White Mountains Insurance (WTM) Analyst Day – Q and A - Part Two

WTM Analyst Day – Q & A – June 17, 2008

This is part two of a rough transcription of the Question and Answer period from the White Mountains Analyst day held on June 17, 2008.

Here are the other posts I have written on the meeting:

WTM - Introductory Comments

WTM - The Reserve Issue

WTM - Review of One Beacon

WTM - Review of White Mountains Re

WTM - Review of Esurance

WTM - Investment Portfolio

WTM - Berkshire Transaction

WTM - Q and A - Part I

Has compensation been tied to long-term results?

LT comp has always been tied to results – using a formula to calculate. Short term can be a lot of discretion by CEO of units on short-term comp.

Since this happened on underwriting from six years ago – can more be tied to long term?

We have both ST and LT comp – whether the claims were there 6 year sago is irrelevant in deciding on comp – three years of adverse reserve development in a row - we are having a debate now in the company – a lot of these people were not here six years ago but they were here last year.

WTM Solutions – run off business – getting more activity?

Waxes and wanes with cycle as competitors get more stressed - yes, seeing more activity – pace is picking up – not enough pain felt just yet.

Person who used to run this retired last year but good team. They study 30 deals they get one. Neil Wasserman is in charge – part of team – confident in him. The expense base is $3 million a year so one deal basically pays for WTM Solutions.

Municipal Bond underwriting?

Looked at a lot of things – it is a good market – used to be in FSA – sold it in 2000 – kept some that was sold back last year. A good business – BRK is there – nothing yet that will benefit. Looked with partners starting 9 or 10 months ago.

We have done modeling on losses on sub prime guarantees done by insurers and come up with losses much higher – made a decision not to invest in existing insurer. Our hurdle is very high – high capital.

Globalization of Insurance business?

Look at it all the time – insurance is very local – would not go into Israel or Russia unless had someone who knew it well. Do not have the pretense that we can go into others markets and do better than them.

NOLS- Esurance - $300 million – is it currently being used?

Esurance is generating NOL’s - Gary sees a path to GAAP profitability reasonably soon so will soon use them pretty quickly. The AnswerFinancial NOL’s - we valued them knowing that we wouldn’t be used quickly - discounted them significantly – we hoping to do better than our own plans – we did not overpay.

BRK transaction?

Waiting for private letter ruling from IRS on taxability – have had conversations with them already.

Esurance conversion ratio of 8% - is that constant?

In 2000, conversion rate was 2% - up 1% compared to last year – improving the process – improving web site – always trying to improve. Not sure about competitors – believe that GEICO id higher – brand is important – so is pricing – on the phone conversion rate is 15%. AF conversion rate is 30% because they offer other carriers.

Are you OK with pricing vs. comp?

Not as competitive as a year ago – we took price increase in 18 states about up 9% because severity was going up – can see how comp they are by stet – CA very competitive – just raised rates in Florida so probably not that competitive there anymore. GEICO probably the most competitive on prices.

Symetra valuation last year was to be IPO’s at 1.4 times book. Is that current?

Can’t directly comment – that’s what it was last year and we were comfortable with it.

Are you shifting assets away from Energy in investing portfolio?

Have shifted from winners to laggards but overall weighting the same.