WHITE MOUNTAINS INSURANCE GROUP, LTD. The following discussion contains "forward-looking statements."White Mountains intends statements that are not historical in nature, which are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct.White Mountains's actual results could be materially different from and worse than its expectations. See "FORWARD-LOOKING STATEMENTS" on page 78 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements. The following discussion also includes twelve non-GAAP financial measures: (i) adjusted book value per share, (ii) BAM's gross written premiums and member surplus contributions ("MSC") from new business, (iii) Ark's adjusted loss and LAE ratio, (iv) Ark's adjusted insurance acquisition expense ratio, (v) Ark's adjusted other underwriting expense ratio, (vi) Ark's adjusted combined ratio (vii) Kudu's earnings before interest, taxes, depreciation and amortization ("EBITDA"), (viii) Kudu's adjusted EBITDA, (ix) total consolidated portfolio returns excludingMediaAlpha , (x) NSM's EBITDA, (xi) NSM's adjusted EBITDA and (xii) adjusted capital, that have been reconciled from their most comparable GAAP financial measures on page 75.White Mountains believes these measures to be useful in evaluatingWhite Mountains's financial performance and condition.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
Overview
White Mountains reported book value per share of$1,129 and adjusted book value per share of$1,152 as ofJune 30, 2022 . Book value per share decreased 5% and adjusted book value per share decreased 4% in the second quarter of 2022. For the first six months of 2022, book value decreased 4% and adjusted book value decreased 3%, including dividends. Results were driven primarily by mark-to-market losses inWhite Mountains's fixed income investment portfolio and the decline inMediaAlpha's share price, partially offset by positive operating results within our consolidated businesses.White Mountains reported book value per share of$1,279 and adjusted book value per share of$1,292 as ofJune 30, 2021 . Book value per share and adjusted book value per share both increased 4% in the second quarter of 2021 and 2% in the first six months of 2021, including dividends. Results in the second quarter of 2021 were driven by positive operating results within our consolidated businesses as well as the increase inMediaAlpha's share price. OnAugust 1, 2022 ,White Mountains closed the previously announced sale ofNSM Group for cash to an affiliate of The Carlyle Group, Inc. (the "NSM Transaction"). The NSM Transaction valuedNSM Group at an enterprise value of$1.775 billion . Including the estimated net gain of approximately$300 per share from the NSM Transaction, book value per share would be$1,429 and adjusted book value per share would be$1,452 as ofJune 30, 2022 . The estimated net gain per share from the NSM Transaction increased by approximately$20 to$300 per share, due primarily to: (i) positive operating results at NSM in the pre-closing period, (ii) recording of certain compensation and other costs in connection with the transaction inWhite Mountains's second quarter financial statements and (iii) the impact of share repurchases decreasing the number of shares outstanding. Beginning in the second quarter of 2022,NSM Group's results have been presented as discontinued operations. In the HG Global/BAM segment, gross written premiums and MSC collected totaled$41 million and$63 million in the second quarter and first six months of 2022 compared to$30 million and$56 million in the second quarter and first six months of 2021. Total pricing was 70 and 67 basis points in the second quarter and first six months of 2022 compared to 59 and 65 basis points in the second quarter and first six months of 2021. BAM insured municipal bonds with par value of$5.9 billion and$9.3 billion in the second quarter and first six months of 2022 compared to$5.1 billion and$8.7 billion in the second quarter and first six months of 2021, which included$806 million from an assumed reinsurance transaction. BAM's total claims paying resources were$1,228 million as ofJune 30, 2022 compared to$1,192 million as ofDecember 31, 2021 and$1,165 million as ofJune 30, 2021 . OnApril 29, 2022 , HG Global received the proceeds of its new$150 million , 10-year term loan credit facility. In turn, onMay 2, 2022 , HG Global paid a$120 million cash dividend to shareholders, of which$116 million was paid toWhite Mountains . 48 -------------------------------------------------------------------------------- Ark reported a GAAP combined ratio of 87% and 93% in the second quarter and first six months of 2022 compared to 90% and 99% in the second quarter and first six months of 2021. Ark's adjusted combined ratio, which adds back amounts attributable to TPC providers, was 86% and 93% in the second quarter and first six months of 2022 compared to 84% and 96% in the second quarter and first six months of 2021. The adjusted combined ratio in the second quarter and first six months of 2022 included 11 points and 14 points of catastrophe losses compared to six points and 12 points in the second quarter and first six months of 2021. Catastrophe losses for the second quarter and first six months of 2022 included an estimate of incurred losses emanating from the ongoing conflict inUkraine of seven points and nine points. The adjusted combined ratio in the second quarter and first six months of 2022 also included 12 points and seven points of favorable prior year development compared to 10 points and five points in the second quarter and first six months of 2021. Ark reported gross written premiums of$404 million and$1,037 million , net written premiums of$270 million and$814 million and net earned premiums of$217 million and$412 million in the second quarter and first six months of 2022 compared to gross written premiums of$328 million and$733 million , net written premiums of$262 million and$605 million and net earned premiums of$118 million and$222 million in the second quarter and first six months of 2021. Ark reported pre-tax income (loss) of$(21) million and$(45) million in the second quarter and first six months of 2022 compared to$18 million and$(15) million in the second quarter and first six months of 2021. Ark's results included net realized and unrealized investment gains (losses) of$(45) million and$(62) million in the second quarter and first six months of 2022 compared to$9 million and$10 million in the second quarter and first six months of 2021. Ark's pre-tax loss for the first six months of 2021 also included$25 million of transaction expenses related toWhite Mountains's transaction with Ark. Kudu reported total revenue of$(4) million , pre-tax loss of$10 million and adjusted EBITDA of$11 million in the second quarter of 2022 compared to total revenue of$36 million , pre-tax income of$31 million and adjusted EBITDA of$5 million in the second quarter of 2021. Total revenues and pre-tax income in the second quarter of 2022 included$18 million of net unrealized investment losses on Kudu's participation contracts compared to$28 million of net unrealized investment gains on Kudu's participation contracts in the second quarter of 2021. Kudu reported total revenue of$31 million , pre-tax income of$19 million and adjusted EBITDA of$21 million in the first six months of 2022 compared to total revenue of$60 million , pre-tax income of$47 million and adjusted EBITDA of$11 million in the first six months of 2021. Total revenues and pre-tax income in the first six months of 2022 included$5 million of net unrealized investment gains on Kudu's participation contracts compared to$44 million of net unrealized investment gains on Kudu's participation contracts in the first six months of 2021. As ofJune 30, 2022 , the market value ofWhite Mountains's investment inMediaAlpha was$167 million , which was down from$280 million as ofMarch 31, 2022 . As ofJune 30, 2022 , the closing price was$9.85 per share, which decreased from$16.55 atMarch 31, 2022 . Based onWhite Mountains's ownership of 16.9 million shares ofMediaAlpha as ofJune 30, 2022 , each$1.00 per share increase or decrease in the stock price ofMediaAlpha will result in an approximate$5.80 per share increase or decrease inWhite Mountains's book value per share and adjusted book value per share.White Mountains's pre-tax total consolidated portfolio return on invested assets was -4.7% in the second quarter of 2022. This return included$114 million of unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was -2.1% in the second quarter of 2022. ExcludingMediaAlpha , investment returns in the second quarter of 2022 were driven primarily by net unrealized investment losses in the fixed income portfolio due to rising interest rates.White Mountains's pre-tax total consolidated portfolio return on invested assets was 5.0% in the second quarter of 2021. This return included$113 million of unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 2.4% in the second quarter of 2021. ExcludingMediaAlpha , investment returns in the second quarter of 2021 were driven primarily by favorable other long-term investments results and the impact of the flattening yield curve onWhite Mountains's short duration fixed income portfolio.White Mountains's pre-tax total consolidated portfolio return on invested assets was -4.0% in the first six months of 2022. This return included$95 million of unrealized investment losses fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was -1.9% in the first six months of 2022. ExcludingMediaAlpha , investment returns in the first six months of 2022 were driven primarily by net unrealized investment losses in the fixed income portfolio due to rising interest rates, partially offset by favorable other long-term investment results.White Mountains's pre-tax total consolidated portfolio return on invested assets was 4.7% in the first six months of 2021. This return included$71 million of net realized and unrealized investment gains fromWhite Mountains's investment inMediaAlpha . ExcludingMediaAlpha , the total consolidated portfolio return on invested assets was 3.1% in the first six months of 2021. ExcludingMediaAlpha , investment returns in the first six months of 2021 were driven primarily by favorable other long-term investment results. Within the results from discontinued operations, NSM reported commission and other revenues of$103 million , pre-tax income of$13 million and adjusted EBITDA of$29 million in the second quarter of 2022 compared to commission and other revenues of$84 million , pre-tax income of$1 million and adjusted EBITDA of$19 million in the second quarter of 2021. NSM reported commission and other revenues of$191 million , pre-tax income of$16 million and adjusted EBITDA of$47 million in the first six months of 2022 compared to commission and other revenues of$159 million , pre-tax loss of$32 million and adjusted EBITDA of$33 million in the first six months of 2021. 49 --------------------------------------------------------------------------------
Adjusted Book Value Per Share
The following table presents
December 31,
June 30, 2022 March 31, 2022 2021 June 30, 2021
Book value per share numerators (in
millions):
White Mountains's common shareholders'
equity -
GAAP book value per share numerator $ 3,323.3 $
3,542.1
Time value of money discount on expected future payments on the BAM Surplus Notes (1) (115.9) (120.9) (125.9) (132.8) HG Global's unearned premium reserve (1) 221.6 215.8 214.6 201.5 HG Global's net deferred acquisition costs (1) (62.6) (60.6) (60.8) (56.3) Adjusted book value per share numerator$ 3,366.4 $
3,576.4
per share denominator 2,942.9 2,994.2 3,017.8 3,109.2 Unearned restricted common shares (20.9) (24.2) (13.7) (20.6) Adjusted book value per share denominator 2,922.0 2,970.0 3,004.1 3,088.6 GAAP book value per share$ 1,129.27 $
1,183.00
$ 1,152.12 $
1,204.17
$ 1.00 $
1.00
(1) Amount reflects
The following table presents a summary of goodwill and other intangible assets that are included inWhite Mountains's book value as ofJune 30, 2022 ,March 31, 2022 ,December 31, 2021 , andJune 30, 2021 : December 31, Millions June 30, 2022 March 31, 2022 2021 June 30, 2021Goodwill : Ark$ 116.8 $ 116.8 $ 116.8 $ 116.8 Kudu 7.6 7.6 7.6 7.6 Other Operations (1) 77.4 17.9 17.9 27.1 Total goodwill 201.8 142.3 142.3 151.5 Other intangible assets: Ark 175.7 175.7 175.7 175.7 Kudu 1.1 1.3 1.3 1.5 Other Operations (1) 19.4 20.2 21.2 23.9 Total other intangible assets 196.2 197.2 198.2 201.1 Total goodwill and other intangible assets (2) 398.0 339.5 340.5 352.6Goodwill and other intangible assets attributed to non-controlling interests (103.4) (91.8) (91.8) (92.4)Goodwill and other intangible assets included in
equity$ 294.6 $ 247.7 $ 248.7 $ 260.2 (1) The relative fair values of goodwill and other intangible assets recognized in connection with recent acquisitions within Other Operations had not yet been finalized atJune 30, 2022 and 2021.
(2) See Note 4 - "
50
--------------------------------------------------------------------------------Summary of Consolidated Results
The following table presents
Three Months Ended Six Months Ended
June 30, June 30,
Millions 2022 2021 2022 2021
Revenues
Financial Guarantee revenues $ (13.2) $ 17.4 $ (44.5) $ 10.7
P&C Insurance and Reinsurance revenues 182.2 130.5 357.9 239.6
Asset Management revenues (3.8) 36.2 31.1 60.3
Other Operations revenues (88.5) 158.3 (7.4) 135.2
Total revenues 76.7 342.4 337.1 445.8
Expenses
Financial Guarantee expenses 25.6 15.5 44.9 33.8
P&C Insurance and Reinsurance expenses 203.6 112.7 402.4 254.3
Asset Management expenses 6.4 4.8 12.0 13.2
Other Operations expenses 73.7 48.0 125.2 88.5
Total expenses 309.3 181.0 584.5 389.8
Pre-tax income (loss)
Financial Guarantee pre-tax income (loss) (38.8) 1.9 (89.4) (23.1)
P&C Insurance and Reinsurance pre-tax income
(loss) (21.4) 17.8 (44.5) (14.7)
Asset Management pre-tax income (loss) (10.2) 31.4 19.1 47.1
Other Operations pre-tax income (loss) (162.2) 110.3 (132.6) 46.7
Total pre-tax income (loss) from continuing
operations (232.6) 161.4 (247.4) 56.0
Income tax (expense) benefit 16.0 (30.0) 18.7 (23.6)
Net income (loss) from continuing operations (216.6) 131.4 (228.7) 32.4
Gain (loss) on sale of Sirius Group, net of tax - - - 18.7
Net income (loss) from
operations, net of tax 6.4 1.1 10.1 (29.1) Net income (loss) (210.2) 132.5 (218.6) 22.0 Net (income) loss attributable to non-controlling interests 41.0 6.0 82.8 41.2 Net income (loss) attributable toWhite Mountains's common shareholders (169.2) 138.5 (135.8) 63.2 Other comprehensive income (loss), net of tax (1.1) .5 (1.5) .2
Other comprehensive income (loss) from
discontinued operations, net of tax (4.0) .5 (5.9) 2.6 Comprehensive income (loss) (174.3) 139.5 (143.2) 66.0 Other comprehensive (income) loss attributable to non-controlling interests .5 (.1) .7 (.2) Comprehensive income (loss) attributable to White Mountains's common shareholders$ (173.8) $ 139.4 $ (142.5) $ 65.8 51
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I. Summary of Operations By Segment
As ofJune 30, 2022 ,White Mountains conducted its operations through four segments: (1) HG Global/BAM, (2) Ark, (3) Kudu and (4) Other Operations. A discussion ofWhite Mountains's consolidated investment operations is included after the discussion of operations by segment.White Mountains's segment information is presented in Note 15 - "Segment Information" to the Consolidated Financial Statements. As a result of the NSM Transaction, the results of operations forNSM Group have been classified as discontinued operations and are presented separately, net of related income taxes, in the statement of comprehensive income. Prior year amounts have been reclassified to conform to the current period's presentation. See Note 19 - "Held for Sale and Discontinued Operations."
HG Global/BAM
HG Global/BAM consists of the consolidated results of HG Global, HG Re and BAM. BAM is the first and only mutual municipal bond insurance company inthe United States . By insuring the timely payment of principal and interest, BAM provides market access to, and lowers interest expense for, issuers of municipal bonds used to finance essential public purpose projects, such as schools, utilities and transportation facilities. BAM is owned by and operated for the benefit of its members, the municipalities that purchase BAM's insurance for their debt issuances. HG Global was established to fund the startup of BAM and, through HG Re, to provide up to 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. The following tables present the components of pre-tax income (loss) included inWhite Mountains's HG Global/BAM segment related to the consolidation of HG Global, which includes HG Re and its other wholly-owned subsidiaries, and BAM for the three and six months endedJune 30, 2022 and 2021: Three Months Ended June 30, 2022 Millions HG Global BAM Eliminations Total Direct written premiums $ -$ 17.1 $ -$ 17.1 Assumed written premiums 14.7 - (14.7) - Gross written premiums 14.7 17.1 (14.7) 17.1 Ceded written premiums - (14.7) 14.7 - Net written premiums$ 14.7 $ 2.4 $ -$ 17.1 Earned insurance premiums$ 8.7 $ 1.8 $ -$ 10.5 Net investment income 2.2 2.6 - 4.8 Net investment income - BAM Surplus Notes 3.0 - (3.0) - Net realized and unrealized investment gains (losses) (14.7) (15.4) - (30.1) Other revenues .1 1.5 - 1.6 Total revenues (0.7) (9.5) (3.0) (13.2) Insurance acquisition expenses 3.4 1.4 - 4.8 General and administrative expenses .8 16.6 - 17.4 Interest expense - HG Global Senior Notes 3.4 - - 3.4 Interest expense - BAM Surplus Notes - 3.0 (3.0) - Total expenses 7.6 21.0 (3.0) 25.6 Pre-tax income (loss)$ (8.3) $ (30.5) $ -$ (38.8) Supplemental information: MSC collected (1) $ -$ 24.0 $ -$ 24.0
(1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
52
--------------------------------------------------------------------------------
Three Months Ended June 30, 2021
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 13.8 $ - $ 13.8
Assumed written premiums 11.8 - (11.8) -
Gross written premiums 11.8 13.8 (11.8) 13.8
Ceded written premiums - (11.8) 11.8 -
Net written premiums $ 11.8 $ 2.0 $ - $ 13.8
Earned insurance premiums $ 5.3 $ 1.2 $ - $ 6.5
Net investment income 1.7 2.6 - 4.3
Net investment income - BAM Surplus Notes 3.0 - (3.0) -
Net realized and unrealized investment gains 2.4 3.9 - 6.3
Other revenues .1 .2 - .3
Total revenues 12.5 7.9 (3.0) 17.4
Insurance acquisition expenses 1.3 .3 - 1.6
General and administrative expenses .5 13.4 - 13.9
Interest expense - BAM Surplus Notes - 3.0 (3.0) -
Total expenses 1.8 16.7 (3.0) 15.5
Pre-tax income (loss) $ 10.7 $ (8.8) $ - $ 1.9
Supplemental information:
MSC collected (1) $ - $ 16.3 $ - $ 16.3 (1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
Six Months Ended June 30, 2022
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 26.5 $ - $ 26.5
Assumed written premiums 22.8 - (22.8) -
Gross written premiums 22.8 26.5 (22.8) 26.5
Ceded written premiums - (22.8) 22.8 -
Net written premiums $ 22.8 $ 3.7 $ - $ 26.5
Earned insurance premiums $ 15.6 $ 3.3 $ - $ 18.9
Net investment income 4.3 5.1 - 9.4
Net investment income - BAM Surplus Notes 5.9 - (5.9) -
Net realized and unrealized investment gains
(losses) (38.2) (37.0) - (75.2)
Other revenues .2 2.2 - 2.4
Total revenues (12.2) (26.4) (5.9) (44.5)
Insurance acquisition expenses 6.0 1.8 - 7.8
General and administrative expenses 1.5 32.2 - 33.7
Interest expense - HG Global Senior Notes 3.4 - - 3.4
Interest expense - BAM Surplus Notes - 5.9 (5.9) -
Total expenses 10.9 39.9 (5.9) 44.9
Pre-tax income (loss) $ (23.1) $ (66.3) $ - $ (89.4)
Supplemental information:
MSC collected (1) $ - $ 36.3 $ - $ 36.3 (1) MSC collected are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
53
--------------------------------------------------------------------------------
Six Months Ended June 30, 2021
Millions HG Global BAM Eliminations Total
Direct written premiums $ - $ 21.8 $ - $ 21.8
Assumed written premiums 22.5 4.5 (22.5) 4.5
Gross written premiums 22.5 26.3 (22.5) 26.3
Ceded written premiums - (22.5) 22.5 -
Net written premiums $ 22.5 $ 3.8 $ - $ 26.3
Earned insurance premiums $ 10.6 $ 2.3 $ - $ 12.9
Net investment income 3.5 5.3 - 8.8
Net investment income - BAM Surplus Notes 6.0 - (6.0) -
Net realized and unrealized investment losses (7.5) (4.1) - (11.6)
Other revenues .2 .4 - .6
Total revenues 12.8 3.9 (6.0) 10.7
Insurance acquisition expenses 2.8 .7 - 3.5
General and administrative expenses 1.1 29.2 - 30.3
Interest expense - BAM Surplus Notes - 6.0 (6.0) -
Total expenses 3.9 35.9 (6.0) 33.8
Pre-tax income (loss) $ 8.9 $ (32.0) $ - $ (23.1)
Supplemental information:
MSC collected (1) $ - 30.1 $ - $ 30.1 (1) MSC are recorded directly to BAM's equity, which is recorded as
non-controlling interest on
HG Global/BAM Results-Three Months EndedJune 30, 2022 versus Three Months EndedJune 30, 2021 BAM is required to prepare its financial statements on a statutory accounting basis for the NYDFS and does not report stand-alone GAAP financial results. BAM charges an insurance premium on each municipal bond insurance policy it writes. A portion of the premium is MSC and the remainder is a risk premium. In the event of a municipal bond refunding, a portion of the MSC from original issuance can be reutilized, in effect serving as a credit against the total insurance premium on the refunding of the municipal bond. Gross written premiums and MSC collected in the HG Global/BAM segment totaled$41 million in the second quarter of 2022 compared to$30 million in the second quarter of 2021. BAM insured$5.9 billion of municipal bonds,$4.1 billion of which were in the primary market, in the second quarter of 2022 compared to$5.1 billion of municipal bonds,$4.8 billion of which were in the primary market, in the second quarter of 2021. Demand remained strong for insured bonds in the primary market, as insured penetration in the primary market was 9.1% in the second quarter of 2022 compared to 9.0% in the second quarter of 2021. Total pricing, which reflects both gross written premiums and MSC from new business, increased to 70 basis points in the second quarter of 2022 compared to 59 basis points in the second quarter of 2021. See "NON-GAAP FINANCIAL MEASURES" on page 75. The increase in total pricing was driven primarily by increased secondary market activity in the second quarter of 2022 compared to the second quarter of 2021. Pricing in the primary market decreased to 49 basis points in the second quarter of 2022 compared to 51 basis points in the second quarter of 2021. Pricing in the combined secondary and assumed reinsurance markets, which is more transaction specific than pricing in the primary market, decreased to 121 basis points in the second quarter of 2022 compared to 175 basis points in the second quarter of 2021. 54 -------------------------------------------------------------------------------- The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the three months endedJune 30, 2022 and 2021: Three Months Ended June 30, $ in Millions 2022 2021 Gross par value of primary market policies issued$ 4,123.7 $ 4,815.5 Gross par value of secondary market policies issued 1,743.8 312.1 Gross par value of assumed reinsurance - - Total gross par value of market policies issued$ 5,867.5 $ 5,127.6 Gross written premiums $ 17.1$ 13.7 MSC collected 24.0 16.3 Total gross written premiums and MSC collected $ 41.1$ 30.0 Present value of future installment MSC collections - -
Gross written premium adjustments on existing installment policies
- .1
Gross written premiums and MSC from new business (1) $ 41.1 $ 30.1
Total pricing 70 bps 59 bps
(1) See "NON-GAAP FINANCIAL MEASURES" on page 75.
HG Global reported pre-tax income (loss) of$(8) million in the second quarter of 2022 compared to$11 million in the second quarter of 2021. The change in pre-tax income (loss) was driven primarily by net unrealized investment losses on the HG Global fixed income portfolio, as interest rates increased in the second quarter of 2022. Results in the second quarter of 2022 and 2021 both included$3.0 million of interest income on the BAM Surplus Notes. OnApril 29, 2022 , HG Global received the proceeds of its new$150 million , 10-year term loan credit facility. In turn, onMay 2, 2022 , HG Global paid a$120 million cash dividend to shareholders, of which$116 million was paid toWhite Mountains . BAM is a mutual insurance company that is owned by its members. BAM's results are consolidated intoWhite Mountains's GAAP financial statements and attributed to non-controlling interests.White Mountains reported$31 million of GAAP pre-tax loss from BAM in the second quarter of 2022 compared to$9 million in the second quarter of 2021. The change in pre-tax loss was driven primarily by net unrealized investment losses on the BAM fixed income portfolio, as interest rates increased in the second quarter of 2022. Results in the second quarter of 2022 include$3 million of interest expense on the BAM Surplus Notes and$16 million of general and administrative expenses, compared to$3 million of interest expense and$13 million of general and administrative expenses in the second quarter of 2021. All BAM-insured bond payments due throughAugust 1, 2022 have been made by insureds, and there are no credits on BAM's watchlist. HG Global/BAM Results-Six Months EndedJune 30, 2022 versus Six Months EndedJune 30, 2021 Gross written premiums and MSC collected in the HG Global/BAM segment totaled$63 million in the first six months of 2022, compared to$56 million in the first six months of 2021. BAM insured$9.3 billion of municipal bonds,$6.9 billion of which were in the primary market, in the first six months of 2022, compared to$8.7 billion of municipal bonds,$7.4 billion of which were in the primary market, in the first six months of 2021. In the first quarter of 2021, BAM completed an assumed reinsurance transaction to reinsure municipal bonds with a par value of$806 million . Total pricing, which reflects both gross written premiums and MSC from new business, increased to 67 basis points in the first six months of 2022, compared to 65 basis points in the first six months of 2021. See "NON-GAAP FINANCIAL MEASURES" on page 75. The increase in total pricing was driven primarily by increased secondary market activity in the first six months of 2022 compared to the first six months of 2021. Pricing in the primary market decreased to 47 basis points in the first six months of 2022, compared to 54 basis points in the first six months of 2021. Pricing in the secondary and assumed reinsurance markets, which is more transaction specific than pricing in the primary market, decreased to 124 basis points in the first six months of 2022, compared to 131 basis points in the first six months of 2021. 55 -------------------------------------------------------------------------------- The following table presents the gross par value of primary and secondary market policies issued, the gross par value of assumed reinsurance, the gross written premiums and MSC collected and total pricing for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, $ in Millions 2022 2021 Gross par value of primary market policies issued$ 6,878.8 $ 7,357.5 Gross par value of secondary market policies issued 2,442.9 489.2 Gross par value of assumed reinsurance - 805.5 Total gross par value of market policies issued$ 9,321.7 $ 8,652.2 Gross written premiums 26.5 26.2 MSC collected 36.3 30.1 Total gross written premiums and MSC collected $ 62.8$ 56.3 Present value of future installment MSC collections - -
Gross written premium adjustments on existing installment policies
- .1
Gross written premiums and MSC from new business $ 62.8 $ 56.4
Total pricing 67 bps 65 bps
HG Global reported pre-tax income (loss) of $(23) million in the first six
months of 2022 compared to $9 million in the first six months of 2021. The
change in pre-tax income (loss) was driven primarily by net unrealized
investment losses on the HG Global fixed income portfolio, as interest rates
increased in the first six months of 2022. Results in the first six months of
2022 and 2021 both include $6 million of interest income on the BAM Surplus
Notes.
White Mountains reported $66 million of GAAP pre-tax loss from BAM in the first
six months of 2022 compared to $32 million in the first six months of 2021. The
increase in pre-tax loss was driven primarily by net unrealized investment
losses on the BAM fixed income portfolio, as interest rates increased in the
first six months of 2022. Results in the first six months of 2022 include $6
million of interest expense on the BAM Surplus Notes and $32 million of general
and administrative expenses, compared to $6 million of interest expense and $29
million of general and administrative expenses in the first six months of 2021.
Claims Paying Resources
BAM's claims paying resources represent the capital and other financial
resources BAM has available to pay claims and, as such, is a key indication of
BAM's financial strength.
BAM's claims paying resources were $1,228 million as of June 30, 2022 compared
to $1,192 million as of December 31, 2021 and $1,165 million as of June 30,
2021 . The increase in claims paying resources as of June 30, 2022 compared to
December 31, 2021 was driven primarily by increases in the statutory value of
the collateral trusts resulting from deposits of ceded premiums and an increase
in BAM's qualified statutory capital resulting from business operations for the
six months ended June 30, 2022 .
The following table presents BAM's total claims paying resources as of June 30,
2022 , December 31, 2021 and June 30, 2021 :
Millions June 30, 2022 December 31, 2021 June 30, 2021
Policyholders' surplus $ 303.4 $ 298.1 $ 323.1
Contingency reserve 109.8 101.8 97.4
Qualified statutory capital 413.2 399.9 420.5
Net unearned premiums 51.1 49.5 47.4
Present value of future installment
premiums and MSC 13.9 13.8 13.8
HG Re Collateral trusts at statutory
value 499.4 478.9 433.0
Fidus Re Collateral trust at statutory
value 250.0 250.0 250.0
Claims paying resources $ 1,227.6 $ 1,192.1 $ 1,164.7
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