White Mountains Insurance Group, Ltd. · NYSE:WTM
White Mountains Insurance — Investor Day (May 2010)
44 slides from White Mountains Insurance's investor day presentation, May 18, 2010
Slide 1: Annual Investor Meeting May 18, 2010
White Mountains Insurance Group, Ltd. Annual Investor Meeting May 18, 2010
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements This presentation contains, and management may make, certain statements that are not historical facts but that are 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 state
Slide 3: Despite Tough 1Q10, Your Company is in Fine Shape
Despite Tough 1Q10, Your Company is in Fine Shape Strong 2009 results restored financial flexibility All 3 underwriting businesses are doing well Disciplined & opportunistic in competitive markets Strong reserves Taking bold steps to create value Investment portfolio is short, safe and sound in diff
Slide 4: Years of Creating Value – 14% - 15% Annual Returns
4 25 Years of Creating Value – 14% - 15% Annual Returns White Mountains Returns From IPO in 1985 Market Value Per Share (as of May 17, 2010): 14% annualized, including dividends Adjusted Book Value Per ShareNGM: 15% annualized, including dividends Spin-off of White River Corporation (1) $331 $411 $2
Slide 5: Good 2009, but Tough 1Q10
Good 2009, but Tough 1Q10 5 ($ millions, except per share values) 2009 1Q10 Adjusted book value per share NGM $417 $411 - Growth, including dividends 18% -1% OneBeacon growth in GAAP book value per share, incl. dividends 31% 0% OneBeacon GAAP combined ratio 94% 112% OneBeacon specialty GAAP combined
Slide 6: All Businesses Are Doing Well
All Businesses Are Doing Well OneBeacon: Transformation to specialty company progressing quickly Diversified specialty company with $1 billion of net written premiums Large runoff with solid reinsurance and reserves Generate undeployed capital of $1+ billion by 2012 WMRe: Disciplined and opportunist
Slide 7: All Businesses Are Doing Well (continued)
All Businesses Are Doing Well (continued) Esurance: Credible direct auto competitor to GEICO and Progressive Unique “choice” model combined with Answer Financial Strong growth momentum after flat 2008-2009 Great hidden value to White Mountains Investments: Strong 2009 and 1Q10 despite reduced alloca
Slide 8: OneBeacon – Becoming a Specialty Company
8 OneBeacon – Becoming a Specialty Company GAAP Combined Ratio Net Written Premium ($ in millions) (ttm) Specialty Total $1,963 $1,864 $1,958 $1,907 Other Specialty $1,809 $438 $654 $837 $946 $977 0 500 1,000 1,500 2,000 2006 2007 2008 2009 1Q10 96% 93% 95% 94% 112% 89% 81% 85% 84% 97% 70% 75% 80% 8
Slide 9: OneBeacon – Results and Outlook
9 OneBeacon – Results and Outlook Transformation to a Specialty Company Non-specialized commercial lines renewal rights with Hanover progressing well Personal lines sale to Tower – anticipated to close in June Specialty $1 billion of annualized premiums Broad business diversification – 13 ongoing bu
Slide 10: OneBeacon – Results and Outlook (continued)
10 OneBeacon – Results and Outlook (continued) Reduced Risk Profiles Gross 1:250 catastrophe exposures significantly reduced $1.2 billion in 2009 $0.3 billion by year-end 2010 Further reduction in 2011 Conservative investment allocation Strong Capital Position $0.5 billion of undeployed capital to w
Slide 11: White Mountains Re – GAAP Combined Ratio
11 White Mountains Re – GAAP Combined Ratio 104% 118% 102% 94% 106% 80% 132% 60% 70% 80% 90% 100% 110% 120% 130% 140% 2004 2005 2006 2007 2008 2009 1Q10
Slide 12: White Mountains Re – Combined Ratio Analysis
12 White Mountains Re – Combined Ratio Analysis 2006 2007 2008 2009 1Q10 Total GAAP combined ratio 102% 94% 106% 80% 132% 98% Prior year reserve (adds) releases -18% -3% -8% 3% 3% -7% Adjust actual cats to full cat load 11% 9% -1% 8% -47% 4% Accident year at full cat load NGM 95% 100% 97% 91% 88% 95
Slide 13: White Mountains Re - Results
13 White Mountains Re - Results 2009: 80% combined ratio - no U.S. hurricanes $386 million pretax income - robust investment & FX gains $997 million gross written premiums 7% decline from 2008 of which 2/3 = U.S. casualty business Loss reserves holding up well Bermuda reorganization - $533 million o
Slide 14: White Mountains Re – Three Year Progress Report
14 White Mountains Re – Three Year Progress Report Reinforced underwriting discipline Loss reserves now strong Right-sized risk & strengthened controls Reduced expenses & improved quality of team Added prudent financial leverage Reduced cash tax burden Upstreamed $1.1 billion of capital
Slide 15: White Mountains Re – Gross Written Premium
White Mountains Re – Gross Written Premium Gross Written Premium (ttm) ($ millions) 15 $1,933 $1,981 $1,625 $1,295 $1,076 $997 $1,058 $0 $500 $1,000 $1,500 $2,000 $2,500 2004 2005 2006 2007 2008 2009 1Q10 Ceded Net Casualty Net All Other
Slide 16: White Mountains Re – Scale & Diversification
$2.5 B of capital @ 16 White Mountains Re – Scale & Diversification 2009 Net Written Premiums ($ in millions) Property $261 32% United States $444 55% Property Cat Excess 188 23% Other Americas 40 5% Accident & Health 184 23% Europe 266 33% Aviation 58 7% Rest of World 57 7% Casualty 30 4% Total $80
Slide 17: White Mountains Re - 2010 Outlook
17 White Mountains Re - 2010 Outlook No cycle turn imminent Capital & capacity are robust Property rates generally softening but still adequate Picking our spots for growth: A&H, trade credit and aviation Assessing new underwriting venues
Slide 18: Esurance - Historical Results
18 Esurance - Historical Results Economic Combined Ratio NGM Loss + LAE Other Underwriting Acquisition 97% 104% 102% 100% 104% Controlled Premium NGM (ttm) ($ in millions) Esurance Answer Financial $600 $1,160 $1,128 $1,149 $803 60% 70% 80% 90% 100% 110% 120% 2006 2007 2008 2009 1Q10 $0 $250 $500 $7
Slide 19: Esurance - Historical Results (continued)
19 Esurance - Historical Results (continued) Net Acquisition Cost per Policy % change (year over year) 21% -12% -17% -28% -34% New Policy Sales % change (year over year) -15% -4% 16% 29% 40% -40% -30% -20% -10% 0% 10% 20% 30% 1Q09 2Q09 3Q09 4Q09 1Q10 -20% -10% 0% 10% 20% 30% 40% 1Q09 2Q09 3Q09 4Q09
Slide 20: Esurance – Policies in Force
20 Esurance – Policies in Force (000’s) Esurance Answer Financial 745 485 373 774 822 0 150 300 450 600 750 900 2006 2007 2008 2009 1Q10
Slide 21: Answer Financial
Answer Financial Large on-line and call center agency Comparison shopping experience Answer Financial / Esurance relationship working well Big increase in Answer Financial lead volume Big increase in Esurance partner revenue Answer Financial growing top line and generating cash flow 21
Slide 22: Esurance - 2010 Outlook
Esurance - 2010 Outlook Expanding target market Higher lifetime premium New advertising campaign Esurance and Answer Financial – continuing to build “a better mousetrap” 22
Slide 23: WM Life Re – Runoff
WM Life Re – Runoff 23 2009 net loss of $57 million $38 million operating loss in January & February 2009 $22 million charge for surrender assumption change in June Results essentially break even 2nd half 2009 and 1st quarter 2010 $2.6 billion aggregate guaranty value at March 31, 2010 Surrenders cu
Slide 24: Investment Portfolio Overview
Investment Portfolio Overview Long-term philosophy of investing for total return In 2009, invested to preserve capital De-risked portfolios in late 2008 and early 2009 Managed fixed income portfolio to avoid realized losses Nevertheless, very good results in 2009, especially in fixed income Returnin
Slide 25: Total Portfolio Return
25 Total Portfolio Return NGM [1] 85% of the Barclays Aggregate index / 15% of the S&P 500 index Investments – Pre-tax Total Return NGM Long-term 2001-1Q10 2008 2009 1Q 10 Annualized Short-term investments 1.0% 1.9% -0.8% 2.5% Fixed income -3.6% 13.0% 1.7% 6.1% Total fixed income -2.3% 10.0% 1.0% 5.
Slide 26: Total Equity Exposure
Total Equity Exposure NGM 26 NGM NGM
Slide 27: Excellent Fixed Income Performance
Excellent Fixed Income Performance 27 2009 component 12/31/08 12/31/09 return Corporate bonds 21% 30% 17.8% Structured securities 29% 25% 9.8% Sovereign bonds 20% 19% 9.1% Short term investments 30% 26% 1.9% Total fixed income 100% 100% 10.0% portfolio allocation
Slide 28: Lower Risk Profile in Structured Securities Portfolio
Lower Risk Profile in Structured Securities Portfolio 28 $1.9 ABS GNMA, FNMA, FHLMC Non-agency CMBS Non-agency RMBS $2.1 $2.2 $2.9 ($ in billions)
Slide 29: Consolidated Capitalization
29 Consolidated Capitalization ($ in millions) 12/31/07 12/31/08 12/31/09 3/31/10 Total debt 1,193 $ 1,362 $ 1,051 $ 1,026 $ Noncontrolling int. - WMRe Group Pref Shares 250 250 250 250 Noncontrolling interest - OneBeacon 517 284 351 346 Adjusted common equity NGM 4,719 3,096 3,666 3,574 Total adjus
Slide 30: Undeployed Capital Growing to over $1.2 billion
Undeployed Capital Growing to over $1.2 billion Most undeployed capital is at OneBeacon as it exits standard Commercial and Personal lines Growth in Specialty Reduce/refinance public debt Share buybacks & dividends Freeing up capital at White Mountains Re Runoff of old casualty years at WMRe America
Slide 31: Symetra
Acquired August 2, 2004 (formerly Safeco Life and Investments) WTM & BRK each with 20% fully converted ownership Successfully executed IPO in January 2010 – WTM and BRK did not sell shares 9% annualized growth in adjusted book value per share NGM, including dividends, since acquisition versus 2% for
Slide 32: What to Expect
32 What to Expect Growth in adjusted book value per share Capital management Share repurchases, dividends, debt refinancing at OB Commitment to our operating principles Underwriting comes first Maintain a disciplined balance sheet Invest for total return Think like owners Opportunistic approach to t
Slide 33: Wise Words
33 Wise Words Benjamin Graham “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Benjamin Graham
Slide 34: Appendix – Non-GAAP Financial Measures
34 Appendix – Non-GAAP Financial Measures Adjusted book value per share is a non-GAAP measure which is derived by expanding the GAAP calculation of book value per White Mountains common share to include the effects of assumed conversion of all convertible securities and to exclude net unrealized gai
Slide 35: Appendix – Non-GAAP Financial Measures
35 Appendix – Non-GAAP Financial Measures 8. Economic combined ratio for Esurance is a non-GAAP measure that defers and amortizes certain acquisition expenses over the term of the policy written and its expected renewals (whereas GAAP combined ratio requires amortization of such expenses over just t
Slide 36: Appendix – Reconciliation of Non-GAAP Financial Measures
36 Appendix – Reconciliation of Non-GAAP Financial Measures Note: immaterial differences due to rounding. White Mountains Insurance Group, Ltd. Reconciliation of adjusted book value per share to GAAP book value per share ($ millions, except per share amounts; shares in thousands) Numerator 12/31/09
Slide 37: Appendix – Reconciliation of Non-GAAP Financial Measures
37 Appendix – Reconciliation of Non-GAAP Financial Measures Note: immaterial differences due to rounding. White Mountains Insurance Group, Ltd. Reconciliation of adjusted common equity and adjusted shareholders' equity to GAAP common shareholders' equity ($ millions) 12/31/06 12/31/07 6/30/2008 PF 1
Slide 38: Appendix – Reconciliation of Non-GAAP Financial Measures
38 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of Esurance/AFI controlled premiums to GAAP gross written premium ($ millions) 12/31/06 12/31/07 12/31/08 12/31/09 3/31/10 (ttm) GAAP gross written premium - Esurance $ 600 $ 803 $ 826 $
Slide 39: Appendix – Reconciliation of Non-GAAP Financial Measures
39 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of Esurance's economic combined ratio to GAAP combined ratio 2006 2007 2008 2009 1Q10 GAAP combined ratio 108% 116% 106% 104% 107% customer acquisition impact -11% -12% -4% -4% -3% econom
Slide 40: Appendix – Reconciliation of Non-GAAP Financial Measures
40 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of investments - total portfolio return to GAAP return Investment Return Reconciliation - 2008 Total Adjusting GAAP Portfolio Return Items Return fixed income investments -3.6% 0.7% [1] -
Slide 41: Appendix – Reconciliation of Non-GAAP Financial Measures
41 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of investments - total portfolio return to GAAP return Investment Return Reconciliation - 2009 Total Adjusting GAAP Portfolio Return Items Return fixed income investments 13.0% -0.7% [1]
Slide 42: Appendix – Reconciliation of Non-GAAP Financial Measures
42 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of investments - total portfolio return to GAAP return Investment Return Reconciliation - 1Q10 Total Adjusting GAAP Portfolio Return Items Return fixed income investments 1.7% -0.1% [1] 1
Slide 43: Appendix – Reconciliation of Non-GAAP Financial Measures
43 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of total equity exposure to GAAP investments ($ millions) 12/31/06 12/31/07 6/30/2008 PF 12/31/08 12/31/09 3/31/10 GAAP common stock investments $ 1,213 $ 1,551 $ 1,621 $ 553 $ 459 $ 577
Slide 44: Appendix – Reconciliation of Non-GAAP Financial Measures
44 Appendix – Reconciliation of Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of Symetra's adjusted common equity to GAAP common shareholders' equity and calculation of adjusted book value per share ($ millions, except per share amounts; shares in millions) 12/31/0
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