White Mountains Insurance Group, Ltd. · NYSE:WTM
White Mountains Insurance — Investor Presentation (June 2022)
56 slides from White Mountains Insurance's investor presentation, June 2022
Slide 1: Annual Investor Presentation
White Mountains Insurance Group, Ltd. Annual Investor Presentation
Slide 2: Forward-Looking Statements
Forward-Looking Statements Forward-Looking Statements This presentation 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
Slide 3: Notes and Non-GAAP Financial Measures
Notes and Non-GAAP Financial Measures Notes Management has adjusted certain amounts within this presentation. Management believes the adjusted amounts to be useful to management and investors in depicting and evaluating White Mountains's financial condition and performance. The adjusted amounts are
Slide 4: Introductions
Introductions WTM board of directors WTM senior team Operating company senior teams 3
Slide 5: Developments in 1H22
Developments in 1H22
Slide 6: Key Developments in 1H22
Key Developments in 1H22 Executed three significant and value-adding transactions in 1H22: – Announced sale of NSM to Carlyle – Closed and funded HG Global senior debt facility – Closed and funded Kudu equity raise with MassMutual Total ABVPS gain of ~$282 Total net proceeds of $1.4 billion
Slide 7: Sale of NSM
Sale of NSM On May 9, WTM announced sale of NSM to Carlyle; expect to close in 3Q22 Transaction values NSM at $1.775 billion Caps successful investment in NSM: – Fair entry price – Strong management team and alignment – Healthy organic growth – Six “specialty rollup” transactions – Multiple ex
Slide 8: HG Global Senior Debt Facility
HG Global Senior Debt Facility On April 29, HG Global funded a new $150 million senior debt facility – Investment grade rated (BBB/Kroll) – Lenders are Hudson Structured and Security Benefit $120 million of net proceeds distributed to HG Global shareholders ($116 million to WTM) Important tran
Slide 9: Kudu Minority Equity Raise
Kudu Minority Equity Raise On May 26, Kudu closed and funded a $114 million equity capital raise – MassMutual contributed $64 million in exchange for a 9.9% common equity stake – WTM contributed $50 million pari passu Pre-money valuation = 1.3x (or $114 million above) 4Q21 book value of Kudu’s g
Slide 10: Impact of 1H22 Transactions
Impact of 1H22 Transactions ABVPS Undeployed Capital $ in millions [1] [2] 9
Slide 11: Distributions, Deployments and Undeployed Capital
Distributions, Deployments and Undeployed Capital $4.0 $3.5 $3.5 $3.5 $3.3 $3.3 $3.0 $2.5 $2.2 $ in billions $2.0 $1.8 $1.7 $1.5 $1.0 $1.0 $0.5 $0.0 $0.0 1Q17 [3] 2017 2018 2019 2020 [4] 2021 1Q22A 1Q22 PF [2] Capital distributions, cumulative New capital deployments, cumulative Undeployed capital 1
Slide 12: Financial Position
Financial Position Pro forma total capital of $5.2 billion, mostly in common shareholders’ equity – No financial leverage at parent – Prudent financial leverage at opcos: Kudu, Ark, HG Global – Pro forma consolidated debt to total capital of 11% Pro forma undeployed capital [2] of $1.7 billion,
Slide 13: Year in Review
Year in Review
Slide 14: Performance Recap
Performance Recap 2019 to Year ended 1Q22 PF 2019 2020 2021 1Q22 PF Annualized Growth in ABVPS 14.8% 24.2% -5.7% 24.9% 17.3% Growth in MVPS [5] 30.2% -10.2% 1.4% 22.9% 12.3% 13
Slide 15: Recent Returns in Context
Recent Returns in Context YTD May 31, Book value returns 2021 Market value returns 2021 2022 WTM ABVPS -5.7% WTM 1.4% 22.9% WTM ABVPS, Excluding MAX 4.3% Dowling & Partners Composite [7] 7.8% n/a Dowling & Partners Composite TVC [6] 5.8% S&P 500 28.7% -12.8% S&P P&C Insurance Total Return 19.3% 14.4
Slide 16: Operating Businesses
Operating Businesses
Slide 17: Owners' Capital Per Share at the End of 1Q22
Owners’ Capital Per Share at the End of 1Q22 [8] 1Q22 1Q22 PF Strategic Undeployed capital investments $95 & other $79 Other operating businesses $36 Elementum HG Global $15 HG Global $251 $290 PC/DS $42 Undeployed capital Ark MediaAlpha $571 $221 $94 Ark $221 NSM Kudu $157 Strategic $177 Kudu inves
Slide 18: Key Businesses Going Forward
Key Businesses Going Forward Initial WTM Management ABV [8] Company Per share [8] ($) investment year ownership [9] ownership [9] ($ in millions) 2012 97% 3% $745 $251 2021 63% 37% 656 221 2018 76% 16% 526 177 2014 25% 33% 280 94 2015 54% 46% 125 42 2019 30% 70% 45 15 17
Slide 19: HG Global / BAM: Overview
HG Global / BAM: Overview Financial guarantor, insuring essential public purpose municipal bonds BAM is a mutual company owned by its municipality policyholders HG Re is a stock company owned by WTM; provides first-loss reinsurance to BAM WTM economics come in two forms: – Surplus note inter
Slide 20: HG Global / BAM: Recent Results
HG Global / BAM: Recent Results Total premiums [10] of $118 million in 2021 – Second-best year on record, trailing only 2020 – Par insured hit all-time high of $17.5 billion (up 1% YOY) – Total pricing [10] declined to 0.67%; risk-adjusted pricing remained above target Five years of increasing r
Slide 21: HG Global / BAM: Market Environment
HG Global / BAM: Market Environment Year ended ($ in billions) 2019 2020 2021 1Q22 Total new municipal bond issuance $ 407 $ 459 $ 458 $ 97 Insured penetration, overall 6% 8% 8% 8% Insured penetration, target market 18% 27% 27% 26% BAM market share (transactions) 53% 56% 53% 58% 10YT (period end) 1.
Slide 22: HG Global / BAM: Financial Snapshot
HG Global / BAM: Financial Snapshot Year ended ($ in millions, except where stated) 2019 2020 2021 1Q22 Par insured ($ in billions) $ 12.8 $ 17.3 $ 17.5 $ 3.5 Total pricing [10] 83 bps 76 bps 67 bps 63 bps Primary + surety 53 bps 59 bps 57 bps 45 bps Secondary and assumed reinsurance 219 bps 197 bps
Slide 23: Ark: Overview
Ark: Overview Specialized P&C (re)insurance business Founded in 2007 by Ian Beaton and Nick Bonnar Writes five major lines of business: property, specialty, marine & energy, A&H and casualty Business written via: – Lloyd’s Syndicates 4020 and 3902 – Bermuda-based reinsurer Group Ark Insuranc
Slide 24: Ark: Relative Performance
Ark: Relative Performance 2012-2021 Profitability and Volatility [11] Less Profitable More Profitable QBE 386 Newline ERS 218 Hamilton 1218 Atrium 609 HCC 4141 4000 Less Volatile Aegis 1225 Arch 1955 ARK 4020 Antares 1274 Liberty Chaucer Ascot 1414 4472 1084 Munich Re Brit Beazley CNA Hardy 457 2987
Slide 25: Ark: Recent Results
Ark: Recent Results Strong execution of “scale-up” plan – Signed and closed WTM transaction – Licensed and staffed a Class IV Insurer in Bermuda – Received A.M. Best rating of “A/stable” (highest in “Class of 2020”) – Optimized capital structure; issued $163 million of subordinated debt Strong r
Slide 26: Ark: Financial Snapshot
Ark: Financial Snapshot 101% $1,400 98% 98% 100% $1,287 85% $1,200 $1,059 80% Gross Written Premiums ($ in millions) $1,000 Adjusted Combined Ratio [12] 60% $800 $598 $600 $472 40% $400 20% $200 $- 0% 2019 2020 2021 1Q22 TTM Property Specialty Marine & Energy A&H Casualty Adjusted Combined Ratio 25
Slide 27: Kudu: Overview
Kudu: Overview [13] Provides capital solutions and advisory services to boutique asset and wealth managers – Generational ownership transfers – Management buyouts – Acquisition and growth finance – Legacy partner liquidity Deals typically structured as revenue shares: healthy running cash yield
Slide 28: Kudu: Recent Results
Kudu: Recent Results Strong 2021 results – Annualized Adjusted EBITDA [14] of $48 million – Levered Return of 11% – Total portfolio fair value up 18% YOY on a same store basis Deployed $225 million into four new deals and two follow-ons Closed $300 million investment grade-rated debt facility
Slide 29: Kudu: Financial Snapshot
Kudu: Financial Snapshot $1,000 11% 12% 11% $872 $872 11% $900 10% $800 $713 9% $692 Total Capital, net [15] ($ in millions) $700 8% 8% $600 7% Levered Return 7% $500 6% $424 5% $400 $290 4% $300 3% $200 2% $100 1% $- 0% 2019 2020 2021 1Q22 1Q22 PF 1Q22 PF (Gramercy) [16] Annualized Adjusted $21 $29
Slide 30: MediaAlpha: Overview
MediaAlpha: Overview Online customer acquisition technology company (NYSE: MAX) Industry-leading marketplaces for real-time transactions across clicks, calls and leads Multiple verticals, including P&C, health and life insurance Fee-based economic model: percentage taken from all marketplace
Slide 31: MediaAlpha: Recent Results
MediaAlpha: Recent Results MAX share price declined during 2021 unrealized mark-to-market loss of ~$400 million – Sharp turn in underwriting cycle caused pullback in auto carrier ad spend Solid 2021 results despite this pullback – Transaction Value exceeded $1 billion, a new record high and up
Slide 32: MediaAlpha: Financial Snapshot
MediaAlpha: Financial Snapshot $1,019 $65 $996 $1,000 $58 $60 $900 $58 $55 $816 $800 $50 Adjusted EBITDA ($ in millions) $43 $49 Transaction Value ($ in millions) $45 $700 $40 $600 $560 $32 $35 $500 $30 $396 $400 $25 $20 $300 $219 $175 $15 $200 $150 $101 $10 $11 $100 $38 $5 $6 $7 $7 $0 $1 $0 2013 20
Slide 33: PassportCard / DavidShield: Overview
PassportCard / DavidShield: Overview Offers travel and expat medical insurance Delivers coverage and services in 200+ territories around the world Real-time, paperless insurance solution, delivered via debit card technology Superior customer experience, premium pricing and high reactivation
Slide 34: PassportCard / DavidShield: Recent Results
PassportCard / DavidShield: Recent Results Directly impacted by the COVID-19 pandemic Bounceback results in 2021, driven by the resumption of leisure travel – Core premiums of $108 million (up 77% YOY) ● Travel premiums of $54 million (up 360% YOY) ● Expat medical premiums of $54 million (up 8%
Slide 35: PassportCard / DavidShield: Financial Snapshot
PassportCard / DavidShield: Financial Snapshot $180 $20 $160 $154 $154 $18 $132 $17 $16 $140 Controlled Premiums ($ in millions) $16 $125 Core EBITDA ($ in millions) $14 $120 $14 $14 $107 $12 $100 $79 $10 $80 $10 $75 $8 $60 $55 $6 $6 $6 $40 $4 $20 $2 $2 $0 $- 2015 2016 2017 2018 2019 2020 2021 1Q22
Slide 36: Elementum: Overview
Elementum: Overview One of the largest independent managers of insurance-linked securities (ILS) Manages portfolios of natural catastrophe event risk on behalf of institutional investors Accesses risk via a range of instruments: – Catastrophe bonds – Collateralized reinsurance investments – Pr
Slide 37: Elementum: Recent Results
Elementum: Recent Results Flattish results in 2021 – AUM decreased 3% to $4.2 billion – Adjusted EBITDA roughly flat at $13 million – WTM received cash dividends of $3.6 million cash yield of 7% – Our investments in the Elementum funds produced a blended return of +0.8% Flattish start to 2022
Slide 38: Investment Portfolio
Investment Portfolio
Slide 39: Investments: Philosophy and Approach
Investments: Philosophy and Approach Invest for total return Investment decisions take into account broader capital position and corporate needs Low equity exposure currently given: – Limited undeployed capital at parent (will change when NSM sale is closed) – Limited equity capacity at core b
Slide 40: Investments: Mandates
Investments: Mandates Total Portfolio [17] Mandate 1Q22 Current position Objectives Ark $1.6 billion ▪ Fixed income ▪ Preserve capital ▪ Equities and alternatives ▪ Meet insurance obligations ▪ Manage for total return HG Re $0.5 billion ▪ Fixed income ▪ Preserve claims paying resources and liquidity
Slide 41: Investments: Composition
Investments: Composition [17] As of March 31, 2022 ($ in millions) Ark HG Re Parent Consolidated Fixed Income $ 1,252 $ 466 $ 393 $ 2,111 Equities and Alternatives 332 - 166 498 Total Portfolio $ 1,584 $ 466 $ 559 $ 2,609 Fixed income duration (years) 1.4 4.0 2.8 2.3 Fixed income credit quality A AA
Slide 42: Investments: Performance
Investments: Performance [18] Year ended 2020 2021 1Q22 Total Portfolio Return 3.5% 2.3% -0.3% ICE BofAML 10YT + 150 bps 12.1% -2.2% -6.4% Conventional Wisdom Benchmark [19] 9.5% 2.6% -5.7% Fixed Income Return 4.8% -0.4% -2.4% BBG Intermediate U.S. Aggregate Index 5.6% -1.3% -4.7% Equity and Alterna
Slide 43: What to Expect
What to Expect
Slide 44: What to Expect from Us
What to Expect from Us More of the same Focused on growing per share values over long periods of time Not focused on near-term GAAP results Adhering to our core operating principles: – Underwriting comes first – Maintain a disciplined balance sheet – Invest for total return – Think like owne
Slide 45: Wise Words…
Wise Words… Return periods ended March 31, 2022 Since WTM 1-year 5-year 10-year 20-year IPO (1985) WTM - ABVPS PF 19.8% 13.5% 10.3% 10.5% 13.7% WTM - MVPS [5] 11.7% 7.3% 9.6% 7.1% 12.0% S&P 500 15.7% 16.0% 14.6% 9.3% 11.5% S&P P&C Insurance Total Return [20] 28.9% 15.4% 17.1% 9.2% 9.9% 44
Slide 46: Track Record
Track Record Kudu and NSM $1,486* Acquisitions $1,245* $1,050 Sale of Esurance OneBeacon IPO & AFI Symetra NSM Sale IPO Announced OneBeacon Build Ark Acquisition America Acquisition Mutual (BAM) & Answer Launch MAX IPO $280 Financial (AFI) Sales of OneBeacon, Acquisition Sirius Group, Sirius Symetra
Slide 47: Appendices
Appendices 1. Notes (p. 47) 2. Non-GAAP Financial Measures (p. 48)
Slide 48: Notes
Notes 1. 1Q22 undeployed capital figure includes (i) $58 million of investment receivables, less (ii) $50 million commitment to Kudu. 2. 1Q22 PF amount is adjusted to include the impact of 1H22 transactions, namely (i) the announced sale of NSM, (ii) dividends in connection with the new HG Global se
Slide 49: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP book value per share ("BVPS") to adjusted book value per share ("ABVPS") and growth in ABVPS to growth in ABVPS, Excluding MAX ($ millions, except per share amounts; shares in thousands) 2019 2020 2021 1Q22A 1Q2
Slide 50: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Comparison of GAAP book value per share ("BVPS") return to adjusted book value per share ("ABVPS") returns Return periods ended March 31, 2022 Since WTM 1-year 5-year 10-year 20-year IPO (1985) WTM - BVPS -3.8% 8.5% 7.9% 9.3% 13.0% WT
Slide 51: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP book value and GAAP book value per share allocation of capital to ABV and ABVPS allocation of capital ($ millions, except per share amounts) 1Q22 Actual 1Q22 Pro Forma 1Q22 Owners' Capital Per Share Reclass UDC
Slide 52: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of Ark's GAAP loss and loss adjustment expense ratio, insurance acquisition expense ratio, other underwriting expense ratio and combined ratio to their Adjusted Ratios Year Ended December 31, 2021 Quarter Ended March 31
Slide 53: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliations of Kudu TTM GAAP net income to Kudu TTM Annualized Adjusted EBITDA and return on requity to Levered Return Trailing Twelve Months Ended ($ millions) 4Q20 4Q21 1Q22 TTM GAAP net income [a] $ 21 $ 78 $ 93 Add back: Inter
Slide 54: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP fixed maturity and short-term investments to Fixed Income and GAAP common equity securities, investment in MediaAlpha and other long-term investments to Equities (Total Portfolio equals the sum of Fixed Income a
Slide 55: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP common equity securities, investment in MediaAlpha and other long term investments to Equities and Equity Exposure ($ millions) 1Q22 Numerator GAAP common equity securities, investment in MediaAlpha and other lo
Slide 56: Non-GAAP Financial Measures
Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP investment returns to Total Return on Investment Portfolio, Fixed Income Return and Equity Return (returns in USD) 2020 2021 1Q22 GAAP total return on investment portfolio 31.9% -3.4% 0.8% Adjusting items Remove
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