White Mountains reveals Q1 loss
White Mountains Insurance Group has revealed that it made a loss of $48 million in the first quarter of 2018, compared to a profit of $29 million in the same period of 2017.
“The main event was a -1.0 percent total return in our investment portfolio, as both fixed income and equity markets sold off in the quarter,” said Manning Rountree, chief executive officer (CEO). “As expected, new municipal bond issuance was light in the quarter, and BAM's volume dipped as a result, although BAM's pricing and market share remained at healthy levels. MediaAlpha had an outstanding quarter, with strong topline growth and record adjusted EBITDA. In April, we announced our agreement to acquire NSM, a leading specialty insurance program administrator. We expect to close the acquisition in the second quarter. Our modified Dutch tender offer for up to 500,000 White Mountains common shares will expire on May 7."
The group’s subsidiary BAM insured municipal bonds with par value of $1.3 billion in the first quarter of 2018, compared to $2.4 billion in the first quarter of 2017. Gross written premiums and member surplus contributions totalled $11 million in the first quarter of 2018, compared to $28 million in the first quarter of 2017. Total pricing, which is premiums plus member surplus contributions weighted by the par value of bonds insured, was 96 basis points in in the first quarter of 2018, compared to 119 basis points in the first quarter of 2017. BAM's total claims paying resources were $709 million at March 31, 2018, compared to $708 million at December 31, 2017 and $662 million at March 31, 2017.
Seán McCarthy, CEO of BAM, said: "The first quarter saw a market-wide drop in new-issue municipal volume, as the uncertainty over tax reform caused many issuers to pull forward planned 2018 issuance volume into 2017. Despite the drop in supply, BAM maintained its market position and continued to generate organic growth in claims paying resources. Primary market pricing improved in the quarter. In April, we expanded our claims-paying resources by $100 million through a collateralised reinsurance agreement with Fidus Re, a special-purpose insurer created to provide collateralised reinsurance protection to BAM. This creative transaction demonstrates the quality of BAM's insured portfolio and the strength of BAM's position in the marketplace."
In addition HG Global reported pre-tax income of $5 million in the first quarter of 2018, compared to pre-tax income of $7 million in the first quarter of 2017. White Mountains reported pre-tax loss related to BAM of $19 million in the first quarter of 2018, compared to pre-tax loss of $12 million in the first quarter of 2017. The period over period changes were driven primarily by lower returns in the HG Global/BAM investment portfolios.
BAM is a mutual insurance company that is owned by its members. BAM's results are consolidated into White Mountains's GAAP financial statements and attributed to non-controlling interests.
MediaAlpha reported break-even GAAP pre-tax income and adjusted EBITDA of $10 million in the first quarter of 2018, compared to GAAP pre-tax loss of $1 million and adjusted EBITDA of $2 million in the first quarter of 2017. MediaAlpha reported revenues of $72 million in the first quarter of 2018, compared to $33 million in the first quarter of 2017. The increases in GAAP pre-tax income, adjusted EBITDA and revenues were primarily driven by growth in the P&C vertical and the Health, Medicare and Life vertical, which includes the impact of the acquisition of assets from Healthplans.com in the fourth quarter of 2017.
Cost of sales was $57 million in the first quarter of 2018, compared to $28 million in the first quarter of 2017. The increase in cost of sales was primarily driven by volume growth. General and administrative expenses were $11 million in the first quarter of 2018, compared to $3 million in the first quarter of 2017. The increase was primarily driven by the recognition of non-cash equity-based compensation expense of $6 million.
White Mountains's Other Operations segment reported pre-tax loss of $52 million in the first quarter of 2018, compared to pre-tax income of $3 million in the first quarter of 2017. The change was driven primarily by negative investment results, partially offset by a reduction in general and administrative expenses. Net realised and unrealised losses were $46 million in the first quarter of 2018, compared to net realised and unrealised gains of $35 million in the first quarter of 2017. Net investment income was $16 million in the first quarter of 2018, compared to $10 million in the first quarter of 2017. General and administrative expenses were $22 million in the first quarter of 2018, compared to $45 million in the first quarter of 2017. In the first quarter of 2017, general and administrative expenses included $14 million of additional compensation expense related to the retirement of the company's former chairman and CEO.
On March 31, 2018, White Mountains entered into an agreement to acquire 95 percent of NSM Insurance Group for cash in an amount equal to $368 million, subject to certain adjustments. NSM expects to borrow approximately $100 million of third party indebtedness in conjunction with the acquisition which will reduce White Mountains's net investment to approximately $273 million.
NSM is a full-service MGU and program administrator for specialty property & casualty insurance, with over $500 million of controlled premiums. NSM manages all aspects of the placement process on behalf of its carrier partners, including product development, marketing, underwriting, policy issuance, and claims. The company specialises in niche sectors such as collector cars, social services and behavioural health, specialty real estate, sports and fitness centres, and pet insurance.
