White Mountains Insurance Group, Ltd. · NYSE:WTM
White Mountains Insurance — Investor Presentation (June 2007)
42 slides from White Mountains Insurance's investor presentation, Jun 8, 2007
Slide 1: White Mountains Insurance Group, Ltd. Investors Presentation
White Mountains Insurance Group, Ltd. Investors Presentation June 8, 2007
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain information and statements included in this presentation are not historical facts but are forward-looking statements. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remark
Slide 3: Financial Highlights
Financial Highlights ($ in millions, except per share values) 2006 1Q07 Adjusted comprehensive net income $734 $103 Fully diluted tangible book value per share $406 $415 21% 3% OneBeacon GAAP combined ratio 96% 98% WMRe GAAP combined ratio 102% 99% Esurance NWP (*5/07 TTM) $600 Esurance economic com
Slide 4: Our Track Record
Our Track Record White Mountains Returns From IPO in 1985 Market Value Per Share: 18% annualized, including dividends Fully Diluted TBV Per Share: 17% annualized, including dividends Spin-off of White River Corporation As of June 7, 2007 (1) $587 (2) $415 $22 $25.75 $0 $100 $200 $300 $400 $500 $600
Slide 5: The WTM Advantage
The WTM Advantage Bermuda/Non-U.S. structure 20% annual growth in fully diluted TBV per share, including dividends, since 1999 re-domestication Focus on real value creation 15% IRR on White Mountains Re 1996-2006 (1.2x book value) 18% IRR on Montpelier Re 2001-2007 20% IRR on OneBeacon 2001-2006 (ma
Slide 6: The WTM Advantage - Diversified Businesses
OneBeacon ($2.0 billion of regulatory capital) Specialty Regional/ Reciprocals. Esurance ($0.4 billion of capital, mostly inside WMRe) Online personal auto Referral fees Galileo Weather White Mountains Re ($2.6 billion of regulatory capital, including capital supporting Esurance) Folksamerica Sirius
Slide 7: The WTM Advantage: OneBeacon
The WTM Advantage: OneBeacon Acquired from Bermuda for $2.1 billion in 2001 Combined ratio from 120% in 2000 to 96% in 2006 Transformed to specialty company Small runoff with A&E cover Capital distributions of $1.8 billion, 2001-2006 Freed-up capital invested in reinsurance post-9/11 IPO’d at 1.5x b
Slide 8: OneBeacon
OneBeacon Bermuda-based specialty property and casualty insurer Specialty Lines - profitable and growing Commercial Lines - strong new business and retention Personal Lines - net written premium declining (primarily AutoOne), retention and policies-in-force improvement, reciprocal strategy Underwrit
Slide 9: OneBeacon Segment Results
OneBeacon Segment Results Net Written Premium ($ millions) GAAP Combined Ratio 107% 98% 99% 98% 96% 70% 75% 80% 85% 90% 95% 100% 105% 110% 2002 2003 2004 2005 2006 $2,523 $1,973 $2,459 $2,121 $1,958 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2002 2003 2004 2005 2006
Slide 10: The WTM Advantage: White Mountains Re
The WTM Advantage: White Mountains Re Acquired Folksamerica Re (50% in 1996, remainder in 1998) 12 transactions since: Ten solid exit visas One bad acquisition - Risk Capital Re One great acquisition - Sirius International Significant capital invested in property cat reinsurance post-9/11 Good retur
Slide 11: White Mountains Re
White Mountains Re 15th largest global reinsurer $2.6 billion of regulatory capital $1.6 billion of annual gross written premium excluding Esurance White Mountains Re Bermuda Formed 1980; 100% owned since 1998 Regulatory capital of $1.2 billion $1.0 billion in GWP during 2006 Formed 1945; acquired 2
Slide 12: White Mountains Re Segment Results
White Mountains Re Segment Results Net Written Premium ($ millions) GAAP Combined Ratio 102% 96% 104% 118% 102% 70% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 2002 2003 2004 2005 2006 $688 $886 $1,246 $1,304 $1,290 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 2002 2003 2004 2005 2006
Slide 13: White Mountains Re Segment Results
White Mountains Re Segment Results Net Income Return on Equity $ millions $0 $50 $100 $150 $200 $250 $300 2002 2003 2004 2005 2006 -5% 0% 5% 10% 15% 20% 2002 2003 2004 2005 2006
Slide 14: White Mountains Re
White Mountains Re Diversified book – geographically and by line of business Bermuda platform U.S. regional & specialty markets Multi-branch local European business Reduced cat exposures Strong financial position Experienced management team Opportunities: Leverage Bermuda platform Enhance integratio
Slide 15: The WTM Advantage - Esurance
The WTM Advantage - Esurance Acquired in 2000 for a $9 million funding commitment Spent additional $53 million to reach breakeven Now owned 100% from Bermuda Economically profitable since 2004 Current GAAP losses due to required expensing of policy acquisition costs over first 6-month policy term Av
Slide 16: Esurance
Esurance Writing business in 27 states (representing 83% of the U.S. personal auto insurance market) Now the 34th largest U.S. personal auto insurer Increasing advertising spend: 2004 - $19 million 2005 - $60 million 2006 - $87 million 1Q07 segment results: 98% economic combined ratio $208 million o
Slide 17: Esurance
Esurance Esurance Auto Quotes Issued (daily average) % of Online Quotes Submitted – 2006* *Source: ComScore 31% 15% 8% 7% 3% 2% 34% 3,361 3,887 4,496 6,473 9,581 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2002 2003 2004 2005 2006
Slide 18: Esurance Segment Results
Esurance Segment Results Net Written Premium ($ millions) Policies-In-Force (000’s) 74 119 212 373 43 0 50 100 150 200 250 300 350 400 2002 2003 2004 2005 2006 $53 $116 $199 $349 $596 $600 $500 $400 $300 $200 $100 $0 2002 2003 2004 2005 2006
Slide 19: Esurance Segment Results
Esurance Segment Results GAAP Combined Ratio Economic Combined Ratio 120% 102% 109% 108% Loss + LAE Other Underwriting Acquisition Loss + LAE Other Underwriting Acquisition 113% 95% 95% 97% 169% 149% 90% 81% 69% 67% 73% 52% 20% 16% 12% 9% 27% 19% 17% 30% 26% 0% 20% 40% 60% 80% 100% 120% 140% 160% 18
Slide 20: New Opportunities
New Opportunities We are seeking value creating transactions and/or businesses In 2006, we did not find pure acquisitions that met our goals (industry profitable, owners happy, excess capital, etc.) Instead we created two new businesses and have invested in a third: - Galileo Weather Risk Management
Slide 21: New Opportunities - WTM Life Re
New Opportunities - WTM Life Re Reinsures variable annuity guarantees outside of U.S. Large reinsurance treaty of in-force business from a leading direct writer of variable annuities in Japan Use capital markets to partially hedge guarantees Pentelia $600 million entity created to invest in an array
Slide 22: Consolidated Capitalization
Consolidated Capitalization (1) Excludes the preferred stock that was economically defeased in conjunction with the OneBeacon IPO (2) Pro forma for the issuance of $250 million fixed/floating non-cumulative perpetual preference shares Pro forma ($ in millions) 2004 2005 2006 1Q07 1Q07 (2) Total debt
Slide 23: Capital Activities
Capital Activities Existing undeployed capital in Bermuda In conjunction with the OneBeacon IPO in November 2006: - Refinanced existing $400 million WTM/OneBeacon credit facility into: $500 million WTM/WMRe credit facility $75 million OneBeacon credit facility - Economically defeased the Berkshire a
Slide 24: Symetra
Symetra Formerly Safeco Life & Investments Acquired August 2, 2004 - WTM & BRK each with 24% fully converted ownership 14% annualized growth in adjusted book value per share, including dividends since closing Paid $100 million special dividend in 2006 Before div Post div ($ in millions, except per s
Slide 25: Consolidated Investments – Pre-tax Total Return
Consolidated Investments – Pre-tax Total Return Investments – Pre-tax Total Return Cumulative 2003 2004 2005 2006 1Q07 Annualized Fixed income 5.7% 5.1% 0.6% 6.5% 1.6% 4.6% Short term investments 1.0% 1.0% 2.6% 5.0% 1.1% 2.5% Common stock 32.2% 18.4% 8.3% 20.1% 3.1% 19.1% Other investments 22.3% 23.
Slide 26: Sector Allocation Driven by Security Selection
Sector Allocation Driven by Security Selection Spread Product Portfolio Allocation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2001 2002 2003 2004 2005 2006 Mar-07 Corporates Mortgage Backed/Asset Backed Securities
Slide 27: Top Ten Aggregated Holdings
Top Ten Aggregated Holdings (1) (1) - Represents the OneBeacon Equity 401k account. Aggregated holdings include all security types combined. (2) - Figures shown are as a % of the total fair market value of the separate account’s investment holdings (including cash). Equities 3/2007 12/2004 12/2002 C
Slide 28: What to Expect
What to Expect Growth in tangible book value per share Commitment to our operating principles underwriting comes first maintain a disciplined balance sheet invest for total return think like owners Prudent capital deployment and active capital management Opportunistic approach to the business
Slide 29: Wise Words
Wise Words “In the short run the market is a voting machine; in the long run it is a weighing machine.” Benjamin Graham
Slide 30: White Mountains Insurance Group, Ltd. Investors Presentation
White Mountains Insurance Group, Ltd. Investors Presentation June 8, 2007
Slide 31: Appendix – Non-GAAP Financial Measures
Appendix – Non-GAAP Financial Measures 1. Adjusted comprehensive net income is a non-GAAP measure that excludes the change in net unrealized gains from Symetra’s fixed maturity portfolio from comprehensive net income. GAAP requires these assets to be marked-to-market, which results in gains during p
Slide 32: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of adjusted comprehensive net income to GAAP comprehensive net income ($ in millions) 2006 1Q07 GAAP comprehensive net income $ 706 $ 109 change in net unrealized gains from 28 (6) Symetra's fixed maturity portfolio adjusted com
Slide 33: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of fully diluted tangible book value per share to GAAP book value per share ($ in millions, except per share amounts, shares in thousands) 2006 1Q07 GAAP common shareholders' equity $ 4,455 $ 4,543 benefits to be received from s
Slide 34: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of Symetra's adjusted common equity to GAAP common shareholders' equity ($ in millions, except per share amounts, shares in thousands) Before div Post div Aug 2004 2005 2006 2006 1Q07 GAAP common shareholders' equity $ 1,065 $ 1
Slide 35: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of adjusted common equity to GAAP common shareholders' equity ($ in millions) Pro forma 2004 2005 2006 1Q07 1Q07 GAAP common shareholders' equity $ 3,884 $ 3,833 $ 4,455 $ 4,543 $ 4,539 convertible preference shares - - - - - le
Slide 36: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 2002 total return before pension 11.4% effect of pension plan return [1] -0.4% pre-tax total return 11.0% Pre-tax Adjusting GAAP total return items return fixed income investments 11.6% 0
Slide 37: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 2003 total return before pension 7.7% effect of pension plan return [1] 0.7% pre-tax total return 8.4% Pre-tax Adjusting GAAP total return items return fixed income investments 5.7% -0.3%
Slide 38: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 2004 total return before pension 7.0% effect of pension plan return [1] 0.3% pre-tax total return 7.3% Pre-tax Adjusting GAAP total return items return fixed income investments 5.1% -0.7%
Slide 39: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 2005 total return before pension 1.8% effect of pension plan return [1] 0.5% pre-tax total return 2.3% Pre-tax Adjusting GAAP total return items return fixed income investments 0.6% 2.1%
Slide 40: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 2006 total return before pension 8.7% effect of pension plan return [1] 0.4% pre-tax total return 9.1% Pre-tax Adjusting GAAP total return items return fixed income investments 6.5% -0.6%
Slide 41: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of pre-tax total return to GAAP return - 1Q07 total return before pension 1.9% effect of pension plan return [1] 0.1% pre-tax total return 2.0% Pre-tax Adjusting GAAP total return items return fixed income investments 1.6% -0.1%
Slide 42: Reconciliation of Non-GAAP Financial Measures
Appendix – Reconciliation of Non-GAAP Financial Measures Reconciliation of economic combined ratio to GAAP combined ratio 2002 2003 2004 2005 2006 1Q07 GAAP combined ratio 169% 120% 102% 109% 108% 111% customer acquisition impact [1] -18% -5% -4% -14% -11% -13% operating expense impact [2] -2% -2% -
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