Description

White Mountains Insurance Group, LTD, is a holding company consisting of various insurance and related company holdings. It is domiciled in Bermuda and its executive offices are in Hanover, NH. The company operates as something of a small Berkshire Hathaway in terms of approach to acquisitions and management ethos.

The company has a market cap of $4.55 billion, a GAAP tangible book value per share of $1658.00 and at a recent share price of $1800 trades at 1.09 x tangible book. Book value and stock price have compounded by approximately 10% per year since 2001 (23 years) and by similar amounts in the past ten years. The long term stock chart is impressive.

I believe one can purchase WTM with an expectation to generate a roughly 10% stock price return, on average, across a muti-year holding period, in line with past performance driven by a similar ~10% annual increase in book value. Daily trading turnover is roughly $15m/day. It’s not trade-by-appointment, but liquidity is limited enough that only long-term investors may want to apply.  

The company was founded by Jack Byrne, who was hired by American Express to turnaround the Fireman’s Fund, a property and casualty insurer. Fireman’s Fund was taken public in 1985 and then sold to Allianz six years later. The residual assets became White Mountains. However, prior to Fireman’s Fund, Byrne had been hired in 1975 to be CEO of GEICO, which at the time was struggling and on the verge of collapse. Through GEICO Byrne got to know Warren Buffett.

In 2001, Buffett, via BRKA, bought warrants to help finance WTM’s purchase of OneBeacon Insurance. Eventually, BRKA exercised those warrants and was a multi-year holder of WTM shares. BRKA sold its remaining WTM shares in 2010. (WTM has also exited OneBeacon.) One additional, BRKA connection. In 2022, BRKA bought Alleghany Corporation, another insurance holding company. The CEO of Alleghany was Weston Hicks. Hicks retired at the time of the sale and was appointed Chairman of the Board of White Mountains.

The company has slowly and methodically created, bought and sold various insurance and insurance related assets over the past decades. It’s actually quite impressive to see a publicly traded company enter and exit multiple businesses and continue to get it right. One of the businesses that they have consistently “bought’ is their own: the company has reduced the share count from a high of 10.8m shares in 2005, down to 2.6m today.

The current CEO, G Manning Roundtree, has been in his role since 2009 and is still only 51. I like the fact that he’s both been in the boss’s chair long enough to prove he knows what he is doing and is young enough to keep doing it for many years if he chooses. Every CEO job is stressful, but that the company does not hold conference calls or need to deal with the street extensively probably makes his life a little easier and, thus, perhaps more like to keep doing the job. Prior to being appointed CEO he has held roles at the company since 2004. The CEO owns 23,789 shares worth about $43m so he has skin in the game.

The company consists of the following segments/subsidiaries:

HG GLOBAL/BAM

HG Global/BAM consists of the consolidated results of HG Global, HG Re and BAM. BAM is Build America Mutual, the first and only mutual municipal bond insurance company in the United States. BAM focuses on small to mid-sized munis HG Global was established in 2012 by WTM to capitalize the start up of BAM. BAM does not insure bonds from U.S. Territories, including Puerto Rico, international issuers, or structured finance securities like mortgage bonds or CDOs.

Capitalization consisted of HG Global purchasing from BAM the BAM Surplus Note for $609M. As of 2023, the remaining principal ($322m) and accrued interest ($175m) on the Surplus Note amounts to a combined $497m.   

WTM created HG Re in order to serve as a reinsurer to BAM. Via treaty, BAM cedes to HG Re approximately 60% of BAM policy in return for serving as a reinsurer to BAM for the first 15% of losses.  

In 2023, WTM received a $27m cash payment of principal and interest on the Surplus Notes. In 2022, the payment was $36m.

WTM has $375m in equity (book value) in HG Global as of 2023 year-end.

ARK / WM Outrigger

Ark:

At the beginning of 2021, White Mountains acquired a controlling ownership interest in Ark Insurance Holdings, which is a specialty property and casualty insurance and reinsurance company focused on niche insurance and reinsurance products, including property, specialty, marine & energy, casualty and accident & health.

Domiciled in Bermuda, Ark participates in two UK-based Lloyd’s syndicates and, through Group Ark Insurance Limited, underwrites additional business outside of the syndicates. WTM owns 72% of Ark, with the remaining shares owned by current and former employees.

WM Outrigger:

Late in 2022, WTM formed and funded Outrigger Re, Ltd. in order to provide reinsurance capacity to Ark. This business appears to still be ramping up.

Combined ratios for Ark Insurance Holdings was 82% in both 2023 and 2022. WM Outrigger combined ratio was 44%. However, as noted, this business is still ramping up.  

WTM has a total tangible book value in ARK/WM Outrigger of $1.386m.

KUDO

Kudo provides capital to boutique asset and wealth managers, to fund growth, acquisitions, generational ownership transfers, legacy partner liquidity and management buyouts. Their portfolio can be found here. WTM owns 89.6% of Kudo, though 76.3% on a fully-diluted/fully-converted basis.

Kudo has deployed $884m into 25 asset and wealth management firms globally and has exited three. In 2023, they deployed $172m. In 2023, the unit generated $56m in EBITDA.

The 2023 ending value of WTM’s Kudo participation contracts equals $891m and that is the value being used for Kudo in SOTP analysis.

MediaAlpha

As of 2023-end, WTM owns 22.9m shares of publicly traded MediaAlpha (MAX) worth approximately $458m.

MediaAlpha is a marketing and customer acquisition platform that facilitates referrals (i.e., clicks, calls and leads), primarily in the property & casualty, health and life insurance verticals. It generates revenue by earning a fee for each consumer referral sold on its platform. The referral fee is incurred regardless of whether the referred potential customer makes a purchase.

In 2014, White Mountains acquired a controlling ownership interest in the business. In 2019, it sold a significant minority stake as part of a recapitalization and cash distribution to existing equity holders and deconsolidated the business from the financials. In 2023, WTM completed a tender offer to purchase 5.9m shares at $10/share, which brough their holdings to the current 22.9m shares.  The price of MAX is now ~$20/share making the tender a good call.

Bamboo

In January 2024, WTM acquired 72.8% of Bamboo for $296.7m in cash. Bamboo is a home and auto insurer focused on the California market. As other insurers walk away from doing business in that state, WTM clearly sees an opportunity to make money.

Bamboo is factored into our sum of the parts at purchase price and I have deducted that amount from 2023 year-end cash.

What is interesting to me about Bamboo is that WTM’s insurance holdings have been focused away from retail insurance. This gives WTM a foot in that door and industry news pointed out that the company plans a geographical expansion. It will be interesting to see where they take it.

PassportCard/DavidShield

PassportCard is a U.K. domiciled provider of travel and medical insurance. Israel based DavidShield provides healthcare insurance for expats. Management values these holdings at $150m.

Elementum

Elementum is a registered investment adviser specializing in natural catastrophe insurance-linked securities (“ILS”). Elementum manages separate accounts and pooled investment vehicles across various ILS sectors, including catastrophe bonds, collateralized reinsurance investments and industry loss warranties on behalf of third-party clients. White Mountains has a noncontrolling equity interest in Elementum valued at $35m.

The book value of WTM is as follows:

A sum of the parts calculation is as follows:

Risks:

Insurance markets are cyclical and can go soft again. An acquisition, either current or future, could not work out.

Catalyst

Continued compounding of book value over mutliple years based by a management with a track record of doing just that.