Municipal Bond Guarantee Insurance

3 Months Ended

Mar. 31, 2026

Municipal Bond Guarantee Reinsurance

HG Global was established to fund the startup of BAM, a mutual municipal bond insurer. HG Global, together with its subsidiaries, provided the initial capitalization of BAM through the purchase of $503.0 million of the BAM Surplus Notes.

Reinsurance Treaties

FLRT

HG Re is a party to the FLRT with BAM, under which HG Re provides first-loss reinsurance protection of up to 15%-of-par outstanding for each policy assumed from BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds. HG Re is only required to provide reinsurance on policies that fall within the FLRT underwriting guidelines agreed upon by HG Re.

BAM charges an insurance premium on each municipal bond insurance policy it underwrites. Historically, approximately 55% of the total insurance premium charged by BAM has been a member surplus contribution, and the remainder is a risk premium. In return for the reinsurance provided, HG Re receives approximately 60% of the risk premium charged, which is net of a ceding commission.

The FLRT is a perpetual agreement with terms that can be renegotiated every five years. For the next renegotiation period, either party may provide notice during 2028 to trigger a renegotiation that would take effect on January 1, 2030.

For the three months ended March 31, 2026 and 2025, HG Re recognized gross written premiums of $8.3 million and $6.7 million and earned premiums of $7.7 million and $8.2 million.

XOLT

HG Re is party to an excess of loss reinsurance agreement (the “XOLT”) with BAM, under which HG Re provides last-dollar protection for exposures on municipal bonds insured by BAM in excess of the New York State Department of Financial Services (“NYDFS”) single issuer limits. As of March 31, 2026, the XOLT is subject to an aggregate limit equal to the lesser of $125.0 million or the assets held in the supplemental collateral trust (the “Supplemental Trust”) at any point in time. The XOLT is accounted for using deposit accounting, as the agreement does not meet the risk transfer requirements necessary to be accounted for as reinsurance. Accordingly, any financing revenues related to the XOLT are recorded in other revenues.

For the three months ended March 31, 2026 and 2025, other revenues recognized by HG Re related to the XOLT were insignificant.

Collateral Trusts

HG Re’s obligations under the FLRT are subject to an aggregate limit equal to the assets in two collateral trusts, the Supplemental Trust and the Regulation 114 Trust (together, the “Collateral Trusts”), at any point in time.

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 Regulation 114 Trust balance as of March 31, 2026 and December 31, 2025 was $405.8 million and $399.4 million, which consisted of cash, investments and accrued investment income.

The Supplemental Trust target balance is $603.0 million, less the amount of cash and securities in the Regulation 114 Trust in excess of its target balance (the “Supplemental Trust 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. For the three months ended March 31, 2026, HG Re received a distribution from the Supplemental Trust of $15.0 million, which consisted of an assignment of $7.1 million of accrued interest on the BAM Surplus Notes and a cash distribution of $7.9 million. For the three months ended March 31, 2025, HG Re did not receive any distributions from the Supplemental Trust.

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, 2026 and December 31, 2025 was $603.1 million and $607.1 million, which included $319.4 million and $323.3 million of cash, investments and accrued investment income, $276.8 million and $276.8 million of BAM Surplus Notes at nominal value and $6.9 million and $7.0 million of accrued interest receivable on the BAM Surplus Notes at nominal value.

As of March 31, 2026 and December 31, 2025, the Collateral Trusts held total assets of $1,008.9 million and $1,006.5 million.

BAM Surplus Notes

Through June 30, 2024, the interest rate on the BAM Surplus Notes was a variable rate equal to the one-year U.S. Treasury rate plus 300 basis points, set annually, with each payment applied pro rata between outstanding principal and interest. Accordingly, in 2024, the interest rate on the BAM Surplus Notes was 8.2% through June 30, 2024. Effective July 1, 2024 and through maturity, HG Global and BAM amended the interest rate on the BAM Surplus Notes to be 10.0%, with a higher proportion of each payment to be applied to outstanding principal.

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, 2026 and March 31, 2025, HG Global did not receive any payments of principal or interest on the BAM Surplus Notes.

As of March 31, 2026 and December 31, 2025, the principal balance on the BAM Surplus Notes was $276.8 million for both periods, and total interest receivable on the BAM Surplus Notes was $220.6 million and $213.7 million, all at nominal value. For three months ended March 31, 2026 and 2025, White Mountains accrued $6.9 million and $7.5 million of interest income on the BAM Surplus Notes.

White Mountains elected the fair value option for the BAM Surplus Notes. The BAM Surplus Notes are classified as a Level 3 measurement. White Mountains values the BAM Surplus Notes each quarter using a discounted cash flow analysis.

The discounted cash flow analysis used to value the BAM Surplus Notes depends on key inputs, such as projections of future revenues and earnings for BAM, expected payments on the BAM Surplus Notes through maturity and a discount rate to reflect time value and related uncertainty of the repayment pattern. The expected payments on the BAM Surplus Notes are based on management judgment, considering current performance, budgets and projected future results. These expected payments depend on BAM’s ability to generate excess cash flows from its operations, driven primarily by assumptions regarding future trends for the issuance of municipal bonds, interest rates, credit spreads, insured market penetration, competitive activity in the market for municipal bond insurance and other factors affecting the demand for and pricing of BAM’s municipal bond insurance, as well as BAM’s investment returns. The discount rate considers comparably-rated companies and instruments, adjusted for risks specific to BAM and the BAM Surplus Notes. As of March 31, 2026 and December 31, 2025, White Mountains concluded that a discount rate, which is a significant unobservable input used in estimating the fair value of the BAM Surplus Notes, of 8.30% and 8.05% was appropriate. The change in the discount rate was driven primarily by an increase in market interest rates.

When making its fair value selection, White Mountains considers all available information, facts and circumstances specific to BAM’s business and industry and any infrequent or unusual results for the period. As of March 31, 2026 and December 31, 2025, White Mountains recognized the BAM Surplus Notes at a fair value of $345.9 million and $339.0 million. The recorded fair values represent management's best estimate and are within the range of reasonable values derived from the discounted cash flow analysis.

The following table presents the changes in the nominal value and fair value of the BAM Surplus Notes for the three months ended March 31, 2026 and 2025:


Millions	Three Months Ended March 31, 2026		Three Months Ended March 31, 2025

Beginning nominal value	$	490.5	$	495.7
Interest income from BAM Surplus Notes	6.9		7.5
Payments of principal and interest	—		—
Ending nominal value	497.4		503.2


Beginning fair value discount	(151.5)		(114.0)
Change in fair value of BAM Surplus Notes	—		—
Ending fair value discount	(151.5)		(114.0)

BAM Surplus Notes, at fair value	$	345.9	$	389.2

Insured Obligations and Premiums

The following table presents the HG Global segment’s insured obligations as of March 31, 2026 and December 31, 2025:


	March 31, 2026		December 31, 2025
Contracts outstanding	17,721		17,377
Remaining weighted average contract period (in years) (1)	11.6		11.6

Outstanding par value of policies assumed (in millions) (2)	$	20,856.3	$	20,559.9




Gross unearned insurance premiums (in millions)	$	328.5	$	327.9

(1) The remaining weighted average contract period was calculated using total contractual debt service outstanding, including principal and interest.

(2) Under the FLRT, HG Re provides first-loss reinsurance protection of up to 15%-of-par outstanding for each policy assumed from BAM. For capital appreciation bonds, par is adjusted to the estimated equivalent par value for current interest paying bonds.

The following table presents the HG Global segment’s future premium revenues as of March 31, 2026:


Millions	March 31, 2026


April 1, 2026 - December 31, 2026	$	21.1
2027	26.8
2028	25.2
2029	23.7
2030	22.3
2031 and thereafter	209.4
Total gross unearned insurance premiums	$	328.5

The following table presents gross written premiums and gross earned premiums included in the HG Global segment for the three months ended March 31, 2026 and 2025:


	Three Months Ended March 31,
Millions	2026		2025
Written premiums:
Direct	$	—	$	—
Assumed	8.3		6.7
Gross written premiums	$	8.3	$	6.7
Earned premiums:
Direct	$	—	$	—
Assumed	7.7		8.2
Gross earned premiums	$	7.7	$	8.2

WHITE MOUNTAINS INSURANCE GROUP LTD 10-Q