White Mountains Insurance Group, Ltd. · NYSE:WTM

White Mountains Insurance — Investor Presentation (June 2023)

58 slides from White Mountains Insurance's investor presentation, Jun 6, 2023

  1. Slide 1: White Mountains Insurance Group, Ltd. 2023 Annual Investor Presentation

    White Mountains Insurance Group, Ltd. 2023 Annual Investor Presentation Exhibit 99.1

  2. Slide 2: Forward-Looking Statements

    1 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, includ

  3. Slide 3: Notes and Non-GAAP Financial Measures

    2 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 ar

  4. Slide 4: Introductions

    Introductions

  5. Slide 5: 2022 Year in Review

    2022 Year in Review

  6. Slide 6: 2022 Year in Review

    5 2022 Year in Review  One of strongest years in WTM history – ABVPS up 26% to $1,495 – MVPS including dividends up 40% to $1,414  Key drivers: – Sale of NSM – Good results from our operating businesses – Investments: negative absolute returns; excellent relative returns – Decline in MAX share pri

  7. Slide 7: Returns in Context

    6 Returns in Context YTD June 2, Book value returns 2022 1Q23 Market value returns 2022 2023 WTM ABVPS 25.7% 4.8% WTM 39.6% 1.1% Dowling & Partners Composite TVC [1] -13.5% n/a Dowling & Partners Composite [2] 1.8% n/a S&P 500 -18.1% 12.4% S&P P&C Insurance Total Return 18.9% -6.6%

  8. Slide 8: NSM Ownership Recap

    7 NSM Ownership Recap  Specialty P&C insurance MGA  Acquired in May 2018 for enterprise value of $388 million  Invested in organic growth of core business  Supported six bolt-on acquisitions with $225 million of incremental WTM equity capital  Closed all-cash sale to Carlyle on August 1, 2022 –

  9. Slide 9: Post-NSM Capital Management Undeployed Capital

    8 Post-NSM Capital Management Undeployed Capital

  10. Slide 10: Distributions, Deployments and Undeployed Capital

    9 $2.1 $2.5 $0.7 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 1Q17 2017 2018 2019 2020 2021 2022 1Q23 $ in b ill io ns Capital distributions, cumulative New capital deployments, cumulative Undeployed capital Distributions, Deployments and Undeployed Capital [4][3]

  11. Slide 11: Financial Position & Investment Results

    Financial Position & Investment Results

  12. Slide 12: Financial Position

    11 Financial Position  Total capital of $4.8 billion, principally in shareholders’ equity – No financial leverage at parent – Prudent financial leverage at opcos: HG Global, Ark and Kudu – Consolidated debt to total capital of 12%  Undeployed capital of $0.7 billion, or 15% of total capital

  13. Slide 13: Investments: Philosophy and Approach

    12 Investments: Philosophy and Approach  Invest for total return  $3.6 billion Total Portfolio [5] at 1Q23 – $2.5 billion of policyholder funds (Ark and HG Global) – $1.2 billion of shareholder funds  Policyholder funds invested conservatively; shareholder funds invested more aggressively  Our p

  14. Slide 14: Investments: Mandates

    13 Investments: Mandates Total Portfolio [5] Mandate 1Q23 Objectives Current position Ark $1.9 billion ▪ Meet insurance obligations ▪ Fixed income ▪ Manage for total return ▪ Equities and alternatives HG Global $0.6 billion ▪ Preserve claims paying resources ▪ Fixed income Parent $1.2 billion ▪ Safe

  15. Slide 15: Investments: Composition

    14 Investments: Composition ($ in millions) Ark HG Global Parent Consolidated Fixed Income [5] 1,520$ 552$ 658$ 2,730$ Equities and Alternatives [5] 384 - 534 918 Total Portfolio [5] 1,904$ 552$ 1,192$ 3,648$ Fixed income duration (years) 1.0 4.0 1.9 1.9 Fixed income credit quality A+ AA- AA- A+ Equ

  16. Slide 16: Investments: Performance

    15 Investments: Performance [7] 2021 to Year ended 1Q23 2021 2022 1Q23 Annualized Total Portfolio Return 2.3% -2.1% 2.5% 1.2% 10YT + 150 bps -2.2% -14.8% 4.1% -6.1% Conventional Wisdom Benchmark [8] 2.6% -13.6% 3.6% -3.7% Fixed Income Return -0.4% -4.0% 2.0% -1.1% BBG Intermediate U.S. Aggregate Ind

  17. Slide 17: Operating Businesses

    Operating Businesses

  18. Slide 18: Owners’ Capital Per Share at the End of 1Q23

    17 Owners’ Capital Per Share at the End of 1Q23 [9] Total: $1,567 ABVPS HG Global $316 Ark $286 WM Outrigger $83 Kudu $261 MediaAlpha $100 PC/DS $55 Elementum $16 Other operating businesses $59 Strategic investments & other $108 Undeployed capital $283

  19. Slide 19: Key Operating Businesses

    18 Key Operating Businesses Company Initial investment year WTM ownership [10] Management ownership [10] ABV [9] ($ in millions) Per share [9] ($) 2012 97% 3% $804 $316 2021 63% 37% 726/937 286/369 2018 76% 16% 664 261 2014 24% 28% 254 100 2015 54% 46% 140 55 2019 27% 73% 40 16 [11] WM Outrigger

  20. Slide 20: HG Global / BAM: Overview

    19 HG Global / BAM: Overview  Financial guarantor that insures essential public purpose municipal bonds  BAM is a mutual company owned by its municipality policyholders  HG Global is a stock company owned by WTM; provides first-loss reinsurance to BAM  WTM economics come in two forms: – BAM surp

  21. Slide 21: HG Global / BAM: Recent Results

    20 HG Global / BAM: Recent Results  Record year in 2022 – Gross written premiums and MSC of $147 million (up 24% YOY) – Par insured of $16 billion (down 8% YOY); total pricing increased to 0.91% (up 36% YOY) – 28% of insured par carried underlying ratings of AA- or better  Cash payment on surplus

  22. Slide 22: HG Global / BAM: Market Environment

    21 HG Global / BAM: Market Environment ($ in billions) 2020 2021 2022 1Q23 Total new municipal bond issuance 459$ 458$ 360$ 75$ Insured penetration, overall 8% 8% 8% 8% Insured penetration, target market 27% 27% 26% 41% BAM market share (transactions) 56% 53% 56% 53% 10YT (period end) 0.93% 1.52% 3.

  23. Slide 23: HG Global / BAM: Financial Snapshot

    22 HG Global / BAM: Financial Snapshot Year ended ($ in millions, except where stated) 2020 2021 2022 1Q23 Par insured ($ in billions) 17.3$ 17.5$ 16.0$ 2.9$ Pricing 76 bps 67 bps 91 bps 73 bps Primary + surety 59 bps 57 bps 69 bps 52 bps Secondary and assumed reinsurance 197 bps 155 bps 163 bps 137

  24. Slide 24: Ark / WM Outrigger: Overview

    23 Ark / WM Outrigger: 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, casualty and A&H  Business written via: – Lloyd’s Syndicates 4020 and 3902 – Bermuda-based reinsurer

  25. Slide 25: Ark: Relative Performance at Lloyd’s 2013-2022

    24 Ark: Relative Performance at Lloyd’s 2013-2022 Profitability and Volatility [12] Less Profitable More Profitable L es s V ol at ile M or e V ol at ile ERS 218 Arch 1955 Antares 1274 CNA Hardy 382 RenRe 1458 Canopius 4444 Brit 2987 Argenta 2121 Liberty 4472 TMK 510 Hamilton 4000 Chaucer 1084 HCC 4

  26. Slide 26: Ark: Recent Results

    25 Ark: Recent Results  Strong results in 2022 – Combined ratio of 82% – Gross written premiums of $1.5 billion, up 37% YOY  Continued momentum in 1Q23 – Combined ratio of 94% – Gross written premiums of $809 million (up 28% YOY including Outrigger Re) – Blended risk-adjusted rate change of +14% –

  27. Slide 27: Ark: Financial Snapshot

    26 $598 $1,059 $1,452 $1,628 98% 87% 82% 81% 50% 60% 70% 80% 90% 100% $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2020 2021 2022 1Q23 TTM Com bined Ratio G ro ss W rit te n Pr em iu m s ( $ in m ill io ns ) Property Specialty Marine & Energy A&H Casualty Combined Ratio Ark: Financial S

  28. Slide 28: Ark: Market Environment

    27 Ark: Market Environment  Elevated cat activity; war in Ukraine  Market withdrawals and retrenchments – Carriers scaling back appetite – ILS notional capital outstanding has plateaued; trapped collateral  Financial market volatility Constrained Supply Increased Demand  Inflationary pressures 

  29. Slide 29: Ark: Market Outlook

    28 Ark: Market Outlook  Property reinsurance: 30%  Property insurance: 20%  Marine & specialty: 5-20%  Casualty and A&H: 0-10% Rate Change  Perils  Attachments  Pillars  Terms & conditions  Underlying inflation(s) Conditions & Considerations  Pricing vs. profitability  Catastrophe losses

  30. Slide 30: WM Outrigger

    29 WM Outrigger  Leaning into hard market for property reinsurance; supportive of Ark team  WTM led investor group in capitalizing Outrigger Re in advance of 1/1/23 renewals – $205 million of WTM capital; $45 million of third-party capital – Covers Ark’s Bermuda global property cat XOL portfolio w

  31. Slide 31: Kudu: Overview

    30 Kudu: Overview [14]  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 yie

  32. Slide 32: Kudu: Recent Results

    31 Kudu: Recent Results  Solid 2022 results – Portfolio value up 8%, including impact of sales – GAAP ROE of 12% – Levered Return of 8%  Deployed $100 million, primarily into three new deals (Gramercy, GenTrust and Escalate)  Three value-adding sales (Versus, Sequoia and TIG) – Aggregate MOIC of

  33. Slide 33: Kudu: Financial Snapshot

    32 7% 8% 11% 8% 7% 6% 7% 20% 12% 13% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% $- $200 $400 $600 $800 $1,000 $1,200 2019 2020 2021 2022 1Q23 Return To ta l N et C ap ita l [1 5] ($ in m ill io ns ) Equity capital drawn, net Debt capital drawn, net Retained earnings Dry powder Levered Return GAAP ROE Ku

  34. Slide 34: MediaAlpha: Overview

    33 MediaAlpha: Overview  Online customer acquisition technology company (NYSE: MAX)  Industry-leading marketplaces for real-time transactions in clicks, calls and leads  Multiple verticals, including P&C, health and life insurance  Fee-based economic model: take percentage on all marketplace tra

  35. Slide 35: MediaAlpha: Recent Results

    34 MediaAlpha: Recent Results  Tough 2022 – Extreme cycle for personal auto insurers  pullback in ad spend – MAX share price declined  unrealized m-t-m loss of $93 million for WTM  Volatile 2023 – Personal auto cycle yet to turn  pricing continues to chase loss costs – MAX share price increased

  36. Slide 36: MediaAlpha: Financial Snapshot

    35 $38 $101 $150 $175 $219 $396 $560 $816 $1,019 $738 $692 $1 $6 $7 $7 $11 $32 $43 $58 $58 $23 $23 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1Q23 TTM A djusted E BITD A ($ in m illion

  37. Slide 37: PassportCard / DavidShield: Overview

    36 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  Superior customer experience, premium pricing and high reactivation rates 

  38. Slide 38: PassportCard / DavidShield: Recent Results

    37 PassportCard / DavidShield: Recent Results [18]  Record year in 2022 – Core premiums of $212 million (up 96% YOY) ● Travel premiums of $145 million (up 167% YOY) ● Expat medical premiums of $67 million (up 25% YOY) – Core EBITDA of $23 million (up 68% YOY)  Strong 1Q23 results and bullish FY23

  39. Slide 39: PassportCard / DavidShield: Financial Snapshot

    38 PassportCard / DavidShield: Financial Snapshot [18] $55 $79 $107 $132 $154 $75 $125 $232 $238 $6 $6 $10 $16 $17 $2 $14 $23 $32 $0 $5 $10 $15 $20 $25 $30 $35 $40 $0 $40 $80 $120 $160 $200 $240 $280 2015 2016 2017 2018 2019 2020 2021 2022 1Q23 TTM Core E BITD A ($ in m illions) Co nt ro lle d Pr em

  40. Slide 40: Elementum: Overview

    39 Elementum: Overview  Among the largest independent managers of insurance-linked securities (ILS)  Manages portfolios of nat cat risk on behalf of institutional investors  Accesses risk via a range of instruments: cat bonds, collateralized reinsurance, primary insurance  Delivers a range of ri

  41. Slide 41: Elementum: Recent Results

    40 Elementum: Recent Results  Tough year in 2022 for Elementum and broader ILS market – AUM decreased 13% to $3.7 billion – Adjusted EBITDA decreased 31% to $9 million – WTM received $2.9 million of cash dividends – Fund returns to WTM of -4.6%  Solid start to 2023 – AUM steady at $3.7 billion – T

  42. Slide 42: What to Expect

    What to Expect

  43. Slide 43: What to Expect from Us

    42 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 o

  44. Slide 44: Wise Words…

    43 Wise Words… 1-year 5-year 10-year 20-year Since WTM IPO (1985) WTM - ABVPS 30.2% 11.7% 10.1% 9.8% 13.5% WTM - MVPS 21.3% 11.0% 9.4% 7.7% 11.9% S&P 500 -7.7% 11.2% 12.2% 10.4% 10.9% S&P P&C Insurance Total Return [19] 0.4% 11.6% 14.0% 10.5% 9.9% Return periods ended March 31, 2023

  45. Slide 45: Track Record

    44 Track Record $20 $75 $280 $1,050 Year 1990 1995 2000 2005 2010 2015 2020 Adjusted Book Value Per Share * Market Value Per Share * Growth since IPO: Adjusted Book Value Per Share 13% annualized, including dividends Market Value Per Share 12% annualized, including dividends Black Monday Financial M

  46. Slide 46: Appendices

    Appendices 1. Notes (p. 46) 2. Non-GAAP Financial Measures (p. 47)

  47. Slide 47: Notes

    46 Notes 1. Average total value creation (tangible book value plus dividends) for 47 publicly-traded underwriters reported by Dowling & Partners. 2. Average performance for 55 publicly traded underwriters and brokers reported by Dowling & Partners. 3. 1Q17 undeployed capital amount is adjusted to re

  48. Slide 48: Non-GAAP Financial Measures: BVPS to ABVPS

    47 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP book value per share ("BVPS") to ABVPS and growth in ABVPS ($ millions, except per share amounts; shares in thousands) 2020 2021 2022 1Q23 Numerator WTM's common shareholders' equity (GAAP BVPS numerator) 3,9

  49. Slide 49: Non-GAAP Financial Measures: BVPS returns to ABVPS returns

    48 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Comparison of GAAP BVPS returns to ABVPS returns 1-year 5-year 10-year 20-year Since WTM IPO (1985) WTM - BVPS 28.7% 10.8% 9.7% 9.7% 13.4% WTM - ABVPS 30.2% 11.7% 10.1% 9.8% 13.5% Return periods ended March 31, 2023

  50. Slide 50: Non-GAAP Financial Measures: NSM sale gain

    49 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Comparison of NSM sale GAAP BVPS gain to ABVPS gain ($ millions, except per share amounts; shares in thousands) 8/1/2022 Numerator NSM sale gain 876$ Denominator Common shares outstanding (GAAP BVPS gain denominator) 2,911 Less: un

  51. Slide 51: Non-GAAP Financial Measures: Fixed Income and Equities and Alternatives

    50 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 and Alternatives (Total Portfolio equals the s

  52. Slide 52: Non-GAAP Financial Measures: Ark

    51 Non-GAAP Financial Measures Ark Reconciliation of (i) Ark's GAAP fixed maturity and short-term investments to Ark Fixed Income (ii) Ark's GAAP common equity securities and other long-term investments to Ark Equities and Alternatives and (iii) Ark Equity Exposure (Total Ark Portfolio equals the su

  53. Slide 53: Non-GAAP Financial Measures: HG Global Fixed Income

    52 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of HG Global's GAAP fixed maturity and short-term investments to HG Global Fixed Income (Total HG Global Portfolio equals HG Global Fixed Income) ($ millions) 1Q23 HG Global GAAP fixed maturity and short-term investm

  54. Slide 54: Non-GAAP Financial Measures: Parent portfolio

    53 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of Other Operations GAAP fixed maturity and short-term investments to Parent Fixed Income and Other Operations GAAP common equity securities, investment in MediaAlpha and other long-term investments to Parent Equitie

  55. Slide 55: Non-GAAP Financial Measures: Equity Exposure

    54 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 Alternatives and Equity Exposure ($ millions) 1Q23 Numerator GAAP common equity securities, investment in Med

  56. Slide 56: Non-GAAP Financial Measures: Investment returns

    55 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP investment returns to Total Portfolio Return, Fixed Income Return and Equity and Alternative Return (returns in USD) 2021 2022 1Q23 GAAP total return on investment portfolio -3.4% -1.6% 4.5% Adjusting items R

  57. Slide 57: Non-GAAP Financial Measures: Allocation of capital

    56 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliation of GAAP BV and GAAP BVPS allocation of capital to ABV and ABVPS allocation of capital ($ millions, except per share amounts) 1Q23 Actual 1Q23 Owners' Capital Per Share GAAP Book Value Reclass UDC & Commitments Adjust

  58. Slide 58: Non-GAAP Financial Measures: Kudu Adjusted EBITDA and Levered Return

    57 Non-GAAP Financial Measures White Mountains Insurance Group, Ltd. Reconciliations of Kudu GAAP net income to Kudu Annualized Adjusted EBITDA and return on equity to Levered Return Trailing Twelve Months Ended ($ millions) 4Q20 4Q21 4Q22 1Q23 GAAP net income (loss) [a] 21$ 78$ 62$ 67$ Add back: In

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