WHITE MOUNTAINS INSURANCE GROUP LTD

Operating Cash and Short-term Investments

Holding Company Level

The primary sources of cash for the Company and certain of its intermediate holding companies are expected to be distributions from its insurance, reinsurance and other operating subsidiaries, net investment income, proceeds from sales, repayments and maturities of investments, capital raising activities and, from time to time, proceeds from sales of operating subsidiaries. The primary uses of cash are expected to be general and administrative expenses, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of debt obligations, dividend payments to holders of the Company’s common shares, distributions to noncontrolling interest holders of consolidated subsidiaries, contributions to operating subsidiaries and, from time to time, purchases of operating subsidiaries and repurchases of the Company’s common shares.

Operating Subsidiary Level

The primary sources of cash for White Mountains’s insurance, reinsurance and other operating subsidiaries are expected to be premium and fee collections, commissions, net investment income, proceeds from sales, repayments and maturities of investments, contributions from holding companies and capital raising activities. The primary uses of cash are expected to be claim payments, policy acquisition costs, general and administrative expenses, broker commission expenses, cost of sales, purchases of investments, payments to tax authorities, payments on and repurchases/retirements of debt obligations, distributions to holding companies, distributions to noncontrolling interest holders 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 collections, investment returns, claim payments and cost of sales 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’s insurance and reinsurance operating subsidiaries and the settlement of the liability for that loss. The exact timing of the payment of losses cannot be predicted with certainty. White Mountains’s insurance and reinsurance operating subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of cash and short-term investments to provide adequate liquidity for the payment of claims.

Management believes that White Mountains’s cash balances, cash flows from operations and routine sales and maturities of investments are adequate to meet expected cash requirements for the foreseeable future at both a holding company and insurance, reinsurance and other operating subsidiary level.

Dividend Capacity

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

Ark/WM Outrigger

During any 12-month period, GAIL, a class 4 licensed Bermuda insurer, has the ability to (i) make capital distributions of up to 15% of its total statutory capital reported in the previous year’s statutory financial statements, or (ii) make dividend payments of up to 25% of its total statutory capital and surplus reported in the previous year’s statutory financial statements, without prior approval of Bermuda regulatory authorities. Accordingly, GAIL will have the ability to pay a dividend of up to $272 million during 2024, which is equal to 25% of its December 31, 2023 statutory capital and surplus of $1,088 million, subject to meeting all appropriate liquidity and solvency requirements. During the three months ended March 31, 2024, GAIL did not pay any dividends to its immediate parent.

During the three months ended March 31, 2024, Ark declared a $33 million dividend to its shareholders, including $24 million that was paid to White Mountains in April 2024. As of March 31, 2024, Ark and its intermediate holding companies had $33 million of net unrestricted cash and short-term investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries.

WM Outrigger Re is a special purpose insurer subject to regulation and supervision by the BMA. WM Outrigger Re does not require regulatory approval to pay dividends, however, its dividend capacity is limited to amounts held outside of the collateral trust pursuant to the reinsurance agreement with GAIL. As of March 31, 2024, WM Outrigger Re had less than $1 million of net unrestricted cash and investments held outside the collateral trust. As of March 31, 2024, WM Outrigger Re had $215 million of statutory capital and surplus and $222 million of assets held in the collateral trusts pursuant to the reinsurance agreement with GAIL.

During January 2024, White Mountains received an initial return of capital of $68 million from WM Outrigger Re for business written in the 2023 underwriting year. White Mountains expects to receive any additional return of capital and associated profits from business written in the 2023 underwriting year beginning in the third quarter of 2024.

HG Global/BAM

As of March 31, 2024, 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 are entitled to receive cumulative dividends at a fixed annual rate of 6.0% on a quarterly basis, when and if declared by HG Global. As of March 31, 2024, HG Global has accrued $430 million of dividends payable to holders of its preferred shares, $415 million of which is payable to White Mountains and is eliminated in consolidation. As of March 31, 2024, HG Global and its subsidiaries had less than $1 million of net unrestricted cash outside of HG Re.

HG Re is a special purpose insurer subject to regulation and supervision by the BMA. HG Re does not require regulatory approval to pay dividends, however, its dividend capacity is limited to amounts held outside of the Collateral Trusts pursuant to the FLRT with BAM. As of March 31, 2024, HG Re had $1 million of net unrestricted cash and investments. As of March 31, 2024, HG Re had $132 million of accrued interest on the BAM Surplus Notes held outside the Collateral Trusts. As of March 31, 2024, HG Re had $792 million of statutory capital and surplus and $933 million of assets held in the Collateral Trusts.

On a monthly basis, BAM deposits cash equal to ceded premiums, net of ceding commissions, due to HG Re under the FLRT directly into the Regulation 114 Trust. The Regulation 114 Trust target balance is equal to HG Re’s unearned premiums and unpaid loss and LAE reserves, if any. If, at the end of any quarter, the Regulation 114 Trust balance is below the target balance, funds will be withdrawn from the Supplemental Trust and deposited into the Regulation 114 Trust in an amount equal to the shortfall. If, at the end of any quarter, the Regulation 114 Trust balance is above 102% of the target balance, funds will be withdrawn from the Regulation 114 Trust and deposited into the Supplemental Trust.

The Supplemental Trust Target Balance is $603 million, less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance. If, at the end of any quarter, the Supplemental Trust balance exceeds the Supplemental Trust Target Balance, such excess may be distributed to HG Re. The distribution will be made first as an assignment of accrued interest on the BAM Surplus Notes and second in cash and/or fixed income securities. 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 Supplemental Trust balance as of March 31, 2024 was $602 million.

As of March 31, 2024, the Collateral Trusts held assets of $933 million, which included $593 million of cash and investments, $322 million of BAM Surplus Notes and $18 million of interest receivable on the BAM Surplus Notes.

Through 2024, the interest rate on the BAM Surplus Notes is a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually. During 2024, the interest rate on the BAM Surplus Notes is 8.2%. Beginning in 2025, the interest rate will be fixed at 8.2%, the higher of the rate set in 2024 and 8.0%. Under its agreements with HG Global, BAM is required to seek regulatory approval to pay principal and interest on the BAM Surplus Notes only to the extent that its remaining qualified statutory capital and other capital resources continue to support its outstanding obligations, its business plan and its “AA/stable” rating from Standard & Poor’s. No payment of principal or interest on the BAM Surplus Notes may be made without the approval of the NYDFS.

During the three months ended March 31, 2024, BAM made no repayments of the BAM Surplus Notes or accrued interest. See Note 10 — “Municipal Bond Guarantee Insurance.”

Kudu

During the three months ended March 31, 2024, Kudu distributed $2 million to unitholders, substantially all of which was paid to White Mountains. As of March 31, 2024, Kudu had $11 million of net unrestricted cash and short-term investments.

Bamboo

During any 12-month period, Bamboo Captive, a class 2 licensed Bermuda insurer, has the ability to make capital distributions of up to 15% of its total statutory capital reported in the previous year’s statutory financial statements without prior approval of Bermuda regulatory authorities. Accordingly, Bamboo Captive will have the ability to pay a dividend of up to $1 million during 2024, which is equal to 15% of its December 31, 2023 statutory capital surplus of $5 million, subject to meeting all appropriate liquidity and solvency requirements. During the three months ended March 31, 2024, Bamboo Captive did not pay any dividends to its immediate parent. As of March 31, 2024, Bamboo Captive had $2 million of net unrestricted cash and short-term investments.

As of March 31, 2024, Bamboo had $15 million of net unrestricted cash and short-term investments outside of Bamboo Captive.

Other Operations

During the three months ended March 31, 2024, White Mountains paid a $3 million common share dividend. As of March 31, 2024, the Company and its intermediate holding companies had $427 million of net unrestricted cash, short-term investments and fixed maturity investments, $466 million of MediaAlpha common stock, $152 million of common equity securities and $383 million of private equity and hedge funds, ILS funds and certain unconsolidated entities.

Financing

The following table presents White Mountains’s capital structure as of March 31, 2024 and December 31, 2023:

(1)See Note 7 — “Debt”for details of debt arrangements.

(2) Net of unamortized issuance costs and, where applicable, the original issue discount.

(3)Amount reflects White Mountains’s preferred share ownership in HG Global of 96.9%.

Management believes that White Mountains has the flexibility and capacity to obtain funds externally 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.

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.

Covenant Compliance

As of March 31, 2024, White Mountains was in compliance in all material respects with all of the covenants under its debt instruments.

Share Repurchase Programs

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 March 31, 2024, White Mountains may repurchase an additional 301,014 shares under these Board authorizations. In addition, from time to time, White Mountains has also repurchased its common shares through self-tender offers that were separately approved by its Board of Directors.

During the three months ended March 31, 2024, White Mountains repurchased and retired 5,269 of its common shares for $8 million at an average share price of $1,505, which was approximately 84% of White Mountains’s adjusted book value per share as of March 31, 2024. All of the shares White Mountains repurchased in the first three months of 2024 were to satisfy employee income tax withholding pursuant to employee benefit plans, which do not reduce the amount available under the Board repurchase authorizations.

During the three months ended March 31, 2023, White Mountains repurchased and retired 18,623 of its common shares for $25 million at an average share price of $1,360, which was approximately 87% of White Mountains’s adjusted book value per share as of March 31, 2023. Of the shares White Mountains repurchased in the first three months of 2023, 4,629 were to satisfy employee income tax withholding pursuant to employee benefit plans, which do not reduce the amount available under the Board repurchase authorizations.

Cash Flows

Detailed information concerning White Mountains’s cash flows from continuing operations during the three months ended March 31, 2024 and 2023 follows:

Cash flows from operations for the three months ended March 31, 2024 and March 31, 2023

Net cash provided from operations was $37 million for the three months ended March 31, 2024 compared to $86 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, there were no contributions to or proceeds from Kudu’s Participation Contracts, compared to $31 million of contributions and $63 million of proceeds in the three months ended March 31, 2023. As of March 31, 2024, the Company and its intermediate holding companies had $427 million of net unrestricted cash, short-term investments and fixed maturity investments, $466 million of MediaAlpha common stock, $152 million of common equity securities and $383 million of private equity funds, hedge funds, ILS funds and unconsolidated entities.

Cash flows from investing and financing activities for the three months ended March 31, 2024

Financing and Other Capital Activities

During the three months ended March 31, 2024, the Company declared and paid a $3 million cash dividend to its common shareholders.

During the three months ended March 31, 2024, White Mountains repurchased and retired 5,269 of its common shares for $8 million, all of which were to satisfy employee income tax withholding pursuant to employee benefit plans.

During the three months ended March 31, 2024, Ark repaid the outstanding balance of $30 million and extinguished the Ark 2007 Subordinated Notes.

During the three months ended March 31, 2024, BAM received $11 million in MSC.

Acquisitions and Dispositions

On January 2, 2024, White Mountains closed the Bamboo Transaction in accordance with the terms of the Bamboo Merger Agreement, investing $297 million of equity into Bamboo, which included the contribution of $36 million to retire Bamboo’s legacy credit facility and the contribution of $20 million of primary capital.

Cash flows from investing and financing activities for the three months ended March 31, 2023

Financing and Other Capital Activities

During the three months ended March 31, 2023, the Company declared and paid a $3 million cash dividend to its common shareholders.

During the three months ended March 31, 2023, White Mountains repurchased and retired 18,623 of its common shares for $25 million. Of the shares White Mountains repurchased in the first three months of 2023, 4,629 were to satisfy employee income tax withholding pursuant to employee benefit plans.

During the three months ended March 31, 2023, BAM received $12 million in MSC.

During the three months ended March 31, 2023, Kudu repaid $17 million in term loans under the Kudu Credit Facility.