandate. In the first quarter of 2018, White Mountains liquidated the LGIM portfolio and closed the associated foreign currency forward contract.
In the third quarter of 2016, White Mountains established a relatively concentrated portfolio of high-yield fixed maturity investments managed by Principal. The portfolio was invested in issuers of U.S. dollar denominated publicly traded and 144A debt securities issued by corporations with generally at least one rating between “B-” and “BB+” inclusive by S&P or similar ratings from other rating agencies. In July 2018, White Mountains liquidated the Principal high-yield fixed maturity portfolio and reinvested the bulk of the proceeds into U.S. government securities.

Foreign Currency Exposure

As of September 30, 2018, White Mountains had gross foreign currency exposure on approximately $276 million of net assets primarily relating to common equity securities managed by Silchester and Highclere, NSM’s foreign operations including the acquisition of Fresh Insurance and various other consolidated and unconsolidated private capital investments.
White Mountains may enter into foreign currency forward contracts to mitigate its foreign currency exposure on certain invested assets. In the fourth quarter of 2017, White Mountains closed the foreign currency forward contracts associated with the investment assets managed by Silchester and Highclere. In conjunction with the liquidation of the GBP investment grade corporate bond mandate managed by LGIM in the first quarter of 2018, White Mountains closed the associated foreign currency forward contract.
The following table presents the fair value of White Mountains’s foreign denominated assets as of September 30, 2018:
Currency (1)
$ in millions
 Fair Value 
% of Common Shareholders’ Equity
GBP $87.2
 2.9%
JPY 60.8
 2.0
EUR 59.6
 2.0
All other 68.4
 2.3
Total $276.0
 9.2%
(1) Includes net assets of NSM’s foreign operations, Wobi and Buzzmove.

Income Taxes

The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. If there is a change in the current law such that taxes are imposed, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 31, 2035, pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966. The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate.  The jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Barbados, Gibraltar, Ireland, Israel, Luxembourg, the United Kingdom and the United States.
White Mountains’s income tax benefit related to former company executivespre-tax income from continuing operations for the three months ended September 30, 2018 and higher incentive compensation costs resultingpre-tax loss from continuing operations for the nine months ended September 30, 2018 represented an effective tax rate of (8.1)% and 1.2%. The effective tax rate was different from the OneBeacon Transaction. current U.S. statutory rate of 21%, primarily due to a full valuation allowance on most of the net deferred tax assets at U.S. operations, withholding taxes and a tax benefit recorded at BAM.  For BAM, MSC and the related taxes thereon are recorded directly to non-controlling interest equity, while the valuation allowance on such taxes is recorded through the income statement. For the three and nine months ended September 30, 2018, BAM recorded a tax benefit of $2 million and $4 million associated with the valuation allowance on taxes related to MSC that is included in the effective tax rate. See Note 6 — “Income Taxes”.
White Mountains’s income tax benefit related to pre-tax income from continuing operations for the three and nine months ended September 30, 2017 represented effective tax rates of (47.6)% and (203.9)%. The effective tax rate was different from the 2017 U.S. statutory rate of 35%, primarily due to a full valuation allowance on all net deferred tax assets at U.S. operations, pre-tax income from continuing operations being near break-even and a tax benefit recorded at BAM. For BAM, MSC and the related taxes thereon are recorded directly to non-controlling interest equity, while the valuation allowance on such taxes is recorded through the income statement. For the three and nine months ended September 30, 2017, BAM recorded a tax benefit of $2 million and $7 million associated with the valuation allowance on taxes related to MSC that is included in the effective tax rate. See Note 6 — “Income Taxes”.

Discontinued Operations

Sirius Group Tax Contingency
In late October 2018, the Swedish Administrative Court ruled against Sirius Group on its appeal of the Swedish Tax Agency’s denial of certain interest deductions relating to periods prior to the sale of Sirius Group to CMI in 2016. In connection with the sale, White Mountains indemnified Sirius Group against the loss of these interest deductions. As a result, in the third quarter of 2018, White Mountains recorded a loss of $17 million within net (loss) gain on sale of discontinued operations reflecting the value of these interest deductions. Sirius Group intends to appeal the decision to the Swedish Administrative Court of Appeal.

OneBeacon
On September 28, 2017, White Mountains received $1.3 billion in cash proceeds from the OneBeacon Transaction and recorded a gain of $555 million, net of transaction costs. As a result of the OneBeacon Transaction, OneBeacon’s results have been reported as discontinued operations within White Mountains’s GAAP financial statements.
White Mountains reported a net loss of $15 million from OneBeacon in discontinued operations in the third quarter of 2017, driven primarily by underwriting losses. OneBeacon’s combined ratio for the third quarter of 2017 was 113%, driven by 9 points of net unfavorable loss reserve development, primarily in the Program, Healthcare and Government Risk businesses, and 9 points of catastrophe losses primarily due to losses from Hurricane Harvey.
White Mountains reported net income from OneBeacon of $21 million in discontinued operations in the first nine months of 2017. OneBeacon’s combined ratio for the first nine months of 2017 was 105%, driven by 4 points of net unfavorable loss reserve development, primarily in the Program, Healthcare and Government Risk businesses, and 4 points of catastrophe losses, primarily due to losses from Hurricane Harvey. SeeNote 1516 — “Held for Sale and Discontinued Operations”.

Tranzact
On July 21, 2016, White Mountains completed the sale of Tranzact to an affiliate of Clayton, Dubilier & Rice, LLC. Tranzact’s results inured to White Mountains until the closing date of the transaction. Net loss from discontinued operations related to Tranzact was $2 million and $3 million for the third quarter and first nine months of 2016. See Note 15 — “Held for Sale and Discontinued Operations”.

Sirius Group
On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI. Sirius Group’s results inured to White Mountains until the closing date of the transaction. For the second quarter stub period up until the closing date of the transaction, Sirius Group reported a comprehensive loss of $9 million, primarily due to $17 million of recorded losses from the Ecuador earthquake that occurred on April 16, 2016. For the first quarter of 2016, Sirius Group reported comprehensive income of $36 million, reflecting a combined ratio of 93%. See Note 15 — “Held for Sale and Discontinued Operations”.

II. Summary of Investment Results
White Mountains’s total investment results include continuing operations and discontinued operations. The OneBeacon and Sirius Group investment results are included in discontinued operations for each respective period.
During the third quarter of 2016, White Mountains established a portfolio of high-yield fixed maturity investments. Given the risk profile of these investments, White Mountains has included the returns associated with the high-yield fixed maturity investments with the returns from common equity securities and other long-term investments. See “NON-GAAP FINANCIAL MEASURES” on page 76.
For purposes of discussing rates of return, all percentages are presented gross of management fees and trading expenses in order to produce a better comparison to benchmark returns, while all dollar amounts are presented net of management fees and trading expenses. 

The following table summarizes White Mountains’s consolidated total operations’ pre-tax investment results, including returns from discontinued operations, for the three and nine months ended September 30, 2017 and 2016:  

Gross investment returns and benchmark returns
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Short-term investments 0.3 % 0.1% 0.5 % 0.7%
Investment grade fixed maturity investments 0.9 % 0.4% 2.8 % 3.1%
High-yield fixed maturity investments 1.7 % 1.0% 7.1 % 1.0%
Total GAAP fixed income investments 1.0 % 0.4% 3.0 % 2.9%
Total fixed income investments, excluding high-yield fixed maturity investments: 0.9 % 0.4% 2.7 % 2.9%
Bloomberg Barclays U.S. Intermediate Aggregate Index 0.7 % 0.3% 2.3 % 4.1%
         
Common equity securities 4.3 % 4.9% 14.4 % 5.2%
Other long-term investments (2.3)% 2.6% (2.9)% 6.4%
Total GAAP common equity securities and other long-term investments 2.6 % 3.9% 9.0 % 5.6%
Total common equity securities, other long-term investments and high-yield fixed
     maturity investments
 2.4 % 3.5% 8.6 % 5.4%
S&P 500 Index 4.5 % 3.9% 14.2 % 7.8%
Bloomberg Barclays U.S. High Yield Ba 2% Issuer Capped (minus Energy & Financials) 1.9 % 1.6% 6.7 % 1.6%
         
Total consolidated portfolio 1.4 % 0.9% 4.3 % 3.3%

Investment Returns—Three and Nine Months Ended September 30, 2017 versus Three and Nine Months Ended September 30, 2016
White Mountains’s GAAP pre-tax total return on invested assets was 1.4% and 4.3% for the third quarter and first nine months of 2017. White Mountains’s GAAP pre-tax total return on invested assets was 0.9% and 3.3% for the third quarter and first nine months of 2016. The returns for the third quarter and first nine months of 2017 were driven by the continued equity market rally, while returns for the 2016 periods were impacted by strong equity returns in the third quarter of 2016 and a decline in interest rates for the first nine months of 2016.

Fixed income results
White Mountains maintains a high-quality, short-duration fixed income portfolio. As of September 30, 2017, the fixed income portfolio duration, including short-term investments but excluding high-yield fixed maturity investments, was approximately 2.7 years, compared to 2.6 years as of December 31, 2016 and 2.0 years as of September 30, 2016. Including both short-term and high-yield fixed maturity investments, duration was approximately 2.9 years as of September 30, 2017.
The increase in the duration of the fixed income portfolio over this period was primarily a result of establishing a new medium duration British Pound Sterling (GBP) investment grade corporate bond mandate with Legal & General Investment Management, Ltd. (“LGIM”), a third-party manager, in the fourth quarter of 2016. The duration of the LGIM portfolio was approximately 7.5 years as of September 30, 2017. White Mountains has entered into a foreign currency forward contract, which is recorded in other long-term investments, to manage its GBP foreign currency exposure relating to this mandate. As of September 30, 2017, the contract had a total gross notional value of approximately $201.3 million (GBP 150 million) and a carrying value of $(14.1) million.
The fixed income portfolio returned 0.9% and 2.7% for the third quarter and first nine months of 2017, outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index returns of 0.7% and 2.3%, as interest rates rose in both periods. The fixed income portfolio returned 0.4% and 2.9% for the third quarter and first nine months of 2016, slightly outperforming the longer duration Bloomberg Barclays U.S. Intermediate Aggregate Index return of 0.3% for the third quarter of 2016 and underperforming the Bloomberg Barclays U.S. Intermediate Aggregate Index return of 4.1% for the first nine months of 2016. The underperformance relative to the benchmark for the first nine months of 2016 was primarily attributable to the short duration positioning of the portfolio as interest rates declined over the period.


Common equity securities, other long-term investments and high-yield fixed maturity investments results
White Mountains maintains a portfolio of common equity securities, other long-term investments and high-yield fixed maturity investments. White Mountains’s management believes that prudent levels of investments in common equity securities, other long-term investments and high-yield fixed maturity investments are likely to enhance long-term after-tax total returns.
White Mountains’s portfolio of common equity securities, other long-term investments and high-yield fixed maturity investments represented approximately 37%, 20%, and 19% of total GAAP invested assets as of September 30, 2017, December 31, 2016, and September 30, 2016. The increase in the percentage of this portfolio is primarily attributable to management’s conscious decision to add equity exposure during the year and a decline in the investment asset base due to the OneBeacon Transaction and share repurchase activity.
White Mountains’s portfolio of common equity securities, other long-term investments and high-yield fixed maturity investments returned 2.4% and 8.6% for the third quarter and first nine months of 2017, underperforming the S&P 500 Index returns of 4.5% and 14.2%. The underperformance versus the S&P 500 Index return for the third quarter and first nine months of 2017 was primarily a result of asset allocation, as high yield fixed maturity investments failed to keep pace with the S&P 500 Index, and unfavorable performance in other long-term investments, primarily attributable to losses from foreign currency forward contracts. The losses on the foreign currency forward contracts were offset by the currency gains from non-USD denominated fixed maturity investments and non-USD denominated common equity securities.
White Mountains’s portfolio of common equity securities primarily consists of passive ETFs and publicly-traded common equity securities that are actively managed by third party managers. White Mountains’s portfolio of common equity securities returned 4.3% and 14.4% for the third quarter and first nine months of 2017, underperforming the S&P 500 Index return of 4.5% for the third quarter and outperforming the S&P 500 Index return of 14.2% for the first nine months of 2017.
The portfolio of ETFs seeks to provide investment results that, before expenses, generally correspond to the performance of broad market indices. As of September 30, 2017 and December 31, 2016, White Mountains had $493 million and $322 million invested in S&P 500 ETFs. During the third quarter and first nine months of 2017 and 2016, the ETFs essentially earned the effective index return, before expenses, over the period in which White Mountains was invested in these funds.
White Mountains’s third party manager relationships (the “actively managed portfolios”) have been with Silchester International Investors (“Silchester”), who invests in value-oriented non-U.S. equity securities through a unit trust, and Lateef Investment Management (“Lateef”), a growth at a reasonable price adviser managing a highly concentrated portfolio of mid-cap and large-cap growth companies. During the first quarter of 2017, White Mountains established a new third party manager relationship with Lazard Asset Management (“Lazard”), to manage a Pan-European common equity portfolio, of which the majority of the securities are denominated in Euros (EUR). In September 2017, White Mountains terminated its relationship with Lazard in order to concentrate its non-U.S. equity exposure in small to mid-cap international equities through other third-party managers. During the third quarter of 2017 and prior to terminating Lazard, White Mountains established a new third party manager relationship with Highclere International Investors ("Highclere"), who invests in small to mid-cap equity securities listed in markets outside of North America through a unit trust.
The actively managed portfolios of common equity securities returned 5.0% and 19.4% for the third quarter and first nine months of 2017, outperforming the S&P 500 Index return of 4.5% and 14.2% for the comparable periods. The actively managed portfolios of common equity securities returned 5.4% and 3.4% for the third quarter and first nine months of 2016, outperforming the S&P 500 Index return of 3.9% for the third quarter and underperforming the S&P 500 Index return of 7.8% for the first nine months of 2016.
White Mountains entered into foreign currency forward contracts, which are recorded in other long-term investments, to manage its foreign currency exposure relating to the equity portfolio managed by Lazard and a portion of the equity portfolios managed by Silchester and Highclere. As of September 30, 2017, these contracts had a total gross notional value of approximately $60.5 million (EUR 19 million, GBP 11 million and JPY 2,646 million) and a carrying value of $(1.3) million.
White Mountains maintains a portfolio of other long-term investments that consists primarily of hedge funds, private equity funds, unconsolidated private capital investments, foreign currency forward contracts and various other investments. As of September 30, 2017, approximately 63% of these other long-term investments, excluding foreign currency forward contracts, were invested in private equity funds with a general emphasis on narrow, sector-focused investments, and hedge funds with a general emphasis on long-short equities.

White Mountains’s other long-term investments returned -2.3% and -2.9% for the third quarter and first nine months of 2017. The results for the third quarter and first nine months were primarily attributable to losses from foreign currency forward contracts, partially offset by a favorable mark-to-market adjustment to the OneBeacon Surplus Notes during the third quarter of 2017 and strong private equity fund and hedge fund results for the first nine months of 2017.
White Mountains’s other long-term investments returned 2.6% and 6.4% for the third quarter and first nine months of 2016. The results for the third quarter and first nine months of 2016 were primarily driven by write-downs in energy-exposed private equity funds, partially offset by favorable mark-to-market adjustments to the OneBeacon Surplus Notes.
During the third quarter of 2016, White Mountains established a new relationship with Principal Global Investors, LLC (“Principal”), a third-party manager, to actively manage a relatively concentrated portfolio of high-yield fixed maturity investments. The Principal separate account is invested in issuers of U.S. dollar denominated publicly traded and 144A debt securities issued by corporations with generally at least one rating between "B-" and “BB+” inclusive by Standard and Poor’s or similar ratings from other rating agencies. The high-yield fixed maturity investments returned 1.7% and 7.1% for the third quarter and first nine months of 2017, underperforming the Bloomberg Barclays U.S. High Yield Ba 2% Issuer Capped (minus Energy & Financials) Index return of 1.9% for the quarter but outperforming the return of 6.7% for the first nine months of 2017.

Foreign Currency Translation
As of September 30, 2017, White Mountains had gross foreign currency exposure on approximately $412.7 million of net assets relating to cash and fixed maturity investments managed by LGIM, common equity securities managed by Silchester and Highclere and various other consolidated and unconsolidated private capital investments.
White Mountains entered into foreign currency forward contracts to mitigate its foreign currency exposure for the invested assets managed by LGIM and a portion of the invested assets managed by Silchester and Highclere.
The following table summarizes the fair value of White Mountains’s foreign denominated assets and the associated foreign currency forward contracts as of September 30, 2017:
Currency(1)
 Fair Value (Gross) % of Common Shareholders' Equity Currency Hedge Fair Value (Net) % of Common Shareholders' Equity
GBP $253.2
 7.3% $(215.8) $37.4
 1.1%
JPY 60.4
 1.8% (23.6) 36.8
 1.1%
EUR 52.6
 1.5% (22.4) 30.2
 .9%
All other 46.5
 1.3% —
 46.5
 1.3%
Total $412.7
 11.9% $(261.8) $150.9
 4.4%
(1) Includes net assets of Wobi and Buzzmove.

Investment in Symetra Common Shares
During the third quarter of 2015, Symetra Financial Corporation (“Symetra”) announced that it entered into a definitive merger agreement with Sumitomo Life pursuant to which Sumitomo Life would acquire all of the outstanding shares of Symetra. On February 1, 2016, Symetra closed its definitive merger agreement with Sumitomo Life and White Mountains received proceeds of $658 million, or $32 per common share. White Mountains recognized $5 million in pre-tax net investment gains associated with Symetra during the first quarter of 2016. White Mountains also received a special dividend of $.50 per share as part of the transaction that was paid in the third quarter of 2015.


LIQUIDITY AND CAPITAL RESOURCES
 
Operating Cash and Short-term Investments

Holding company level. Company Level.The primary sources of cash for the Company and certain of its intermediate holding companies are expected to be distributions and tax sharing payments received from its operating subsidiaries, capital raising activities, net investment income, proceeds from sales, repayments and maturities of investments and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be repurchases of the Company’s common shares, payments on and repurchases/retirements of its debt obligations, dividend payments to holders of the Company’s common shares, distributions to non-controlling interest holders of consolidated subsidiaries, purchases of investments, payments to tax authorities, contributions to operating subsidiaries, operating expenses and, from time to time, purchases of operating subsidiaries.

Operating subsidiary level. Subsidiary Level.The primary sources of cash for White Mountains’s reinsurance and other operating subsidiaries are expected to be premium and fee collections, net investment income, proceeds from sales, repayments and maturities of investments, contributions from holding companies, capital raising activities and, from time to time, proceeds from the sales of operating subsidiaries. The primary uses of cash are expected to be loss payments, policy acquisition and other underwriting costs, cost of sales, purchases of investments, payments on and repurchases/retirements of its debt obligations, distributions and tax sharing payments made to holding companies, distributions to non-controlling interest holders, operating expenses and, from time to time, purchases of operating subsidiaries.
Both internal and external forces influence White Mountains’s financial condition, results of operations and cash flows. Premium and fee levels, loss payments, cost of sales and investment returns 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 and the settlement of the liability for that loss. The exact timing of the payment of losses and benefits cannot be predicted with certainty. White Mountains’s reinsurance subsidiary maintains a portfolio of invested assets with varying maturities and a substantial amount of cash and short-term investments to provide adequate liquidity for the payment of losses.
Management believes that White Mountains’s cash balances, cash flows from operations and routine sales and maturities of investments and the liquidity provided by the WTM Bank Facility and the MediaAlpha Bank Facility are adequate to meet expected cash requirements for the foreseeable future on both a holding company and subsidiary level.


Dividend Capacity

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

HG Global/BAM:BAM
At September 30, 2017,2018, 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 receive cumulative dividends at a fixed annual rate of 6.0% on a quarterly basis, when and if declared by HG Global. HG Global did not declare or pay any preferred dividends in the third quarterfirst nine months of 2017.2018. As of September 30, 2017,2018, HG Global has accrued $223$275 million of dividends payable to holders of its preferred shares, $216$265 million of which is payable to White Mountains and eliminated in consolidation.
HG Re is a Special Purpose Insurer subject to regulation and supervision by the BMA, but does not require regulatory approval to pay dividends. However, HG Re’s dividend capacity is limited to amounts held outside of the collateral trusts pursuant to the first loss reinsurance treaty (“FLRT”)FLRT with BAM. As of September 30, 2017,2018, HG Re had statutory capital and surplus of $677$693 million, $702$742 million of assets held in the collateral trusts pursuant to the FLRT with BAM and less than $1 million of cash and investments held outside the collateral trusts.
Effective January 1, 2014, HG Global and BAM agreed to change the interest rate onrepaid $4.0 million of the BAM Surplus Notes for the five years ending December 31, 2018 from a fixed rate of 8.0% to a variable rate equal to the one-year U.S. treasury rate plus 300 basis points, set annually, which is 3.78% for 2017. Prior to the end of 2018, BAM has the option to extend the variable rate period for an additional three years.  At the endand $1.0 million of the variable rate period,related accrued interest in 2017. There were no repayments during the interest rate will be fixed at the higher of the then current variable rate or 8.0%.  No payment of interest or principal on the BAM Surplus Notes may be made without the approval of the New York State Department of Financial Services. BAM has stated its intention to seek regulatory approval to pay interest and principal on its surplus notes only to the extent that its remaining qualified statutory capital (“QSC”) exceeds $500 million and its remaining QSC and other capital resources continue to support its outstanding obligations, business plan and its AA stable rating from S&P.nine months ended September 30, 2018.

In orderNSM
During the period from White Mountains’s acquisition of NSM through September 30, 2018, NSM did not pay any dividends to further support BAM’s long-term capital position and business prospects, on August 14, 2017, HG Global contributed the $203its shareholders. As of September 30, 2018, NSM had $61 million Series A BAM Surplus Notes into the Supplemental Trust at HG Re, HG Global’s wholly owned reinsurance subsidiary. The Supplemental Trust already held the $300of cash, of which $41 million Series B BAM Surplus Notes. Assetswas held in the Supplemental Trust serve to collateralize HG Re’s obligations to BAM under the first loss reinsurance treaty between BAM and HG Re. HG Global and BAM also changed the payment terms of the Series B Notes, so that payments will reduce principal and accrued interest on a pro rata basis, consistent with the payment terms on the Series A Notes. The terms of the Series B Notes had previously stipulated that payments would first reduce interest owed, then reduce principal owed once all accrued interest had been paid.
HG Global and BAM also made certain changes to the ceding commission arrangements under the reinsurance treaty between HG Re and BAM. These changes will accelerate growth in BAM’s statutory capital but will not impact the net risk premium ceded from BAM to HG Re.fiduciary trust accounts.

MediaAlpha:MediaAlpha
During the nine months ended September 30, 2018, MediaAlpha paid $12 million of dividends to its shareholders. White Mountains received $8 million of these dividends. As of September 30, 2018, MediaAlpha had $13 million of cash.

Other Operations
During the first nine monthsquarter of 2017, MediaAlpha paid $2 million of dividends, $1 million of which was paid to White Mountains. As of September 30, 2017, MediaAlpha had $5 million of net unrestricted cash.

Other Operations:
During the first nine months of 2017,2018, White Mountains paid a $5$4 million common share dividend. As of September 30, 2017,2018, the Company and its intermediate holding companies had $1,741$636 million of net unrestricted cash, short-term investments and fixed maturity investments, $774$1,044 million of common equity securities and $81$70 million of other long-term investments included in its Other Operations segment.
As of September 30, 2017, White Mountains has contractual unfunded commitments of $105 million to fund certain other long-term investments and $10 million to fund a surplus note facility.
Financing

Financing

The following table summarizespresents White Mountains’s capital structure as of September 30, 20172018 and December 31, 2016:2017:
($ in millions) September 30,
2017		 December 31,
2016		 September 30,
2018		 December 31,
2017
WTM Bank Facility $—
 $—
 $—
 $—
NSM Bank Facility, carrying value 147.3
 —
MediaAlpha Bank Facility, carrying value 9.4
 —
 15.0
 23.8
Previous MediaAlpha Bank Facility, carrying value —
 12.7
Total debt in continuing operations 9.4
 12.7
Debt included in discontinued operations —
 273.2
Other NSM debt 2.0
 —
Total debt 9.4
 285.9
 164.3
 23.8
Non-controlling interest—OneBeacon Ltd. —
 244.6
Non-controlling interests—other, excluding mutuals and reciprocals 28.6
 35.8
Non-controlling interests—other, excluding mutuals 45.7
 31.5
Total White Mountains’s common shareholders’ equity 3,468.8
 3,582.7
 2,984.0
 3,492.5
Total capital 3,506.8
 4,149.0
 3,194.0
 3,547.8
Time-value discount on expected future payments on the BAM Surplus Notes (1)
 (161.8) —
 (146.3) (157.0)
HG Global’s unearned premium reserve (1)
 88.4
 —
 120.2
 103.9
HG Global’s net deferred acquisition costs (1)
 (19.6) —
 (29.4) (24.3)
Total adjusted capital $3,413.8
 $4,149.0
 $3,138.5
 $3,470.4
        
Total debt to total adjusted capital 0.3% 6.9% 5.2% 0.7%
(1) Amount reflects White Mountains'sMountains’s preferred share ownership in HG Global of 96.9%.


Management believes that White Mountains has the flexibility and capacity to obtain funds externally as needed 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.
White Mountains has an unsecured revolving credit facility with a syndicate of lenders administered by Wells Fargo Bank, N.A., which has a total commitment of $425 million and a maturity date of August 14, 2018 (the “WTM Bank Facility”). During the third quarter of 2017, White Mountains borrowed $350 million under the WTM Bank Facility to partially fund a tender offer and subsequently repaid the $350 million after receiving the proceeds from the OneBeacon Transaction. White Mountains borrowed the funds As of September 30, 2017, the WTM Bank Facility was undrawn.
The WTM Bank Facility contain various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including certain minimum net worth and maximum debt to capitalization standards. These covenants can restrict White Mountains in several ways, including its ability to incur additional indebtedness. An uncured breach of these covenants could result in an event of default under the WTM Bank Facility, which would allow lenders to declare any amounts owed under the WTM Bank Facility to be immediately due and payable. In addition, a default under the WTM Bank Facility could occur if certain of White Mountains’s subsidiaries fail to pay principal and interest on a credit facility, mortgage or similar debt agreement (collectively, “covered debt”), or fail to otherwise comply with obligations in such covered debt agreements where such a default gives the holder of the covered debt the right to accelerate at least $75 million of principal amount of covered debt.
It is possible that, in the future, one or more of the rating agencies may lower White Mountains’s 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.
White Mountains had an unsecured revolving credit facility with a syndicate of lenders administered by Wells Fargo Bank, N.A., which had a total commitment of $425 million and a maturity date of August 14, 2018. White Mountains terminated the WTM Bank Facility on May 8, 2018 in conjunction with the tender offer completed on May 11, 2018. See Share Repurchases on page 61.
On May 11, 2018, NSM entered into a secured credit facility (the “NSM Bank Facility”) with Ares Capital Corporation in order to refinance NSM’s debt and to fund the acquisition of Fresh Insurance. The NSM Bank Facility is comprised of a term loan of $100 million, a delayed-draw term loan of $51 million to fund the Fresh Insurance acquisition and a revolving credit loan commitment of $10 million, under which NSM initially borrowed $2 million. The term loans under the NSM Bank Facility mature on May 11, 2024, and the revolving credit loan under the NSM Bank Facility matures on May 11, 2023. During the period from May 11, 2018 through September 30, 2018, NSM repaid $0.4 million on the term loans. During the period from May 11, 2018 through September 30, 2018, NSM repaid $2 million on the revolving credit loan. As of September 30, 2018, $151 million of term loans were outstanding and no revolving credit loans were outstanding under the NSM Bank Facility.
Interest on the NSM Bank Facility accrues at a floating interest rate equal to the three month LIBOR or the Prime Rate, as published by the Wall Street Journal plus, in each case, an applicable margin. The margin over LIBOR may vary between 4.25% and 4.75%, and the margin over the Prime Rate may vary between 3.25% and 3.75%, in each case, depending on the consolidated total leverage ratio of the borrower.
On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on its variable rate term loans. Under the terms of the swap agreement, NSM pays a fixed rate of 2.97% and receives a variable rate, which is reset monthly, based on based on then-current LIBOR. The variable rate received by NSM under the swap agreement was 2.07% at September 30, 2018. As of September 30, 2018, NSM’s blended interest rate on the outstanding term loan principal amount of $151 million was 6.69%, and 7.47% after consideration of the interest rate swap. See Note 7 — “Derivatives — NSM Interest Rate Swap”.
The NSM Bank Facility is secured by all property of the loan parties and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a maximum consolidated total leverage ratio covenant.
On May 12, 2017, MediaAlpha entered into a secured credit facility (the “MediaAlpha Bank Facility”) with Western Alliance Bank, which hashad a total commitment of $20 million and has a maturity date of May 12, 2020.  TheOn October 5, 2017, MediaAlpha refinanced the MediaAlpha Bank Facility replaced MediaAlpha’s previous credit facility (the “Previous MediaAlpha Bank Facility”), which had ain order to fund the acquisition of certain assets associated with the Health, Life and Medicare insurance business of Healthplans.com. The total commitment of $20 million. the MediaAlpha Bank Facility was increased to $28 million and the maturity date was extended to October 6, 2020.
The MediaAlpha Bank Facility consists of a $5an $18 million term loan facility, which hadhas an outstanding balance of $3$15 million as of September 30, 2017,2018, and a revolving credit loan facility for $15$10 million, which had an outstanding balance of $6 millionwas undrawn as of September 30, 2017.2018. During the nine months ended September 30, 2017,2018, MediaAlpha borrowed $5.0repaid $3 million on the term loan and $6.0$6 million on the revolving credit loan under the MediaAlpha Bank Facility. During the nine months ended September 30, 2017, MediaAlpha repaid $13 million under the Previous MediaAlpha Bank Facility. The MediaAlpha Bank Facility carries a variable interest rate that is based on the Prime Rate, as published by the Wall Street Journal, plus a spread of 1.5% on the term loan facility and 0.25% on the revolving credit facility.
The MediaAlpha Bank Facility is secured by intellectual property and the common stock of MediaAlpha’s subsidiaries, and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a maximum leverage ratio.ratio covenant. 

Covenant Compliance
As of September 30, 2017,2018, White Mountains was in compliance with all of the covenants under all of its debt instrumentsinstruments.


NSM Bank Facility
The consolidated total leverage ratio in the NSM Bank Facility is determined by dividing NSM’s debt by its EBITDA, both as defined in the NSM Bank Facility.
Debt is defined to include indebtedness for borrowed money, due and expectspayable earnouts on permitted acquisitions and various other adjustments specified in the NSM Bank Facility, less unrestricted cash and cash equivalents (“Bank Debt”). NSM’s Bank Debt was $134 million as of September 30, 2018.
EBITDA is defined to remaininclude adjusted EBITDA (see NON-GAAP FINANCIAL MEASURES on page 64) plus additional adjustments to (i) exclude certain expenses, including program start up and shutdown expenses, mergers and acquisition expenses, terminations and various other adjustments specified in complianceNSM’s Bank Facility and (ii) include/exclude historical earnings of acquired/disposed companies (“Bank EBITDA”). NSM’s Bank EBITDA was $34 million for the foreseeable future.trailing twelve months ended September 30, 2018.

The maximum consolidated total leverage ratio covenant as of September 30, 2018 was 5.5x. NSM’s actual consolidated total leverage ratio was 3.9x.

Share Repurchases 

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 September 30, 2017,2018, White Mountains may repurchase an additional 643,130 shares under these board authorizations. In addition, from time to time White Mountains has also repurchased its common shares through tender offers that were separately approved by its board of directors. During the third quarter of 2017,On May 11, 2018, White Mountains completed a "modified“modified Dutch auction"auction” tender offer, through which it repurchased 586,732575,068 of its common shares at a purchase price of $875 per share for a total cost of approximately $515$505 million, including expenses. Shares repurchased under this tender offer did not impact the remaining number of shares authorized for repurchase. This activity left White Mountains with $1.4 billion of undeployed capital as of September 30, 2018.
The following table presents common shares repurchased by the Company through the first 10 months of 20172018 and 2016,2017, as well as the average price per share as a percent of adjusted book value per share. When applicable,For the second quarter of 2017, the average price per share as a percent of adjusted book value per share including the estimated gain from significant transactionsthe sale of OneBeacon is also presented.
        Average price per share as % of
Dates Shares Repurchased Cost (millions) Average price per share 
Adjusted book value per share(1)
 
Adjusted book value per share, including estimated
transaction gains (2)
           
1st quarter 2017 7,699
 $6.4
 $836.05
 105% N/A
2nd quarter 2017 3,184
 2.8
 869.70
 112% 97%
3rd quarter 2017 821,842
 714.7
 869.60
 96% N/A
Year-to-date September 30, 2017 832,725
 723.9
 869.29
 96% N/A
October 2017 —
 —
 —
 N/A
 N/A
Year-to-date October 31, 2017(3)
 832,725
 $723.9
 $869.29
 96% N/A
           
1st quarter 2016 228,688
 $172.7
 $755.36
 108% 95%
2nd quarter 2016 463,276
 374.7
 808.76
 103% 101%
3rd quarter 2016 389,373
 319.4
 820.17
 103% N/A
Year-to-date September 30, 2016 1,081,337
 866.8
 801.57
 100% N/A
October 2016 13,458
 11.1
 824.48
 103% N/A
Year-to-date October 31, 2016(3)
 1,094,795
 $877.9
 $801.86
 100% N/A
Dates Shares Repurchased Cost (millions) Average price per share 
Percentage of adjusted book value per share, including estimated transaction gains (1)
1st quarter 2018 9,965
 $8.4
 $840.63
 93%
2nd quarter 2018 575,068
 504.7
 877.78
 96%
3rd quarter 2018 —
 —
 —
 —%
Year-to-date September 30, 2018 (2)
 585,033
 513.1
 877.14
 95%
October 2018 —
 —
 —
 N/A
Year-to-date October 31, 2018 585,033
 $513.1
 $877.14
 95%
1st quarter 2017 7,699
 $6.4
 $836.05
 105%
2nd quarter 2017 3,184
 2.8
 869.70
 97%
3rd quarter 2017 821,842
 714.7
 869.60
 96%
Year-to-date September 30, 2017 832,725
 723.9
 869.29
 96%
October 2017 —
 —
 —
 N/A
Year-to-date October 31, 2017(2)
 832,725
 723.9
 869.29
 98%
(1) Average price per share is expressed as a percentage of White Mountains's adjusted book value per share as of March 31, 2018 for the first quarter of 2018 and September 30, 2018 for all other 2018 periods presented and as of March 31, 2017 for the first quarter 2017, June 30, 2017 for the second quarterof 2017 and September 30, 2017 for all other 2017 periods presented and as of March 31, 2016 for the first quarter 2016, June 30, 2016 for the second quarter 2016 and September 30, 2016 for all other 2016 periods presented periods presented.
(2) For the second quarter 2017, adjusted book value per share includes estimated gain from the OneBeacon transaction. For the first quarter 2016, adjusted book value per share includes estimated gain from the sale of Sirius Group. For the second quarter 2016, adjusted book value per share includes estimated gain from the sale of Tranzact.OneBeacon.
(3)(2) Includes 10,9939,965 and 8,02210,883 common shares repurchased by the Company during the first ten months of 20172018 and 20162017 to satisfy employee income tax withholding pursuant to employee benefit plans. Shares repurchased pursuant to employee benefit plans do not reduce the board authorization referred to above.


Cash Flows

Detailed information concerning White Mountains’s cash flows during the ninethree months ended September 30, 20172018 and 20162017 follows:
 
Cash flows from continuing operations for the nine months ended September 30, 20172018 and September 30, 20162017
Net cash used forin continuing operations was $31 million in the first nine months of 2018 compared to $64 million in the first nine months of 2017 and $175 million2017. Cash used from continuing operations decreased in the first nine months of 2016. Cash used for continuing operations was lower in the first nine months of 20172018 compared to the first nine months of 2016,2017, primarily due to payments related to the settlement of certain liabilities and transaction costs$28 million in connection with the Sirius Group sale in the first nine months of 2016. This decrease in cash used from operations was partially offset by an increase in incentive compensation and employee retirement payments paid in the first nine months of 2017 relative to the first nine months of 2016.2018, which was partially offset by increased long-term incentive payments in 2018. White Mountains made long-term incentive payments totaling $22$28 million and $41$22 million during the first nine months of 20172018 and the first nine months of 2016. During the first nine months of 2017, White Mountains also paid $28 million in cash related to the departures of the Company’s former Chairman and CEO and former CFO.2017. 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.

Cash flows from investing and financing activities for the nine months ended September 30, 2018

Financing and Other Capital Activities
During the first nine months of 2018, the Company declared and paid a $4 million cash dividend to its common shareholders.
During the first nine months of 2018, White Mountains repurchased and retired 585,033 of its common shares for $513 million, which included 9,965 shares for $8 million repurchased under employee benefit plans for statutory withholding tax payments.
During the first nine months of 2018, BAM received $27 million in MSC.
During the first nine months of 2018, NSM borrowed $51 million under the NSM Bank Facility to fund the Fresh Insurance acquisition.
During the first nine months of 2018, NSM repaid $2 million on the revolving loan under the NSM Bank Facility.
During the first nine months of 2018, MediaAlpha paid $12 million of dividends to its shareholders, of which $8 million was paid to White Mountains.
During the first nine months of 2018, MediaAlpha repaid $3 million of the term loan and $6 million of the revolving loan under the MediaAlpha Bank Facility.
During the first nine months of 2018, Wobi borrowed 20 million Israeli New Shekels (“ILS”) (approximately $6 million) from White Mountains under an internal credit facility. In August 2018, White Mountains contributed ILS 91 million (approximately $25 million based on the spot rate at the date of contribution) to Wobi, which Wobi used to repay its internal credit facility to White Mountains, consisting of ILS 88 million of principal and ILS 3 million of accrued interest.

Acquisitions and Dispositions
On January 24, 2018, White Mountains paid $42 million in connection with the DavidShield transaction.
On May 11, 2018, White Mountains closed its previously announced acquisition of 95% of NSM for a purchase price of $274 million.
On May 18, 2018, NSM acquired 100% of Fresh Insurance for an upfront purchase price of GBP 37 million (approximately $50 million based on the spot rate at the date of acquisition).

Cash flows from investing and financing activities for the nine months ended September 30, 2017

Financing and Other Capital Activities
During the first nine months of 2017, the Company declared and paid a $5 million cash dividend to its common shareholders.
During the first nine months of 2017, White Mountains repurchased and retired 832,725 of its common shares for $724 million, which included 10,993 for $9 million under employee benefit plans for statutory withholding tax payments.
During the first nine months of 2017, White Mountains borrowed and repaid $350 million under the WTM Bank Facility.
During the first nine months of 2017, BAM received $26 million in surplus contributions from its members.
During the first nine months of 2017, MediaAlpha paid $2 million of dividends, of which $1 million was paid to White Mountains.
During the first nine months of 2017, MediaAlpha borrowed $11 million and repaid $2 million under the MediaAlpha Bank Facility and repaid $13 million under the Previousprevious MediaAlpha Bank Facility.
During the first nine months of 2017, Wobi borrowed ILS 43 million (approximately $12 million) from White Mountains under an internal credit facility.
During the first nine months of 2017, White Mountains received $45 million of dividends from OneBeacon.

Acquisitions and Dispositions
On August 1, 2017, White Mountains purchased 37,409 newly-issued preferred shares of Buzzmove for GBP 4 million (approximately $5 million based upon the foreign exchange spot rate at the date of acquisition) and 5,808 common shares from the company founders for GBP $0.5 million (approximately $0.7 million based upon the foreign exchange spot rate at the date of acquisition).
On September 28, 2017, OneBeacon closed its definitive merger agreement with Intact and White Mountains received proceeds of $1,299 million, or $18.10 per OneBeacon common share.

Cash flows from investing and financing activities for the nine months ended September 30, 2016
Financing and Other Capital Activities
During the first nine months of 2016, the Company declared and paid a $5 million cash dividend to its common shareholders.
During the first nine months of 2016, White Mountains repurchased and retired 1,081,337 of its common shares for $867 million, which included 8,022 common shares for $6 million under employee benefit plans for statutory withholding tax payments.
During the first nine months of 2016, White Mountains borrowed a total of $350 million and repaid a total of $400 million under the WTM Bank Facility.
During the first nine months of 2016, HG Global raised $6 million of additional capital through the issuance of preferred shares, 97% of which were purchased by White Mountains. HG Global used $3 million of the proceeds to repay and cancel an internal credit facility with White Mountains.
During the first nine months of 2016, BAM received $28 million in surplus contributions from its members.
During the first nine months of 2016, MediaAlpha paid $2 million of dividends, of which $1 million was paid to White Mountains.
During the first nine months of 2016, MediaAlpha borrowed $3 million under the Previous MediaAlpha Bank Facility.
During the first nine months of 2016, White Mountains contributed $15 million to WM Advisors.
During the first nine months of 2016, White Mountains received $45 million of dividends from OneBeacon.

Acquisitions and Dispositions
On January 7, 2016, Wobi settled its acquisition of the remaining share capital of Cashboard for NIS 16 million (approximately $4 million based upon the foreign exchange spot rate at the date of acquisition).
On February 1, 2016, Symetra closed its definitive merger agreement with Sumitomo Life and White Mountains received proceeds of $658 million, or $32.00 per Symetra common share.
On February 26, 2016, White Mountains paid $8 million in settlement of the contingent purchase adjustment for its acquisition of MediaAlpha in 2014.
On April 18, 2016, White Mountains completed the sale of Sirius Group to CMI for approximately $2.6 billion. $162 million of this amount was used to purchase certain assets to be retained by White Mountains out of Sirius Group, including shares of OneBeacon.
On April 27, 2016, White Mountains purchased NIS 16 million (approximately $4 million based upon the foreign exchange spot rate at the date of acquisition) of convertible preferred shares of Wobi, increasing its ownership share to 96.5% on a fully converted basis.
On July 21, 2016, White Mountains completed the sale of Tranzact and received net proceeds of $221 million.
On August 4, 2016, White Mountains purchased 110,461 common shares of Buzzmove for GBP 4 million (approximately $5 million based upon the foreign exchange spot rate at the date of acquisition) and 54,172 shares of newly issued convertible preferred shares for GBP 2 million (approximately $3 million based upon the foreign exchange spot rate at the date of acquisition), representing a 70.9% ownership share of Buzzmove on a fully converted basis.

FAIR VALUE CONSIDERATIONS
 
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 substantially all of the investment portfolio, derivative instruments, both exchange traded and over the counter instruments, and reinsurance assumed liabilities associated with variable annuity benefit guarantees. 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 observable prices and other inputs. Where appropriate, assets and liabilities measured at fair value have been adjusted for the effect of counterparty credit risk.

Invested Assets

As of September 30, 20172018, approximately 93%89% of the investment portfolio recorded at fair value was priced based upon quoted market prices or other observable inputs. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries, short-term investments, which include U.S. Treasury Bills and common equity securities. Investments valued using Level 2 inputs include fixed maturity investments, which have been disaggregated into classes, including debt securities issued by corporations, mortgage and asset-backed securities, municipal obligations, and foreign government, agency and provincial obligations. Investments valued using Level 2 inputs also include certain passive exchange traded funds (“ETFs”) that track U.S. stock indices such as the S&P 500 but are traded on foreign exchanges, which management values using the fund manager’s published NAV to account for the difference in market close times. Fair value estimates for investments that trade infrequently and have few or no observable market prices 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, equity securities and other long-term investments where quoted market prices are unavailable or are not considered reasonable. Transfers between levels are based on investments held as of the beginning of the period.

White Mountains uses brokers and outside pricing services to assist in determining fair values. For investments in active markets, White Mountains uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services White Mountains uses have indicated that they will only provide prices where observable inputs are available. 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 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 on an ad-hoc basis throughout the year. Prices provided by the pricing services that vary by more than 5% and $1.0$0.5 million from the expected price based on these assessment procedures are considered outliers. Also considered outliers 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, it relies upon its own 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. For more detail on the techniques and inputs specific to asset classes within White Mountains’s fixed maturity investments, see investments. SeeNote 3 — “Investment Securities.”
Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect White Mountains’s assumptions that market participants would use in valuing the investment. Generally, certain 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.
White Mountains employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing periodic and audited annual financial statements of hedge funds and private equity funds and discussing each fund’s pricing with the fund manager throughout the year. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable. The fair value of White Mountains’s investments in hedge funds and private equity funds has generally been determined using the fund manager’s NAV.


NON-GAAP FINANCIAL MEASURES

This report includes sixfour non-GAAP financial measures (i) adjusted book value per share, (ii) percentage change in adjusted book value per share for the third quarter of 2017, which includes the estimated gain from the OneBeacon Transaction as if it had closed on June 30, 2017, (iii) adjusted capital, (iv) return on common equity securities and other long-term investments including high-yield fixed maturity investments, (v) return on fixed maturity investments excluding high-yield fixed maturity investments and (vi) earnings before interest, taxes, depreciation and amortization ("EBITDA"), that have been reconciled fromwith their most comparable GAAP financial measures.

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. Beginning in 2017, the GAAP book value per share numerator has been adjusted (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 Notessurplus notes and (ii) to add back the unearned premium reserve, net of deferred acquisition costs, at HG Global. In addition, the number of common shares outstanding used in the calculation of adjusted book value per share are adjusted to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized. The calculation of adjusted book value per share also includes the dilutive effects of outstanding non-qualified options for periods prior to January 20, 2017, the expiration date of the non-qualified options.

Beginning in the second quarter of 2017, in its calculation of adjusted book value per share, White Mountains has included 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. Under GAAP, White Mountains is required to carry the BAM Surplus Notes,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 surplus notes, the present value of the BAM Surplus Notes,surplus notes, including accrued interest, iswas estimated to be $172$151 million, $155 million, $162 million and $167 million less than the nominal GAAP carrying values as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017. White Mountains has also included the2017, respectively. The value of HG Global’s unearned premium reserve, net of deferred acquisition costs.costs, was $94 million, $93 million, $82 million and $71 million as of September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, respectively. White Mountains believes these adjustments are useful to management and investors in analyzing the intrinsic value of HG Global, including the intrinsic value of the surplus notes and the value of the in-force business at HG Re, HG Global’s reinsurance subsidiary’s (HG Re’s) in-force business.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 53.42.

Gross written premiums and MSC from new business is a non-GAAP financial measure, which is derived by adjusting gross written premiums (i) to add MSC (ii) to include the present value of future installment MSC not yet collected and (iii) to exclude the impact of gross written premium adjustments related to policies closed in prior periods. White Mountains believes these adjustments are useful to investors in evaluating the pricing of new business closed during the period. The growth in adjusted book value per sharereconciliation of GAAP gross written premiums to gross written premiums and MSC from new business is included on page 53 reflects the estimated gain from the OneBeacon Transaction as if it had been calculated and realized on June 30, 2017. A reconciliation from GAAP to the reported percentage is as follows:
  
As of
September 30, 2017
 
As of
June 30, 2017
 Growth %
GAAP book value per share $925.04
 $791.61
 16.9%
Estimated gain from OneBeacon Transaction as of June 30, 2017 —
 116.00
  
GAAP book value per share including the estimated gain from the
 OneBeacon Transaction as of June 30, 2017
 925.04
 907.61
 1.9%
Adjustments to book value per share (see reconciliation on page 53) (19.32) (17.84)  
Adjusted book value per share including the estimated
     gain from the OneBeacon Transaction as of June 30, 2017
 $905.72
 $889.77
 1.8%
48.

Adjusted EBITDA is a non-GAAP financial measure, which is defined as net income (loss) excluding interest expense on debt, income tax benefit (expense), depreciation and amortization, and certain adjustments at NSM and MediaAlpha. In the case of NSM, adjusted EBITDA also excludes the change in the fair value of NSM’s contingent consideration earnout liabilities related to prior transactions. In the case of MediaAlpha, adjusted EBITDA also excludes non-cash equity-based compensation expense. White Mountains believes that adjusted EBITDA is useful to management and investors in analyzing NSM’s and MediaAlpha’s fundamental economic performance. White Mountains believes that investors commonly use adjusted EBITDA as a supplemental measurement to evaluate the overall operating performance of companies within the same industry. See page 52 for the reconciliation of NSM’s GAAP net income (loss) to adjusted EBITDA and page 53 for the reconciliation of MediaAlpha’s GAAP net income (loss) to adjusted EBITDA.
Total capital at White Mountains is comprised of White Mountains’s common shareholders’ equity, debt and non-controlling interests other than non-controlling interests attributable to mutuals and reciprocals.mutuals. 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.


In the third quarter of 2016, White Mountains purchased high-yield fixed maturity investments, which are U.S. dollar denominated publicly traded and 144A debt securities issued by corporations with generally at least one rating between “B-” and “BB+” inclusive by S&P or similar ratings from other rating agencies. Given the risk profile of these investments, the returns on high-yield fixed maturity investments have been included with the returns on common equity securities and other long-term investments and excluded from the returns on fixed income investments. A reconciliation of GAAP returns to the reported returns are as follows:

  September 30, 2017
  Three Months Ended Nine Months Ended
  GAAP return 
Impact of high-yield fixed maturity investments (1)
 Reported return GAAP return 
Impact of high-yield fixed maturity investments (1)
 Reported return
Common equity securities and other long-term investment returns 2.6
% (0.2)% 2.4
% 9.0
% (0.4)% 8.6
%
Fixed income investment returns 1.0
% (0.1)% 0.9
% 3.0
% (0.3)% 2.7
%
(1) High-yield fixed maturity investments returned 1.7% and 7.1% for the third quarter and first nine months of 2017.

In the second quarter of 2017, MediaAlpha became a reportable segment, and White Mountains has included MediaAlpha’s EBITDA calculation as a non-GAAP financial measure. EBITDA is defined as net income (loss) excluding interest expense on debt, income tax benefit (expense), depreciation and amortization. White Mountains believes that this non-GAAP financial measure is useful to management and investors in analyzing MediaAlpha’s economic performance without the effects of interest rates, levels of debt, effective tax rates, depreciation and amortization resulting from purchase accounting. In addition, White Mountains believes that investors use EBITDA as a supplemental measurement to evaluate the overall operating performance of companies within the same industry. See page 63 for the reconciliation of MediaAlpha’s GAAP net income to EBITDA.59.

CRITICAL ACCOUNTING ESTIMATES
As described in White Mountains’s Annual Report on Form 10-K for the year ended December 31, 2016 under “CRITICAL ACCOUNTING ESTIMATES”, the determination of the recoverability of the BAM Surplus Notes is based on a debt service model that forecasts operating results for BAM through maturity of the BAM Surplus Notes. In its most recent update of this model, White Mountains has (1) reflected the impact of the changes to the terms of the BAM Surplus Notes on expected future payments and (2) made more conservative assumptions about BAM’s future operating results, specifically forecasted increases in annual par insured volume and total premium rates.  As a result, although the model continues to project that BAM can begin making payments on the BAM Surplus Notes in 2019, White Mountains now projects that the BAM Surplus Notes will be fully repaid approximately eight years prior to final maturity, which is seven years later than projected under the previous forecast.
Refer to the Company’s 20162017 Annual Report on Form 10-K for a complete discussion regarding White Mountains’s critical accounting estimates.


FORWARD-LOOKING STATEMENTS
 
This report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this report which address activities, events or developments which White Mountains expects or anticipates will or may occur in the future are forward-looking statements. The words “will”, “believe”, “intend”, “expect”, “anticipate”, “project”, “estimate”, “predict” and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains’s:
 
changes in adjusted book value per share or return on equity;
business strategy;
financial and operating targets or plans;
incurred loss and loss adjustment expenses and the adequacy of its loss and loss adjustment expense reserves and related reinsurance;
projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;
expansion and growth of its business and operations; and
future capital expenditures.
 
These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform with its expectations and predictions is subject to risks and uncertainties that could cause actual results to differ materially from expectations, including:
 
the risks associated with Item 1A ofthat are described from time to time in White Mountains’s 2016filings with the Securities and Exchange Commission, including but not limited to White Mountains’s Annual Report on Form 10-K;10-K for the fiscal year ended December 31, 2017;
claims arisingbusiness opportunities (or lack thereof) that may be presented to it and pursued;
actions taken by ratings agencies from catastrophic events,time to time, such as hurricanes, earthquakes, floods, fires, terrorist attacksfinancial strength or severe winter weather;credit ratings downgrades or placing ratings on negative watch;
the continued availability of capital and financing;
general economic, market or business conditions;
business opportunities (or lack thereof) that may be presented to it and pursued;
competitive forces, including the conduct of other property and casualty insurers and reinsurers;insurers;
changes in domestic or foreign laws or regulations, or their interpretation, applicable to White Mountains, its competitors or its customers;
an economic downturn or other economic conditions adversely affecting its financial position;
recorded loss reserves subsequently proving to have been inadequate;
actions taken by ratings agencies from time to time, such as financial strength or credit ratings downgrades or placing ratings on negative watch; and
other factors, most of which are beyond White Mountains’s control.
 

Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, White Mountains or its business or operations. White Mountains assumes no obligation to publicly update any such forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Refer to White Mountains’s 20162017 Annual Report on Form 10-K and in particular Item 7A. - “Quantitative and Qualitative Disclosures About Market Risk”. 


Item 4.
Controls and Procedures.
 
The Principal Executive Officer (“PEO”) and the Principal Financial Officer (“PFO”) of White Mountains have evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the PEO and PFO have concluded that White Mountains’s disclosure controls and procedures are effective.
There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 20172018.

Part II.OTHER INFORMATION
 
Item 1.
Legal Proceedings.
 
None.

Item 1A. Risk Factors.
 
There have been no material changes to any of the risk factors previously disclosed in the Registrant’s 20162017 Annual Report on Form 10-K.


Item 2.Issuer Purchases of Equity Securities.

Months 
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of Shares 
Purchased as Part of 
Publicly Announced Plan (1)
 
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan (1)
July 1-July 31, 2017 235,000
 $850.00
 235,000
 643,130
August 1-August 31, 2017 —
 $—
 —
 643,130
September 1-September 30, 2017 586,842
 $877.44
 —
 643,130
Total 821,842
 $869.60
 235,000
 643,130
Months
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares 
Purchased as Part of 
Publicly Announced Plans (1)
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans (1)
July 1-July 31, 2018—
$—
—
643,130
August 1-August 31, 2018—
$—
—
643,130
September 1-September 30, 2018—
$—
—
643,130
Total—
$—
—
643,130
(1) 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.

Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4.Mine Safety Disclosures.

None.
 
Item 5.
Other Information.
 
None.
 

Item 6.
Exhibits.
(a) Exhibit number   Name
  2
10
 —
 
Second Amended and Restated Investment Management Agreement,Plan of Reorganization (incorporated by reference herein to the Company’s Registration Statement on S-4 (No. 333-87649) dated asSeptember 23, 1999)
3.1
—
Memorandum of September 28, 2017, by and between White Mountains Advisors LLC and OneBeacon Insurance Group, Ltd.Continuance of the Company (incorporated by reference herein to Exhibit 10.1(3)(i) of the Company'sCompany’s Current Report on Form 8-K dated September 28,November 1, 1999)
3.2
—
Amended and Restated Bye-Laws of the Company (incorporated by reference herein to Exhibit 3 of the Company’s Report on Form 10-Q dated May 2, 2017)
  10
—
Credit Agreement Dated as of May 11, 2018 among NSM Insurance Group, LLC, as the Borrower, NSM Insurance Holdco, LLC, as Holdings, Ares Capital Corporation, as Administrative Agent, and the Lenders and L/C Issuers Party Hereto from Time to Time (incorporated by reference herein to Exhibit 10 of the Company’s Report on Form 10-Q dated August 7, 2018)
11
 —
 
Statement Re Computation of Per Share Earnings. **
  31.1
 —
 
Principal Executive Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934, as Amended. *
  31.2
 —
 
Principal Financial Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934, as Amended. *
  32.1
 —
 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
  32.2
 —
 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
  101
 —
 The following financial information from White Mountains’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20172018 formatted in XBRL: (i) Consolidated Balance Sheets, September 30, 20172018 and December 31, 2016;2017; (ii) Consolidated Statements of Operations and Comprehensive Income, Three and Nine Months Ended September 30, 20172018 and 2016;2017; (iii) Consolidated Statements of Changes in Equity, Nine Months Ended September 30, 20172018 and 2016;2017; (iv) Consolidated Statements of Cash Flows, Nine Months Ended September 30, 20172018 and 2016;2017; and (v) Notes to Consolidated Financial Statements. *
*Included herein
**
Not included as an exhibit as the information is contained elsewhere within this report. See Note 9 — “Earnings Per Share” of the Notes to Consolidated Financial Statements.

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   WHITE MOUNTAINS INSURANCE GROUP, LTD.
   (Registrant)
     
Date:November 8, 20175, 2018  By: /s/ J. Brian Palmer
    J. Brian Palmer
    Managing Director and Chief Accounting Officer

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