8-K: White Mountains Insurance Group Reports Mixed Second Quarter Results, Impacted by MediaAlpha Investment

White Mountains Insurance Group's second quarter results were impacted by a significant loss in their MediaAlpha investment, though underlying operations showed positive growth.

Summary

• White Mountains Insurance Group reported a decrease in both book value per share and adjusted book value per share by 1% in the second quarter of 2024, primarily due to a $139 million loss from their investment in MediaAlpha.
• Excluding the impact of MediaAlpha, adjusted book value per share increased by 2%, driven by strong performance in operating companies and good investment returns.
• Ark's gross written premiums increased by 15% year-over-year to $697 million, with a combined ratio of 89%.
• BAM's gross written premiums and member surplus contributions rose by 7% year-over-year to $28 million.
• Kudu's trailing 12-month adjusted EBITDA increased, and the value of its continuing portfolio grew by 7%.
• Bamboo's managed premiums tripled year-over-year, and adjusted EBITDA also saw significant growth.
• The company's undeployed capital is approximately $650 million.
• Comprehensive income attributable to common shareholders was a loss of $55 million in the second quarter of 2024, compared to a profit of $21 million in the same period of 2023.
• The total consolidated portfolio return was -0.1% in the second quarter of 2024, but excluding MediaAlpha, it was 2.2%.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the significant loss from MediaAlpha, which overshadows the positive performance in other segments. The underlying businesses are performing well, but the overall results are mixed.

Positives

• Excluding the impact of MediaAlpha, White Mountains' adjusted book value per share increased by 2%.
• Ark experienced a 15% year-over-year increase in gross written premiums, reaching $697 million.
• BAM's gross written premiums and member surplus contributions grew by 7% year-over-year.
• Kudu's trailing 12-month adjusted EBITDA increased, and the value of its portfolio grew by 7%.
• Bamboo's managed premiums tripled year-over-year, and adjusted EBITDA also saw significant growth.
• The company's investment portfolio, excluding MediaAlpha, showed a positive return of 2.2% in the second quarter.

Negatives

• White Mountains' book value per share and adjusted book value per share both decreased by 1% in the second quarter of 2024.
• The company experienced a $139 million loss due to a 35% decline in MediaAlpha's share price.
• Comprehensive income attributable to common shareholders was a loss of $55 million in the second quarter of 2024.
• The total consolidated portfolio return was -0.1% in the second quarter of 2024, impacted by MediaAlpha.

Risks

• The company's investment in MediaAlpha is subject to significant market volatility, as evidenced by the 35% share price decline in the quarter.
• Catastrophe losses, while minimal in the current quarter, remain a potential risk for the insurance business.
• The company's results are sensitive to changes in interest rates, which can impact the value of their investments.
• The company's reliance on non-GAAP financial measures may make it difficult to compare results with other companies.

Future Outlook

White Mountains expects to file its Form 10-Q today with the Securities and Exchange Commission and urges shareholders to refer to that document for more complete information concerning its financial results. Kudu has robust dry powder and deployment opportunities heading into the second half of 2024. Bamboo sees continuing opportunities to drive robust, profitable growth.

Management Comments

• Manning Rountree, CEO, commented, 'ABVPS was down 1% in the quarter, due primarily to our investment in MediaAlpha. Excluding MediaAlpha, ABVPS was up 2%, driven by solid results at our operating companies and good investment returns.'
• Ian Beaton, CEO of Ark, said, 'We are off to a good start through the first half of 2024. Arks combined ratio was 89% for the second quarter and 91% year to date, both in line with prior year. Gross written premiums were up 15% over prior year in the quarter.'
• Sen McCarthy, CEO of BAM, said, 'BAM had a solid quarter and first half. Primary market par insured totaled $7.9 billion for the first half, up 55% from 2023 and a record result.'
• Rob Jakacki, CEO of Kudu, said, 'We had a good quarter. Trailing 12 months adjusted EBITDA increased to $60 million, while the fair value of our continuing portfolio grew 7%.'
• John Chu, CEO of Bamboo, said, 'Bamboo delivered a strong second quarter, achieving new highs for managed premiums and earnings. Managed premiums tripled year-over-year to $120 million, and MGA Adjusted EBITDA increased to a record $12 million.'

Industry Context

The results reflect the challenges of managing a diverse portfolio, particularly the impact of market volatility on investments like MediaAlpha. The insurance operations, however, show resilience and growth, aligning with broader trends in the insurance sector where premium growth and disciplined underwriting are key.

Comparison to Industry Standards

• Ark's combined ratio of 89% is in line with the previous year, indicating consistent underwriting performance, which is a key metric for insurance companies.
• The 15% growth in Ark's gross written premiums suggests a strong competitive position and ability to capture market share, which is a positive sign compared to industry averages.
• BAM's 55% increase in primary market par insured is a significant achievement, indicating strong demand for their services, and is well above industry growth rates.
• Kudu's 7% portfolio growth and increased adjusted EBITDA demonstrate effective asset management, which is a key differentiator in the asset management industry.
• Bamboo's tripling of managed premiums year-over-year is exceptional, suggesting a strong market position and growth trajectory compared to other insurance distribution businesses.
• The negative impact of MediaAlpha highlights the risk of holding volatile investments, which is a common challenge for diversified financial services companies.

Stakeholder Impact

• Shareholders experienced a decrease in book value per share and adjusted book value per share due to the MediaAlpha loss.
• Employees at Ark, BAM, Kudu, and Bamboo may benefit from the positive growth in their respective segments.
• Customers of Ark and BAM may see continued service and product offerings.
• Suppliers and creditors may see continued business relationships with the company.

Next Steps

• White Mountains expects to file its Form 10-Q with the Securities and Exchange Commission.
• The company will continue to monitor the performance of its operating companies and investment portfolio.
• Kudu will look to deploy its dry powder and pursue deployment opportunities in the second half of 2024.
• Bamboo will continue to focus on driving robust, profitable growth.

Key Dates

Keywords

Insurance, Reinsurance, Financial Guarantee, Asset Management, Book Value, EBITDA, Premiums, Investment Returns, MediaAlpha, Combined Ratio