White Mountains Insurance Group, Ltd. (WTM) Earnings Call Transcript & Summary

Good morning, folks. I'm Morgan Davis, the Chairman of White Mountains, and I want to welcome you all to this session. Delighted that you're here and have interest in our company. My job is to introduce the directors and then turn it over to Manning, who will tell you all about White Mountains. So we have some of our directors here. Unfortunately, a couple of them couldn't make it, but we have Pete Carlson. Pete is with MiMedx as the CFO. He has extensive accounting and auditing background. He's the Chairman of our Audit Committee. Next to Pete is Mary Choksi. She has extensive -- Let me check my notes here, so I don't muck it up. Extensive executive and Board level service. She's a founding partner of Strategic Investment Group and Founder of Emerging Markets Management. Our newest Director is Suzanne Shank, and we're pleased to welcome her, delighted to have her. She joined us in October of '21, and she's the President and CEO, Co-Founder of Siebert Williams Shank & Company, a full-service investment banking and financial operation. And we have at the end of the row there, David Tanner. Tanner is also our Deputy Chairman, and he has extensive Board level service and private equity financial experience. He's the Managing Director of Three Mile Capital, previously Managing Director of Arlon Group and Executive -- former Executive Vice President of Continental Grain, Founder and Managing Principal of Quadrangle Group. And the 2 directors that are not here, Margaret Dillon, she has extensive insurance background. She was previously the Chief Customer Officer for Liberty Mutual and Chief Financial Officer for Liberty's Personal Lines operation. And Phil Gelston, former partner at Cravath, has deep legal and management experience, and he's the Chair of our Comp and Nominating Committee. And you will note, we've had a little bit of board refreshment since we met the last time, and I'm very pleased with some of our new directors. And I think we have a very competent, able, qualified board that all seems to work together well. And you as shareholders, I think, should be very proud of the group that we've assembled. So that's your Board of Directors, and we're glad you're here. There was one other thing I want to do before I turn it over to Manning, and that's to find out who is our longest-tenured shareholder here. So is there anybody here with us today that has owned the stock for, say, more than 20 years? We've got a couple of hands in the room. Well, Dave Staples put his hand up. Yes, sir, when did you join us as a...

Year 2000.

Excellent. All right. 80s. Well, you're going to win the prize for the longest tenured, but -- Well, we're excited you guys have stuck with us through all the changes, and we're glad you're here. And Manning Rountree, our CEO, is also on the Board. I should have introduced him as a Board member, and he's been with the company since 2004. And we're delighted that -- with the job he's doing. So I will turn it over to Manning. The floor is yours.

Thank you, Morgan. Welcome, everybody. It's sort of hard to believe it's been 3 years since we've done this in person. And as many of you know, my wife is an expert in pandemics and vaccine development, so it's been a busy 3 years in our house. But when the pandemic hit, my son said to her mom, congratulations. This is your time to shine. You have 1 minute. But that 1 minute has turned into 3 years, and it's been a long role -- run for us, and we're glad we're finally back doing this in the old-fashioned way that we always have, so welcome to everybody. I'm going to also welcome the senior team of White Mountains. I'm not going to introduce each of them to you today, but they're here. Please talk with them afterwards if you'd like. I'm going to introduce the senior teams of the operating companies as we go. You get a chance to ask Q&A during the session and also afterwards, if you'd like. I do want to call out a few key management changes that have happened since the last time we were here. The first is Reid Campbell, who's been with us for more than 25 years, stepped down from the role of CFO in March, and he's assumed the role of President. And in that role, he's essentially doing everything he's always done except for Ks and Qs. And we look forward to working with Reid that capacity for at least a couple more years. Then Liam Caffrey, to my left, joined us as CFO effective on March 1. Liam is going to be new for this group, so please introduce yourselves. Liam spent 10 years at McKinsey & Company and the 9 at Aon, where he was most recently CEO of Aon Affinity and Global CFO of Aon Risk Solutions. He brings a lot of experience, a lot of leadership to the senior team, and let me just assure everybody that the finance function is in great hands. Third, and this will be relevant, I think, to all shareholders. We said goodbye to Todd Pozefsky, who has announced his retirement last year. You all know him in his role as the Head of Investor Relations, but he's contributed -- he's just a jack of all trades and the busiest man in show business, and has contributed all over the company for many years, and we're really going to miss him. But so far, he's working with us on a consulting basis for a couple of years. And so far, he's spending most of his retirement in the Gilford office. So that's a good situation. Rob Seelig, who's here, who's our long-time General Counsel in the back, who many of you know as well, has picked up Investor Relations, and will be your point person going forward. Finally, I want to welcome back 2 executives. White Mountains' Mike Papamichael, in the role of Deputy CFO. Mike, you could raise your hand. And Keith Milne, who's joined the corporate development and M&A team in Hanover. Mike and Keith grew up in the White Mountains family. In fact, Keith's first job, he had a desk jammed into my office because we didn't have a space for him. But they're rejoining from Hamilton and Sirius, respectively, and they're strong, young executives with insurance chops and horsepower, and we welcome them back. All right. I would -- lastly, I would note, as I do every year, that each member of the senior team at White Mountains is a White Mountain shareholder, and in most cases, hold shares worth many multiples of his or her salary. I can assure you that every member of this team thinks like an owner and works relentlessly in pursuit of shareholder value. All right. A word on format. We're going to change things up a little bit this year because there have been some significant developments in the first half of the year. We're going to cover the first, we're going to give you a chance for Q&A, and then we'll circle back and do a full rundown of the operating businesses with a focus on '21 results. All right. Let's get started. All right. Three key developments in the first half of '22. We announced the sale of NSM. We closed and funded a new debt facility at HG Global, and we closed and funded a new equity capital raise at Kudu. The bottom line impact from these 3 deals is an increase of $282 per share in adjusted book value, and an increase in undeployed capital of $1.4 billion, so this is big in the aggregate. And each of these transactions represent a milestone of sorts for the 3 businesses, and we'll talk about those. All right. First, NSM. In May, we announced the sale to Carlyle for $1.775 billion. The deal will generate a gain on sale of $830 million. The multiple invested capital is about $2.7 million, and the IRR is about 31% over about 4 years, so a successful outcome. Closing the chapter on the NSM investment is bittersweet. We've really enjoyed working with the guys at NSM, and I think the partnership has been a strong one, and Geof will talk to that in a minute. What made this investment work, when I reflect on it, we bought it at a fair price. It wasn't a cheap price, it wasn't a dear price, it was a fair price. We aligned ourselves well with the management team who really had something to prove, and then we try to help them. We're at a minimum, get out of the way while they went about proving it. Where the organic growth was, I think, in the high single digits, low double digits sort of across the span of our investment, not everything worked all the time. We had hiccups in different places, but the diversification of verticals helped. When you blended it all up, it was a nice, steady underlying growth. We worked with management to do 6 roll-up transactions. And I would say we had one 3 pitch strike out, 2 home runs and 3 base hits. And when you look at that in terms of how it rolled up into value creation, it was significant. And finally, we've got some multiple expansion on our exit, which was nice to see. So I've talked to most shareholders about this deal at one quarter or another. And nobody questions why did you sell on these terms because the result, I think, speaks for itself. But I do get asked, why do you sell that all? This is a nice little business, why not hold it and mature it and grow it? And there's no deductive answer to that. In the end, when I reflect on it, I think the NSM guys agree this was a compelling transaction. And it was a deal that was too good to refuse that we didn't refuse it. All right. Let me stop there, and I want to ask Geof McKernan, CEO and Founder of NSM. I'll also introduce Billy McKernan, President of NSM, and I'll ask Geof to come and say a few words and take a bow. Yes.

Good morning, and thank you, Manning. My name is Geof McKernan, Founder and CEO of NSM. And I first want to say thanks to Manning, Morgan, Reid, Chris, Crystal, [ Haney ]. These folks who worked with us very diligently over the last 4 years to make NSM what it is today, and that's not lip-service. When -- I'd like to tell a funny story. When we first started with White Mountains, Morgan, Reid, Manning, Chris came down. And our culture was about face-to-face, understanding people and making sure we got a capital partner that can help us through that. And Bill and I sat in the conference room with Manning, with Morgan, with Reid and Chris, and in 3 hours, we had a handshake deal. And that is the essence of how we work the business. It was face-to-face. It was picking up the phone call and getting things done. And when we reflect upon that, when we first started the business, we needed a lot of structure and we wanted to invest in a lot of the business. And what White Mountains did for us, they allowed us to invest in the business. They also mentored us on how to be a good business, and for that, we thank you very much. And as Manning said, they allowed us to do what we do which is grow our businesses, find the right niches and grow. But they were also -- Manning was personally a mentor to Billy and I on how to run a bigger business. So that's why the business has grown the way it is because we put a lot of structure around it, and that is what we needed, and that is why we got high multiples. When we did the process, everybody looked at our numbers and how we did it and said, hey, this is a really solid business. There's no gaps. There's no questions. Everything was buttoned up. And if you're in the M&A world, you see a lot of businesses that aren't buttoned up, and that's why the transaction got the multiple, and that's why we have the competitive nature because we had a lot of people who wanted our business, so. And Manning allowed us to pick our partner and do the right things, so thank you.

Let me open for questions for Geof or me. Okay. Thanks. All right, let's move on. Shifting gears. HG Global BAM. So in April, HG Global closed and funded a new $150 million investment-grade rated senior debt facility. And of that amount, $116 million made its way back up to White Mountains parent company in cash, which reduces our equity capital commitment to HG BAM dollar for dollar. So why is this deal important? First and foremost, it demonstrates the continued financial progress of HGG and BAM, and we'll cover this more in the BAM section later on in the presentation. But in short, we've had 5 consecutive years of increasing cash flow coming through the HGG system. And in total, HGG has repaid almost $200 million of cash payments, a surplus note P&I. So the surplus note balances have come down considerably, so strong financial progress for the segment. Second, this is a significant return of equity capital and probably the biggest return since we've been involved in the business for 11 years now, and that's important. And third, we think we can do this again down the road to the extent that the cash flow continues to build and grow in the system. So a good deal at HG BAM. Let me ask if there are any questions on this deal? Okay. Hearing none, let's shift gears again and talk about Kudu. So in May, Kudu closed and funded $114 million equity capital raise. MassMutual came in for $64 million for a 9.9% slice, and White Mountains contributed an incremental $50 million pari passu. The key number here is $114 million, and not the first $114 million, but the second $114 million. The pre-money value for this equity capital raise was $114 million above the fair value of the go-forward Kudu portfolio. So if you're analyzing Kudu, that's the key thing, focus on here. If that step-up were fully realized, it would represent a gain in adjusted book value per share of upwards of $30 a share, but it is not fully realized. GAAP only recognizes the 9.9% slice percent slice acquired by MassMutual, so the true impact will not come through yet. Why is this deal important? First of all, MassMutual is an ideal partner. In 2020, MassMutual became Kudu's lender when we closed a $300 million investment grade rated debt facility. Now, they're taking an equity slice. They're supportive of the business. They've got a long-term perspective and they line up well with what we want to do and what Kudu wants to do. So we welcome them as a partner in a new format, and we look forward to working with them. The other point is just to realize that Kudu's pipeline remains robust. It is striking how much demand there is for the kinds of capital solutions that Kudu provides, and Rob and Charlie have done a great job positioning the business as the first call in their target market. So Kudu wants to build a big business. There's every reason to think they can handle the big business, and the capital support from MassMutual is more dry powder to help us do that. So let me pause there and see if there are any questions on the Kudu deal. Okay. Hearing none, I'm going to introduce Liam and he's going to cover the financial implications of these 3 deals.

Thank you, Manning. Good morning. What I'd first like to do is, again, just summarize the overall impact from these 3 transactions that Manning described, then talk a little bit about implications for our financial position and some of our recent performance. So again, as Manning described, 2 key metrics that we've been tracking, first, adjusted book value per share and then undeployed capital. So in terms of adjusted book value per share, as Manning laid out, the main event is really the NSM sale. That will take them where we ended 1Q at $1,204 per share, up by $280. HG Global transaction has no impact on book value, and then the Kudu transaction has a slight $2 per share increase. Again, as Manning said, that's only on at 9.9% that we sold to MassMutual. So summarizing those 3, we should have a pro forma adjusted book value per share of roughly $1,486, up from the $1,204 where we ended 1Q. And then in terms of undeployed capital, at the end of 1Q, we were at roughly $283 million in undeployed capital. The main event here is the $1.3 billion of proceeds from the NSM sale. $116 million represents a special dividend to White Mountains from the HG Global debt issuance. And then there's no impact here of the Kudu capital raise, and that's simply because we had already penciled that in Q1. So the $50 million that we invested in Kudu, alongside MassMutual, is accounted for within the $283 million. And if you're keeping score at home at the end of Q1, we had cited $400 million of undeployed capital, which is the $283 million and then that included the HG Global, $116 million, to get to that $400 million. But again, that $400 million, after the NSM sale, we anticipate being just shy of $1.7 billion. On the next slide, just put this in context a little bit of where we've been. If you'll recall back in beginning of 2017, we have fresh off the sale of OneBeacon, Sirius Group and other transactions, so we had a little over $3 billion of undeployed capital. What you saw is over the next 5 years, we diligently deployed that through a combination of about $1.5 billion returned to shareholders, and then a little bit over $2 billion redeployed into investments such as NSM, Kudu, Ark and others. So by the end of last year, we were back to pretty much a fully deployed situation. We had about $300 million in undeployed capital, which is about our safety margin of where we like to keep so that we can be opportunistic in terms of transactions. But over that 5-year period, fully deployed. Now, what you see with the sale of NSM is we're back into a position of having significant undeployed capital. Ultimately, this is a good problem to have. We think it's a good time to have dry powder in the market. And I think what you can expect from us over the medium term is a combination of returns to shareholders and redeployments, and we'll obviously evaluate those situations based on the best return to shareholders. But to give you confidence, this is a playbook that with which we are very familiar on how to put this capital to work. So then in summary, on the next slide, just our financial position on a pro forma basis after the sale of NSM. We'll have a total capital base of about $5.2 billion. The vast majority of that, or $4.4 billion, is in common shareholders' equity. The remainder is in non-controlling interest and debt. No debt at the parent level at this time, but we do employ prudent levels of leverage at several of our operating companies where it makes sense, notably Kudu, Ark, and now, HG Global. Pro forma after the sale of NSM, our debt-to-total capital ratio will be about 11%, so about $570 million of debt across the operating companies. And as we've discussed, $1.7 billion of undeployed capital. And for the right opportunity, we could potentially flex that upward either through leverage associated with the deployment or leverage at the parent level, which we have not done recently, but we could. So again, significant dry powder, and for the right opportunity could flex that. So that's where we stand today. Next, maybe I'd like to touch on a couple of slides just on recent financial performance on some of our key metrics. So you look at the year-end review, again, our main metric of what we try to track is adjusted book value per share, and our objective is to grow that and compound that over long periods of time. What this lays out is over the past 3.5 years, factoring in pro forma the impact of the NSM transaction, where we've been on that metric and then how market value per share has tracked that. So what you'll see, and I'll double-click on 2021 on the next page, but 2021 was a down year for us. Again, I'll provide some more color on that. But over the 3-year period, we've grown adjusted book value per share at a compound annual rate of a little bit over 17%, so we think that's a pretty good result. And you'll see over time, and we'll show this later, market value per share pretty directly tracks adjusted book value per share over time. Now again, we're somewhat zen about is this linear or is it lumpy? We tend to just given the nature of our business, in particular transactions, our returns can be lumpy, and that's what you see here. But our focus is over that long term and medium term, having those metrics go up, and I think that's what you see here. Let me double-click on 2021 quickly. So again, 2021 headline number adjusted book value per share, down 5.7%. A primary driver of that was a mark-to-market decline in our investment, our Romanian equity investment in MediaAlpha, and Steve and Manning will touch on MediaAlpha in a little bit. If you exclude MediaAlpha, we were up a little bit above 4% growth in adjusted book value per share, which is a good positive result and generally in line with our peers last year. You see in market value per share, we were up 1%. We clearly lagged the market last year. But now you look year-to-date, we're up a little bit over 22%, vastly exceeding the market. So again, we don't get exercised about any given quarter or any given year. We're trying to grow these metrics over time. And you'll see with the positive developments we've discussed this year far exceeding the market in terms of the growth in our share price, and we expect that to continue. So just a little bit of context there in terms of the overall picture. And then what I'd like to do is turn it back over to Manning and we'll go through with each of the operating company CEOs, some color around the buildup. Thanks, Manning.

Thank you. All right. Slide 16 gives you a breakdown of capital per share on the left before the deals that we talked about in the first half and on the right afterwards. You can see on the right, undeployed capital surging into the lead again. And that's a good problem to have, as Liam says, and we'll be working on that in the coming years. Next slide, please. So this slide gives you a rundown of our key businesses going forward. There are 6 on the slide. I won't walk you through all of them, but I would make a few -- some observations on a few common themes. First of all, every business is in the insurance or a related financial services sector, and there are no exceptions to that. That's what we know. That's what we do. Second, you can sort of see in the second column over, we tend to prefer control positions. True of 4 of our 6 investments today, and until the IPO, it was true of MediaAlpha as well. So really, Elementum is the exception to the rule there. And third, which you see in the third column over, the management teams of our operating companies that you're going to hear from today are significant owners in their businesses, and there are no exceptions to that. All right. Turning to Build America and HG Re. Please allow me to introduce Sean McCarthy, CEO and Co-Founder of Build American Mutual. And just a reminder, BAM is a financial guarantor of central public purpose municipal bonds, that means bonds issued by states and local governments to build things like schools or utility projects. BAM is a primary insurance company that faces the market, and it is a mutual company. It's owned by its member municipalities, the same people that use its insurance. HG Re, which is the primary entity owned by White Mountains, is a single-purpose first loss reinsurance business, and it's a private stock company that we essentially own all of. White Mountains provided the formation capital to BAM through HG Re, and that included $500 million of surplus notes. So our economics come in 2 forms: The reinsurance profit we earned at HG Re, and the interest that we earn on the surplus note repayment over time. All right. 2021 at BAM was the second best year on record, trailing only 2020. And the main event in 2021 was higher demand for bond insurance, which gets reflected in better penetration rates in the primary market. Penetration rates jumped in 2020 after the market volatility brought on by the COVID crisis, and then they have stayed elevated. And as a result, in 2021, we hit a new all-time high for par insured, which you can see here at $17.5 billion. On the other hand, pricing dipped a little bit in 2021. And there are a mix of reasons for that, some good, some bad. First, credit spreads for municipal bonds actually tightened in 2021, and that constrains the premiums that BAM can charge for its insurance. On the other hand, in 2021, BAM wrote business with higher average credit quality. And that was intentional, and that explains why risk-adjusted pricing has remained strong even though total pricing has dipped a bit. Third, in 2021, secondary market activity was slow. And that business has much higher pricing than primary business, and there was just less contribution in 2021 coming off that business. That has turned around in 2022 with a bullet, for some reasons that Sean will describe. In 2021, BAM made $34 million of cash payments on surplus notes, P&I. That's the fifth consecutive year of increasing payments. And of utmost importance, the portfolio of insured credits has performed very well. We've come through COVID with novice payments, we've been extremely proactive in surveilling the portfolio, and we have no credits on the watch list. Stepping back, we've been in the business now for 11 years, and we have $0 credit losses to date, and that is the standard to which we are writing. One on the note on first quarter. Momentum remains strong, and secondary market activity is picking up in particular. I think we will have our best first half on record by a wide margin. Slide 20, this gives you some basic facts on the market environment. You can see the insured penetration spiking in 2020 and staying high, which is important. You can see interest rates moving higher, but credit spreads not. And I think everybody understands, but higher rates, wider spreads are good for BAM's business, everything else being equal. So with the possible exception of credit spreads, we received some tailwinds here for BAM that we have not had for some time. All right. 2021 provides a financial snapshot. A few items. You can see all the themes we've already discussed, higher insured penetration, softer pricing but good risk-adjusted pricing, slower secondary market activity in '21, but bouncing back in '22. And just a quick aside on the secondary markets. Everybody understands what we're talking about. We do get this question from shareholders. Secondary market activity means providing insurance on uninsured bonds that are already issued and held by institutional investors. It's a huge market, it's many multiples of the primary market, and institutional investors might seek that insurance for any number of reasons, including their own risk protection purposes. So those transactions tend to generate better total pricing for a whole bunch of reasons while still delivering significant benefit to the investors. We intend to grow this business substantially, and the -- we're only really constrained by the number and quality of the ideas we can generate. There's as much business there as we could ever want to write. Finally, on this slide, you can see the strong growth in claims paying resources. BAM has ample capitalization and headroom to continue to grow. And finally, you can see the continued growth in HG Global's UPR. That's an important number. It represents the embedded reinsurance profit in the existing portfolio. And if there are no credit losses, it will turn into profit dollar for dollar over time as the insured bonds mature. All right. Let me pause there and invite Sean to share a few thoughts.

Thank you, Manning, and the entire White Mountains team. We are incredibly proud of our relationship with White Mountains, first and foremost. And as I say to our senior management team, our #1 goal is to make White Mountains happy. We are entering our 11th year, as Manning had said, in the business. For the first 9 years, really, we had headwinds of decreasing interest rates and then tighter credit spreads. The market environment right now, really starting at the end of 2021, is positive for BAM and for the industry. Higher interest rates are happening as a transition. Ultimately, credit spreads are widening, and there's more volatility today. For example, the inflation number of 8.6% will create further volatility in the markets. So in the first 10 years, BAM underwrote $110 billion worth of transactions, $92 billion are enforced. We are muni only. Our portfolio has an average rating of A. It is diverse by geography, by sector, by revenue type. And as Manning had pointed out, and what we're particularly proud of, is that we have had no payment defaults, and that's really because we stick to essential public purpose municipal finance only. Overall, as Manning had also pointed out, utilization is up. So it's right now at about 8.8% of the total municipal bond market, compare that to 2019 where it was 5.9%. That growth for BAM particularly comes from higher credit quality of our book. So if you think about this year, for example, year-to-date, 25% of the par that we have guaranteed is AA by either Standard & Poor's or Moody's as an underlying rating. This year, year-to-date, we have underwritten 25 new transactions that are over $50 million in size and one that we did for [ Disney ] of $650 million, which is a compilation of a number of other transactions. So what are our current strategies? There are 2 parts, and Manning also referred to this. Our business can be divided into the primary market, which is new issuance of new money transactions or refinancing transactions. And secondary market business, which is defined as us putting our guarantee a wrap on a bond that's uninsured and outstanding. These businesses are complementary. So last year, there was a tremendous volume of new issuance in the market. That meant institutional investors that are looking at the business prospects. They're so busy trying to put those new issues to bed, they're not spending any time trying to make money in the secondary market. So those businesses sort of are complementary in that way. And when the volume is down in the primary market, activity in the secondary market increases. And so net-net, since our inception, these 2 efforts have been complementary. Now, how I think about the scope of these markets? Well, in the primary market, we have a competitor. We share savings of our guarantee. Nobody uses financial guarantee insurance, they don't save money for the issuer. So think about that as a cup of water. In some years, it's a bigger cup, some years it's a small cup, but roughly about $400 billion worth of transactions come a year in the overall market. The secondary market, it's $4 trillion of uninsured bonds outstanding, so that's like a swimming pool of water. And so for us, we look to mine, create ideas, suggest them to institutional investors, put our guarantee on that. We get a better return for doing that. The strength of our ideas, we sort of are conspiring with our counterparties to make money, they like that, and so that business has really been performing very well over time. You think about our business as an outlook. Right now, we think volatility is going to continue. We think sort of in the intermediate part of our market. This will be higher interest rates, and you can see credit spreads continue to tighten through the first quarter. But at the end of the day, they're now starting to widen. People are worried about whether there's going to be a recession. There's a recession that brings back credit worries in the market. We, as Manning had pointed out, during the entire COVID experience, we monitored credits that had potential exposure to their revenue streams being threatened by COVID. Hotel occupancy and taxes, convention centers, things like that, that's a good example. We worked with our issuers, they're bankers and financial advisers, and had no defaults. So what are we planning to do? We're increasing utilization. Our efforts both in institutional counterparties have expanded dramatically over the last several years. We're exploring avenues to try to distribute our financial guarantee on a retail basis that has potential as well, and it boils down to this. We expect the first half of this year, I can't tell you what will happen in the second half as markets are changing and they are volatile, but we expect that we will have a record first half without any other one-off transactions embedded in that since the inception of the company. So thank you.

Let's pause there and open up for questions on BAM and HG. Yes, please?

[indiscernible]

So you want to go back to the -- what happened in the Great Recession. So it turns out that no companies went under. There were 9 primary AAA insurance companies that guarantee and were financial guarantors. A vast majority of them went under. The reason they went under was because there was the sort of conflict of interest between policyholder and shareholder interests, and the issue really came down to the fact that they took bigger risks than they could underwrite, made famous in the movie The Big Short. And so at our former company, we never underwrote that business. But the bottom line of that was that we decided that a mutual insurance company was a way to avoid some of the issues that had happened at the time that -- of the great crisis. Also, it's a lower cost model. We can -- our members are very happy with the value that they get from our guarantee the day they price their bonds. We provide other ancillary services. For example, we write a credit profile, which is a summary, not a rating, of every transaction available for free on our website. We also provide Green Star where bonds qualify for a green standard. We provide that as a service to the market, and we think that's going to be a demand pull going forward. So the long and short of it is we think this is a better model for muni only. We think institutional investors and retail investors are comfortable with the fact that they are not sharing risks with other complicated transactions that they may or may not understand, and that we can deliver our services and then focus on delivering an appropriate return to White Mountains, frankly, who provided our seed capital.

Just add -- amplify one point, which Sean talk about pure White Mountains perspective. The BAM enterprise is a capital-intensive endeavor, and the initial formation capital has to come from somewhere, it came from us. But over time, it's being replaced gradually by retained earnings at BAM and by policyholder surplus that's being built up in a mutual, and that policyholder surplus has a relatively low cost of capital. So there's embedded leverage, and over time, in returns to White Mountains through that structure.

A quick second question, which is let's say, you insure a credit in the secondary or the primary market, and you're observing a deterioration or you're worried about something, an issue that you've insured. What actions can you take? Can you lay off the risk? Can you reinsure it? What is your recourse when you're -- you become concerned about something that you've [indiscernible]?

So good question. So we spent -- first of all, when we guarantee a transaction, it's a marriage in the old fashioned way, no prospect for divorce. Our guarantee is there to make timely payment of principal interest when due until the last bond payment is made. We have a robust surveillance group, and so we constantly monitor every transaction. In fact, our database is one that, from deal inquiry to financial reporting, there's every piece of information we gather. And so when we're monitoring credits, we update their financial profile every year. And again, as I said, put that in the credit profile. So we reach out. When we think a credit has an issue, a good example was in COVID, where there were a number of transactions, for example, San Antonio Convention Center, that we had some exposure to on a transaction that we've done. We worked with them to make sure that they could make their payments and structure themselves, and ultimately, they refinance that transaction. So the key is that we have -- because the vast majority of what we guarantee are fixed rate bonds, the average life of these transactions is over 17 years, they have a final maturity of 30, that there's no acceleration of our obligation. So -- and again, we're also never antithetical, which I think would happen in the great crisis, we're on the same side. Municipalities want to pay their debt. And so we work with them in ways far in advance of where there would be a probable default. Another point to that issue is that many, many of our transactions have a debt service reserve fund. What's that? That is a cash inside the transaction that is usually sized at 1 year's maximum annual debt service. So it gives a cushion before we get to a point where we have to make a payment.

Good answer. I think the only thing I would add is that it's -- the overwhelming majority of missed payments are footfalls in the municipal debt world where a trustee has forgotten to send in the cash. And so we do a good job, I think, of staying out in front of the footfalls.

It's a good way to describe it. Any other questions? Okay. Thank you very much.

Thank you, Sean. All right. Let's now turn to our newest operating business, which is Ark. And please allow me to introduce Ian Beaton, CEO and Co-Founder of Ark; and Nick Bonner, Chief Underwriting Officer and Co-Founder of Ark. So Ark is a property and casualty underwriting business. Our investment in Ark marked a return to that business for White Mountains, which has been our historical bread and butter. Ian and Nick founded the business in 2007 with private equity backing and then did an MBO a number of years later. And in 2021 -- or 2020, 2021, our transaction with Ian and Nick conferred a control stake to White Mountains via a scale-up transaction in which we injected $600 million roughly of incremental equity capital. And their willingness to confer control and our willingness to inject that kind of money into this business, I think, speaks volumes about our collective view of the market opportunity that's in front of us. Ark's roots are at Lloyd's, and it remains Lloyd-centric, but we've stood up a Bermuda platform, and we expect that platform will grow over time. Slide 23. This is a bragging slide. As it demonstrates its -- Ark has consistently produced top quartile underwriting results with high profitability and low volatility. We feel very comfortable and confident that our underwriting capital is being stewarded by Ian and Nick, who we see as among the best in the business. There are 2 other things that give me great comfort, and I think she give you great comfort around our investment in Ark. First of all, Ian and Nick have walked the walk in the past over the course of underwriting cycles, and grown and shrunk the top line in the right ways in response to underwriting availability and bottom line results. Second, Ian and Nick maintained substantial hard equity capital ownership of this business, and that's really key. In contrast to many purely professional management teams in this business who are really rolling the dice on the ups, Ian and Nick are true owners of their business and they own both the upside and the downside here. All right, 24. Ark is off to a good start. First of all, the execution at the outset of our relationship was really exceptional. We signed a deal in August of 2020 -- Well, actually, our first real contact around the deal was August 10, signed a deal on October 1, closed the deal on January 1. And during that time, nobody ever met in person, which is pretty remarkable. In fact, we saw Ian and Nick for the first time last month in almost 3 years, and they were instantly filled with regret. Ark achieved a flat A rating from Best, which was the highest rating in the class of 2020. Ark had all of its underwriting platforms up and running and people in place for the GN1 renewals of 2021, and that sounds mundane, but it's really not. That was an incredible feat, and it was key to the financial result in 2021. Then during 2021, we completed a capital raise, placing $163 million of subordinated debt, releasing a call on $200 million of incremental White Mountains capital, equity capital and essentially optimizing the capital structure for now. Results were strong in 2021. The combined ratio was 85%, which translates to an ROE of 12% or 13%. Premium levels were up almost 80% year-over-year with good, healthy rate improvement. The results in the first quarter of '22 are also encouraging. The combined ratio is up a bit at 101%, largely driven by losses we took in connection with the Ukraine conflict. On the other hand, premiums are up again strongly, almost 60% year-over-year, and still with incremental healthy rate improvement. Notwithstanding the losses on Ukraine, our plan for full year 2022 is unchanged, and we expect to exceed $1.3 billion while maintaining our target underwriting returns. Slide 25. This just gives you a visual of the direction of travel in Ark's business, strong premium growth, good combined ratio outcome in 2021, slightly elevated in 2022, but we expect that to trend back down over the course of the year. I'll pause there, and I'll introduce Ian. Give a few words.

Good morning. Thank you for having me. It's been a rapid 18 months with White Mountains. We are 15 years old in reality. I mean, Nick looks probably nearer 50 years old. Let's be pliant about it. But Ark is 15 years old now, and we spent the last 10% of our life in the White Mountains fold, and it's been a great journey. We had been waiting for several years for the market to turn. And we had been shrinking our business, shrinking the top line in order to get ready for growing the top line when it came. So when 2019 came around and the market started to turn, and we saw now is the time to grow. And it was remarkable we managed to transact, get the deal across the line remotely just dealing with Manning who had begun to believe was actually just a small blue square on Zoom and actually wasn't a 3D person at all. Because the last time I see him and Reid would have been 3 or 4 years prior to that, so a testament to a great deal at a great time. So a little bit of color on the business itself. We are a specialty lines company. We've historically been based at Lloyd's. We last year wrote about $1 billion. And that mix of business has been about 42% property, about 23% marine and energy, the same gain of specialty, and the remaining 13% is A&H, 7% and casualty at 6%. So very much focused on the property and the specialty space, and that's where we've seen the growth. It's been very encouraging rate, and actually continues to be very encouraging this year. So the 77% growth last year will not be repeated this year. Manning gave a sort of growth of around 30% for this year, and that's what we expect to deliver this year. So what happened in '21? It was a good start as a solid foundation to the plan to deliver on a hard market strategy. And so that was very encouraging to get an arrear of 13% and combined in this [indiscernible] and $1 billion or 77% growth under our belt. We've built out the Lloyd's businesses. We have 2 syndicates there, and we started up the Bermuda outfit. So we keyed what happened to be a rather sleepy Class III reinsurer without raising into a Class 4 full-blooded, A-rated and best. And this year, we will write about $500 million in Bermuda and about $800 million in Lloyd's. We'll be about 60% insurance, about 40% reinsurance, and so we're sort of comfortable with that mix. So that's been great in terms of the foundation. So a good start, a good platform. And our numbers, we were pleased because it tested out some of our risk management in Bermuda, which was newer than London, which is older. And so we had $7 million of cat last year through [ year end ] and the German floods and either, and we are pleased and that was almost exactly on our cat budget for the year. So that was encouraging that things are working. And in terms of recruitment, we're very pleased with the team with assembled. We've taken advantage of disruption in some of our peer group to hire and assemble a very good team. So we're now at 210 people, and 1.5 years ago, we were probably near 150. So we're encouraged by the recruits. How many of those will be the wrong recruits, we don't know yet, but it's looking good right now. We always get things wrong. We have a long list of things we get wrong. But the priorities now are really just to deliver on the present. We have a plan, we have a 5-year plan that we believe a 5-year plan. When we came with a 5-year plan, not least Manning or Nick, I did. But we're very solidly year 1 and year 2, we're on track for that as well. So we feel good about that. We feel good about the market and feel we're slightly better about the market now than we did expect to feel at this stage. We think between what's been happening in Florida recently, and I'm sure Tony will be talking about with Elementum and inflationary conditions and the COVID spikes and the cat spikes and the Ukraine spikes at this enhances the offering of the product because people realize how much risk is out there in this property and specialty world in which we inhabit. So we're feeling good about the year ahead. The top line is tracking. Who knows about the bottom line. Obviously, Ukraine is obviously still live and a series of terrible events there. But from a numbers rather than a human perspective, we think that's a manageable deal that, and we booked $21 million in the first quarter. So no reason not to stick with the plan for this year either, other than what the heck is happening with the fixed income market. So broadly speaking, in the underwriting space, feeling pretty good for now. Might be different next year.

Thank you. Let's pause there and open for questions about Ark.

Yes, please. I'll repeat it.

Just give us whether you -- do you manage your own investment portfolio or do you send your -- the premiums up to White Mountains to manage?

We manage them. They do get involved, but we believe we're still in control of the business. So we've been doing that for many years and continue to do that.

Just a couple of comments, and then we'll cover the investment portfolio on a consolidated basis in this presentation in a little bit. And you'll see how we think about it in 3 components: ARK, BAM, HG and then the parent company. We'll sort of tie that together for you. The management of the actual money is outsourced to third parties, but we're overseeing it at the Ark level.

And with -- just on the -- maybe on the market commentary, with rising rates, are you seeing more capital and kind of new entrants flowing into new insurance or insurance?

So not right now, we're not. So the big story was in terms of taxing the wave, it's a commodity behaving cycle after all was the beginning of last year, really, that's when the new capital entered the industry at about the same time as us. So it's really a sort of a race to get the capital, get into for the one-one where a lot of reinsurance is underwritten and also get the people institute, so do you get first into on the best people who you could pull down from other places fundamentally. And so that capital wave has now passed and very limited amounts of new capital coming into the industry right now from the underwriting space.

Just to put the way in proportion. It was about $10 billion or $15 billion of incremental capital came into a market that has about $500 billion or $600 billion. So just give you a sense of order of magnitude for what happened at the end of 2020, early '21.

I'll be greedy, I'll ask one more. Do you target -- do you have a target or an objective for your combined -- for combined ratio over a medium- to long-term horizon?

Yes and no. So actually, we target an ROE of 15% to 20% over time. So that's what we aim for. Now historically, our business model has meant that about 2/3, 70% of our return has come from the underwriting side and about 1/3 from the investment side. So in the old days, when we were just Lloyd's, effectively, we targeted a 93% combined. Now with the business mix being different, the proportion of reinsurance being different and the mix outside of Lloyd's and therefore the underwriting leverage being different, we actually have a sort of more floating combined ratio targets. I know we don't have a hard it's going to be 85% or 95% -- but we'd probably continue to operate within those ranges. So you should sort of think at 90s, the low 90s is a very comfortable, nice range to be within to achieve our ROE targets. But really, we think ROE rather than combined.

And that's the objective here over a 5-year time frame as to achieve those 15% to 20% ROEs while taking the business up from $500 million in premiums when we stepped in to north of [ 85% ]. And I think we're going to do it.

And that was the punch, if you will, White Mountains taking uniqueness, which is you got a lot of skin in the game. We've got a lot of skin in the game. Can we triple the business and continue to deliver those historic combines. Other questions. Please.

I had 3 quick ones for you. The first was why was taking our capital more attractive to you than remaining completely independent?

Scale of the opportunity. So sort of the mercantile fallacy. So we'd much rather have a smaller slice of a much bigger pie than essentially 100% of a smaller pie. So what we could do in terms of dilution of equity but get third-party trade capital to scale up was not what we could achieve here. And we also find that within the Lloyd's environment, you can only grow by a certain amount because everybody has to share the leverage of the central fund and so in order to do that, we'd have to put hard equity into our Bermuda reinsurer. So it just wasn't viable to actually triple the business in 3 years without additional capital.

And could you deploy more than what we've committed to and potentially taking more capital?

Great question.

The short answer is yes, but not at your prices. So there's the tension. So we have some teams -- so that's the fricking response. The more serious response is, there's always a tension about the risk-reward trade-off you actually want to assume. So there's an enormous amount of cat business available at this stage. Now if you look at -- you saw that slide about combined ratio over time in Lloyd's, so as we sell the syndicates and the combined ratio volatility, you noticed we're in sort of the top right-hand corner, which is green, obviously -- color to make us look good, but also we're able to manage that volatility. If you assume too much cat at some stage, you are able to unbalance yourself substantially. And so therefore, how much of that opportunity do you want. And that's attention, it depends on pricing. So yes, we could deploy more. Is that sensible? And do you want to deploy? I think that depends on opportunities out in the market. And so it is a running dialogue with White Mountains on a less different note. So we would definitely consider it.

And then when I look across the entire Lloyd's market, it looks to me like on average in the unsatisfactory market, what mistakes are other people making? And how have you avoided those?

I've got a long, long list. So my top ones would be #1, lack of discipline and that manifests itself mostly by trying to grow into a soft market. And so people had a top line growth target and people had a bottom top line growth target. And if rates are going down and you want to grow, the amount of exposure you have to put on to maintain that top line growth means fundamentally the margins get squeezed out and you're probably going to lose money. Now because you can deliver top line in a year and because there's always a lag in earnings or losses in this instance, then management teams will be put under pressure by shareholders to grow the top line and the bottom line, but you can only see one at a time. And so earnings growth or deterioration earnings lagged that growth in the top line and people were naive about how bad it was getting -- we're quite simplistic about it. It's like it's a risk or trade-off. So I think they grew at the wrong stage of the market cycle between 14 and 18 Lloyd's as a market grew 32%, we actually shrank by 13%. So people expect a linear growth story from us. They won't get it. We're literally here to make ROE. We're just here to make money. We're sort of quite simple and quite focused on that. So that lack of discipline was number one. Number two, it was quite a horrific time to do with cats as well. I mean if you remember 2017 had Harvey, Irma, Maria had -- if you're in Lloyds, a couple of Mexican earthquakes, and you had the California wildfire. So there's a clustering of cats which smash things. And historically, what would happen is you had the insurance markets who are less disciplined than the reinsurance market and the reinsurance market is less disciplined than the retro markets because that was smaller than that, which is more than that. And these guys would drag them up, reprice, which drag all pricing up and drag the cost catalog. And what happened with the convergence of ILS alternative markets with the insurance market of the $0.5 trillion that the management talking about is eventually somebody kicked away a couple of legs of the stool and that the larger financial pool finding the smaller financial pool at a time where things weren't looking so rosy over here and people were looking for orthogonal risk meant that, that traditional relationship broke down. And so cats were underpriced in terms of that risk, and it wasn't getting the rebound when the cats happened. And so the biggest disappoint in this whole era was 2018/1/1, we were expecting the market to harden and as soon as we managed to renew some of our reinsurance and retro programs in substantively the same manner, we knew it was not going to harden. So then we're settling -- twiddling our thumbs for a further 3 years. So I think those were 2 large elements of it. I think the third and final one, which is still playing out in the market is under reserving within casualty. And of course, there's always a very, very long time between what you price casualty at and what those reserves then manifest themselves as much longer learning loop, if you will, than property. And so with inflation now coming through as well, I think there will be a continuing element of disappointment in certain people's reserves, which means that will be continued reduction in risk appetite for certain peers out there in the market, which I think just extends really perhaps the run that we have in terms of opportunity for the property and specialty markets. A bit of grumble, there's more, but, you know...

Okay. Other questions for Ian. Please.

Thank you. Two questions. First, could you talk about the nature of your Ukraine-related loss? And if this, I believe, $21 million kind of covers a significant part of your potential ultimate exposure there. And the second question more about your reinsurance side of your business. So how big is your property cat portfolio? And what was your position and did you participate in any significant win Florida renewals this year? And overall, your kind of your take on the Florida market.

Okay. I'm bound forget all this -- all the components of that question, so I'll try to remember. So starting with the Ukraine first. So we booked $21 million of loss in the first quarter. That's the earned portion of the -- so looking at Ukraine as a insurance and reinsurance loss rather than in terms of the humanitarian disaster, which it obviously is, is akin to looking at a car crash unfold in slow motion and we're seeing it frame by frame by frame unfold. So it's slightly unusual to know how it's going to ultimately evolve to. So we've made a bunch of assumptions. It's very hard to see on a net basis, how for us, it could go above $50 million, for example, right? But what we've booked is that at 20 odd. Now the current mix of that is predominantly around aviation and political risk and political violence. So really, if you think about the political violence, it's a war on land. You have a limit for war on land. There is more happening on land unless you believe it's a special industry operation either way it's covered. There is a loss for that. We've also sort of assumed in the aviation market, broadly speaking, that this is going to be an aviation war loss. Now there's obviously going to be a lifetime of lowering to decide how this unfolds, whether it's in the all risk market in aviation or whether it's going to be in the aviation war market. We assume for these purposes it's that. And what we can say is, given that's our view on it, this is the likely net loss to us from that. So as it stands, the bulk is actually aviation loss with a little bit of political violence and a small amount of finally, what we would call marine whole war. So we've got about 30 or 40 boats or shares of boats in the Black Sea trapped in port. None of those boats are at the bottom of the sea as it happens at the moment, but those boats are stuck in port because, of course, it's mined outside and they don't want to go out to sea and then end up at the bottom of the ocean. So what that happens is, in this instance, we're assuming that those boats are blocked and trapped. And so will that blocked and trapped typically -- mostly after 12 months, they're effectively written off, you get a boat. Well, I get a boat, you get your money. And so there's a certain assumption around that. So there are assumptions. The clearest thing we can probably look at is about the aviation piece. The next clearest is really around political violence and the rest becomes more speculative about how political risk some of that other unearned portion and the others of 29 will unfold. So when we made that assumption, for example, there were certain assumptions about whether Kyiv would fall, whether the Ukrainian government would fall. And therefore, whether the Ministry of Finance, for example, with various trading houses would be able to fulfill its obligations for payments, for shipments of grain or other commodities, for example. So it's still sort of unwritten the final chapters of that one. So that's our view on Ukraine as extent.

Can I jump in and just to tie back off to numbers. So first quarter, we booked $21 million, of which $3 million had been reported just to give you an order of magnitude of how uncertain this is and the rest with IBNR. Skipping ahead to the end, we think it's hard to imagine an outcome that's worse than $50 net -- but additional loss reserving between 21 and 50 is based on a series of assumptions, upon assumption about the way geopolitical events will play out, which is what makes this quite unusual to try to [ indicate ]. But I think if you look at three 21 and 50 and understand what those numbers mean that will give you a good frame of reference. Worst-case scenario that is going to look like a midsized cat, which is something that's material but in and itself it doesn't rec the financial outcome for the year.

And by analysis, another complicated claim, which was really before [indiscernible]. This is an evolving catastrophe, but nobody really knows how it's going to end up. That ended up about net $35 million for us. Again, so it's sort of a midsize and cat reacross -- and as Manning said, we've really had actually one proper claim yet, which is trying to remove kit from somebody who doesn't want to give the kit up right now. So that's that. So then I think we had a question you had...

Question is about Florida renewals. Maybe you could just talk about your experience because we're going to ask Tony from -- Anthony Rettino from Elementum talk about what the hell's going on in Florida?

Okay. So I'll give...

[indiscernible]

There is a real size of property reinsurance book. So we've got about $150 million, maybe $170 million in Bermuda this year and property treaty reinsurance is mostly cat excels. And we've got about $50 million in London, so $200 million. This have last -- so it will be less than 20% of the book this year, about 6 probably by the end of the year. Florida chaos, I'll let Tony talk in more detail about it. Rates up 15.20 to a lot more than that. So -- and a lot of fixes to go. So we're much more optimistic for the one-ones and onwards next year. Then again, we would have been at the beginning of this year for one-ones next year. So a lot of moving parts.

Maybe I'll just throw in there as well. But overall, Florida for us, we took our exposure down about 20%. And we increased our premiums received by about 40%. Now the delta between the 2 was a lot of the market went to money upfront. So you buy your second event in advance, whereas last year, that was much less of the case. So if you strip that extra premium we're getting now for the second event are premiums like-for-like were about flat on 20% less exposure. Overall, our premiums were up about 40%.

Okay. Other questions for Ark?

All right. Let's turn now to Kudu, and let me introduce Rob Jakacki, CEO; Charlie Ruffel, Managing Partner. So just a reminder, Kudu provides capital solutions and advisory services to boutique asset and wealth management firms. It targets what we call the middle market, which are typically firms that have AUM between, say, $2 billion and $10 billion. The capital is used by those companies for a range of purposes, some of what you see here. And what Kudu receives back is what we call in our financial statements, a participation contract, which is kind of a mouthful. It's typically a revenue share, not always, but usually plus it has equity participation rights. So if a portfolio company has a subsequent event, we participate as we would as an equity holder, and you saw that in the BOS exit last year. Kudu has grown very nicely since we first invested in '18 and now has a portfolio of 18 investee companies as of yesterday. They span a range of investment formats, strategies and geographies. It's quite diversified. I do think there is some emphasis on wealth management and private capital and a relative lack of emphasis on traditional long-only public market securities. White Mountains has now committed a total of $420 million of equity capital to Kudu, including the $50 million that we did in the MassMutual deal. And Kudu has in place a $300 million investment-grade rated debt facility with MassMutual. So plenty of dry powder and a very robust deal pipeline. Kudu had a really strong 2021. I want to pause for a second and talk about the financial results. We get questions about from shareholders sometimes about what should I focus on when I look at Kudu's results? And a key metric to follow, I think, here is what we've labeled as levered return. You see -- can you skip the page for a second? No, go back. That's fine. Yes. So a levered return. What does that mean? It's a conservative measure of the running return on equity capital for the Kudu business as a going concern. It excludes all unrealized gains and losses in the fair market value of the portfolio, and it also excludes any realized gains or losses from exit transactions like BOS. So what it really is, is the running cash flow that's coming off the portfolio, less the running cost of debt and overhead. And one more dollar of conservatism, which is it excludes Kudu's share of carried interest economics that are embedded in the private capital deals that it has done. So if you made some assumptions about that over the fullness of time and annualize that assumption probably would add a point or 2 to the number that you see here. So when you step back from it, I think a way to think about Kudu is it has matured over the last 3 years into a business that's now producing a running return in the low double digits comfortably with a lot more upside than downside around that number. Activity levels were high in 2021. We did 4 new deals and 2 add-ons. Of course, we closed the deal -- the debt deal last March and the equity deal this May. And we had our first exit with BOS merging into Cerity and generating excellent returns for Kudu. We have a second exit on the way, also expected to generate excellent returns with TIG. The fair market value grew nicely in 2021 of 18%. And first quarter has been really good. All of the numbers are pretty steady, and the portfolio actually increased in value -- fair value despite the market volatility. Slide 28, here you see the leverage return growing. And the composition of these bars is important. You can see the growing importance of the debt equity capital in the gray bars. And then the light blue reflects the realized gains and losses over time, both unrealized and realized. So that's additional growth that's outside of the levered yield kind of running calculation. On the far right-hand side, you see where we are a snapshot for the capital base. And the bright blue on the top gives you an idea for dry powder. The first bar shows you where we were at the minute we closed the MassMutual transaction. And then after the Gramercy deal was closed yesterday on the far right column. So that's where we are. Okay. Let me stop there and invite Rob to share some thoughts.

Thank you, Manning. Good morning to everybody. I just want to spend a few minutes maybe amplifying some of the things that Manning pointed out about our past year, some of the accomplishments that we're very proud of really 4 in particular. First, on the new investments front. The 5 investments that we've made since our last meeting with you last year, are important to us, not only in scale. The 5 deals comprise about $260 million of total capital, both debt and equity funded but it's also the diversity and spread of type of manager that we've invested in -- really filling in our investable universe from wealth management to alternatives, liquid -- under liquid managers as well as a small amount in traditional. We still see opportunities across that full spectrum, and last year was a good example of us deploying capital along those lines. All of these managers are specialists in their respective areas with world-class leadership. So we're very excited about these new members of our portfolio. And we're not done. Pipeline is as strong as ever. We're currently looking at opportunities over '20, which is on the high end of our typical volume, again, across the board in terms of types of firm but all exciting opportunities, 2 of which we are in exclusivity right now with expectations to close in the next couple of months. So more to come, and we're very optimistic about the investable universe in front of us. Secondarily, on the new capital front, I'll amplify what Manning has been telling you about MassMutual. Very exciting for us to bring them into the partnership. It's the first time we've brought in a new equity owner into our operating company, and it's an extension of the relationship that we've been building with MassMutual over the past 18 months. As Manning has said, it started as a refinancing of our credit facility in late 2020, early 2021, and has grown as we've gotten to know that team and their mass. And we really think there are opportunities for strategic interaction, which we look forward to working with them about -- [ our own ]. Thirdly, on the performance of the portfolio, important to point out, given the turbulence in the market, most notably over the past 9 months, how proud we are of our portfolio and the durability of our portfolio. Of the 4 quarters ending March 31, our portfolio was up 17% on a same-store basis. I apologize for repeating some of the sound bites that you heard from Manning, but it is worth emphasizing. And then in Q1, as you heard, made a broad market sell-off, our portfolio grew by a little over 3%. So we're very pleased with that. It does reflect the diversification that we've built over these 18 investments, and that was on full display over the most recent few quarters. A couple of things to point out there in our alternatives book, both liquid and illiquid. We saw our managers start to shrug off some of the sluggishness in the capital raising environment for their businesses and starting to grow their strategies on an organic basis. So that was encouraging. Secondarily, on the wealth management side, we saw our wealth managers add share of wallet from their clients, which really shows you the value and the importance of trusted advice in uncertain times. So that was also what we would have expected to see despite market turbulence. And then the last thing I would point out is, picking up on the liquidity event we experienced at the end of Q4 with Bingham, Osborn -- BOS. It's never something that we initiate. It's very important for us when we enter into a partnership not to bring forced liquidity events on our managers. It's out of sync with our desire to achieve an alignment with the teams that we're backing. But if ever there's an opportunity for a manager to engage and initiate such a transaction like BOS did, we participate in full. And it was a great outcome for everybody. They were our first wealth manager that we invested in 2018 and enjoyed a great few years with them at a better suited to have them part of the portfolio, but it was a great outcome all around, and we wish them well. So they're just some of the highlights. But as always I wanted to thank Manning and the White Mountains team for their support and guidance and look forward to more prosperity with them.

Questions for Kudu. Please?

White wealth management firms tend to use Kudu instead of another capital provider?

So it's a good question. I mean there's a lot of capital out there, as you may know, looking to partner with wealth management businesses. It's really become a pretty, pretty hot space. And there's a lot of different capital solutions. But why a manager would partner with Kudu like Douglass Winthrop did last year was really some of the things I was just mentioning a minute ago. We are desiring to achieve a true alignment with them. We're never going to change the way that they do conduct their business and never going to impose an event on them that isn't wanted themselves. DWA wanted to retain their independence and preserve the culture and the quality of the organization that they've built and our capital really allowed for that to happen better than other opportunities that might have been before them.

Look, can I just say, I mean, in fairness, not every wealth manager does business with Kudu. It's competitive. We have attributes and strengths that we think stand out. We play our hand. Other providers play their hand. We win the deals we win and other deals go elsewhere. But I think we're doing a good job.

How that generally trended over your ownership of the wealth management firms?

So it has trended higher. I think we've seen across our wealth management firms growth depending on their specific model, both driven from organic and inorganic opportunities. And we've been pleased to see that, obviously, exposure that they might have to public markets might have brought down some AUM in recent quarters. But as I mentioned, we've seen many of these firms grow AUM through greater share of wallet. So you get a little bit of a few factors in there. But generally, it's upwardly trending.

Question on Kudu, please.

Can you please just talk to a typical deal terms and the economics to Kudu? Is it off the top? Is it off the bottom? Just a typical transaction, what does it look like?

Yes. So a typical transaction is one where we're always minority investors. So that's a very bright line for us, and that's to really achieve that alignment. We want our teams to have more skin in the game than we do to perfect that alignment. But the way our deals are structured specifically is an allocation of a company's earnings as defined by a percentage of top line revenues. So we are sharing in the risk of these businesses, again, to be in the same side of the table as our partner firms and the principles running those firms. But we insulate ourselves from the day-to-day operations of the firm by taking a share of revenue to take us out of the discussion on their budgets and their P&L process. And we're always looking for a cash yield that we achieve when we're looking to participate in those cash flows. So all of our firms are profitable entities and we can see a visibility and sustainability of that free cash flow that they generate and our participation through that revenue share.

Just one thing to add, which is too simple, but useful guidepost. It's a minority deal, typically a revenue share and typically targeting a 10% unlevered cash yield on the dollars in on day 1. And essentially, on a blended basis, we've hit that number.

Other questions on Kudu?

Okay. Thank you. All right. Let's now turn to MediaAlpha. Please allow me to introduce Steve Yi, CEO and Co-Founder. Just as a reminder, MediaAlpha is a customer acquisition technology platform. It operates in multiple verticals and has particular expertise in P&C, health and life insurance. In simple terms, the MediaAlpha platform connects advertisers who are often insurance carriers and enables them to acquire potential customer traffic in the form of calls, clicks and leads efficiently and transparently. Then MediaAlpha collects a percentage of all the transaction volume that it facilitates. It's, in effect, a toll business. Slide 30. So after a decade of growth, MediaAlpha had a big milestone in October of 2020 when it executed a successful IPO under the ticker symbol MAX. And as a reminder, White Mountain sold shares at $19 a share in the IPO and again at $46 a share in the secondary offering in March of 2021. In the second half of '21, however, the MAX shares sold off ending the year at about $15 change. And because of that sell-off, White Mountains incurred a $400 million unrealized loss on our remaining position of about 17 million shares. So in effect, over the fullness of the calendar year, we gave back on an unrealized basis a portion of the windfall gains that we had generated in 2020. And why did this happen? The main event in 2021 was the turn in the underwriting cycle for personal auto insurers. So we came out of COVID lock down, miles driven started to increase, accidents started to increase, loss frequency started to increase, and severity is up as well, driven by inflationary pressures and a number of other factors. So all of this has put pressure on the underwriting results at personal lines insurance companies. And I think it's fair to say that the intensity of the cycle change caught those carriers by surprise a bit. So they're in midstream in the process of trying to restore their own underwriting profitability, mostly by seeking rate. And in the meantime, they've cut back on customer acquisition a lot. So when they cut back on customer acquisition and advertising spend that directly impacts volumes in MediaAlpha's P&C vertical, as simple as that. So notwithstanding all of that, which was significant and it continues to be significant in the first quarter of '22, but notwithstanding all of it, MediaAlpha had a record 2021, and that's a little bit lost in what's happened with the share price. Transaction volume crossed $1 billion and growth in the health and life insurance verticals was particularly strong, up a lot. EBITDA was flat at $58 million. And that sort of reflects a bunch of new public company costs that weren't there before and also some continued investments in growth. The same themes have really continue forward into 2022. There is pressure on the P&C vertical, given the dynamics in the cycle, and that's impacted overall transaction volume and EBITDA. We are seeing some carriers start to spend a bit more. The ones that were early to take underwriting actions are starting to increase ad budgets, but it's not consistent. It's a bit sporadic and it's too early to call it a trend. But we know with certainty that the cycle is going to turn again at some point, it's a question of when. One thing away from all these macro trends I want to point out is that, MediaAlpha has been assertive in early '22 around capital management. This is a business that's producing -- approaching $50 million of free cash flow. This EBITDA is real cash. And it's taking steps to be intelligent about what it does with that cash. They've closed an accretive roll-up transaction, and they've implemented a share repurchase program, and I think they're making intelligence decisions with shareholder value creation in mind. And the last point I would make is that just keep the big picture in mind here. White Mountains has returned 9x its investment in cash on MediaAlpha. And we have almost 17 million shares of continuing upside. The cyclical headwinds in P&C and personal lines are going to subside and then they're going to turn into tailwinds again at some point. And in the meantime, we're very happy to be invested alongside Steve and Eugene and the team. Also keep in mind, the more powerful force that work here over time is not the cycle. It's the secular shift by insurance companies from off-line advertising to digital advertising. That shift is in the early innings. It's got a long way to go, and MediaAlpha is in great shape there. All right. The next slide just gives you a visual of the incredible growth in MediaAlpha's business. We got invested in 2014. You see the strong upsurge. You see in 2020 and 2021 a big surge in the P&C vertical with the COVID lockdown because the opposite of what happened in 2021 and '22 happened then. People stopped driving, there were huge profits available to P&C insurers and they spent them on advertising. And then, of course, that has reversed again in the last year or so. This has been an exciting journey with MediaAlpha, and the future remains bright, and we're delighted to continue to be invested here. So let me invite Steve to say a few words. I did want to ask one question of you that's on the minds of all shareholders, which is what have you done for us lately, Steve?

Well, thanks Manning. I really appreciate it. I think Manning summarized it really well, what's going on with our business. I will tell you that in the beginning of 2018, as a technology company, you might know this term, we set a BHAG. It's sounds horrible, but it's like a Big Hairy Audacious Goal and in the beginning of 2018 we set that goal of attaining $1 billion in transaction value through our marketplace. And I guess, in the year that we hit that certainly didn't feel very good. And so I think it was maybe the worst record year, at least from me as an entrepreneur's perspective that we've ever had. And so certainly, the challenges facing the auto insurance vertical are very real, but having been through this cycle before in '16 and '17. Actually back then, we didn't know what the heck was going on. I mean, Morgan had to explain to us that the auto insurance industry tends to move in these underwriting cycles and if they're not profitable, and they're taking rate actions, they tend to pull back on marketing and that obviously makes a lot of sense right now. Manning alluded to the fact that the severity issue, I think caught auto insurance carriers off guard last year as frequency started to go back up to normalized levels. And I think what that meant was, particularly in the second half of last year that auto insurance companies pull back pretty severely on the nonrate actions that they could take or the levers that they had access to. And the fact that the industry is moving to more of an online customer acquisition model, still in the early innings, right? What that means is that company is like a guy go and state from and others have a lot invested in offline media. And you just can't pull those levers in offline media very quickly. You're locked into the TV by 6 to 12 months in advance, billboard, sponsorships, et cetera. And so what nonrate action levers did they have to pull in the last year, it's really online marketing channels like ours. And so I think we were hit disproportionately hard in the second half of this last year as well, and we continue to be hit hard this year, and were hit hard because the inherent flexibility of the online customer acquisition channel. And that's not just us, by the way. That's Google, that's Facebook, that's other channels like that. So what we're encouraged by, though, is that the secular shift continues. So if you saw all states first quarter results, they talked about the transformative growth plan that they initiated in 2019, that year, I think 79% of the auto insurance policies are sold to their exclusive agents. In the first quarter of this year, even though Allstate has pulled back on marketing quite a bit, right, the direct channel represented 37% of all auto insurance policies sold. And that's really the manifestation of the secular shift that we're talking about that a lot of carriers in the P&C industry still have yet to make, right? Excited about that. What we're focused on right now with the auto insurance business, in particular, is using this opportunity to get a lot of like efficiency gains for the carriers. That means better technical integrations, better conversion tracking integrations, utilizing this opportunity to talk to carriers about as the sidelines of buyers actually becoming sellers, and we're making notable progress there. And what I mean by that is a notable base of supply that we have are from insurance companies or insurance carriers who when they know that they're not going to sell a policy to a given consumer actually show ads from other insurance companies so that they can make money from those consumers who are shopping on their site that they paid a lot to get to the site -- their site and through the whole process, what the data tells them that they're not going to buy a policy from them. And so the option they have is just let that consumer go or make $30, $40, $50 by referring them to another carrier. And so that was actually our first third-party supply partner, Esurance, that's how we got connected to the White Mountains in the first place. And it's that business model that in a time like this, carriers become open to. And so we're engaged in a number of those types of discussions with insurance carriers. And what we expect is that when the market turns, which is definitely a matter of when and not if, that we'll see the types of outsized games that we saw coming out of the last hard market cycle in 2017 and '18. So on the health and life insurance side, health insurance was a record-breaking year for us, both in under 65 in Medicare. Most notably within Medicare, we're excited about the carriers making that shift to actually acquiring customers directly, their investment in online enrollment, which really helps us. And we're investing in product development to help them make this transition to more of an online enrollment process as well as helping them make the shift to direct customer acquisition as opposed to relying on brokers and agents to sell their policies. I think that's it.

Questions for Steve. Okay.

Thank you.

All right. Shifting gears. Let's talk about PassportCard/DavidShield. Please allow me to introduce Alon Ketzef, Group CEO and Founder. So PassportCard is an MGA for travel and expat medical insurance, and it delivers its services pretty much anywhere in the world. It provides coverage and settles claims in real time without paper via a debit card solution. And this is a vastly superior mousetrap that drives high levels of customer satisfaction, premium pricing levels for the company and high reactivation rates. Travelers and expats who use PassportCard/DavidShield once are highly likely to use it again, which is quite unusual, especially in the travel insurance business. The business was launched in Israel. It remains as really centric. And what that means is that most of our customers are emanating from Israel. Our solutions are global, but our customers are Israeli primarily. Our long-term goal is to add new customer markets around the world, and we're pursuing this selectively targeting markets that are uniquely connected to the attributes that we feature. PassportCard/DavidShield is an MGA, it's important to remember, does not retain underwriting risk, which it seeds to its global reinsurance partner, Allianz. Slide 33. So to state the obvious, PassportCard/DavidShield is the White Mountains business that was most directly impacted by the COVID pandemic. The shutdown in leisure travel pretty much took travel insurance volumes to 0 for the better part of 2020 and early 2021. 2021 in turn was a strong bounce back year driven by the resumption of leisure travel and continued steady growth in Expat Medical. One key figure to illustrate that for PassportCard/DavidShield as a whole, fourth quarter '21 premium levels surpassed pre-pandemic fourth quarter '19 premium levels for the first time. So full year '21 numbers were not quite back, but fourth quarter were, and that continues, and it's a very safe bet that 2022 will be a record year for PassportCard/DavidShield. What's driving the business post-pandemic, 3 things. One is greater demand for insurance due to heightened risk perception. If you travel now, you want to be covered; second, higher pricing. Our pricing per unit of risk is up about 50% from pre-pandemic levels; third, higher market share. And this is really a testament to the job that Alon did managing this business through the crisis, our market share is up about 50% from pre-pandemic levels. So those 3 things are what are really driving the business. Travel volumes, trip days are still only about 65% of pre-pandemic levels. So it would stand a reason that there's more room to recover in terms of pure volume. All right. Last thing I would just mention here is that our work on international expansion continues, and I want to point out 2 initiatives. One is Expat Medical in Germany, which we have continued to build straight through the COVID crisis and which is now emerging for us as a nice little core business. Very happy with that. The second is a travel insurance in Australia, which was our big target market pre-pandemic. We suspended operations in Australia because the government shut down international travel completely. We still think we have the makings of a successful business in Australia, and we'd like to have another go. And we're working through what our options might look like there. And so more to come on that. This is a hell of a slide. I don't think I've ever quite seen a slide just like this. And I think it speaks for itself. So with that, I'm going to let Alon add a few words, please.

Thank you, Manning. Pleasure to be here and see you again after 3 years. Rough seas. So Manning pretty much said it all, but I would like to say and to share with you the phone call that I had with Manning back in March of 2020. Manning picked up the phone and told me, Alon this is your opportunity. You are getting a direct hit, but most probably, when you get at the other side of the tunnel, your business will be much stronger, much bigger demand. You are right. 3 months later, you called me again and you quoted Winston Churchill. And you said, when you go through hell, keep on going. So here we are. Thank you, Manning for the support. So indeed, we are a technology company engaged in insurance and specifically in cross-border accident and health. Growth rate is pretty much steady. If we exclude COVID period, we try to maintain a growth rate that is combined with EBITDA will be no lower than 30, hopefully 40 -- and that really puts us in a unique situation where you see an InsurTech company that is actually making money and growing at the same time. For as far as I remember, we never lost money, and we didn't have a negative cash flow. Even during COVID times, we managed to have a positive EBITDA. So we have every intention to keep it this way while keep on growing. So indeed, we are very happy with the results in the Israeli market. And we plan on having a record year this year and hopefully going forward as well. Germany is making first signs of success and we hope that by next year we will be able to deliver some great news in this room. Australia, we invested a lot in setting up Australia. We were on the right track. January, February 2020, we were at a trajectory of $20 million on an annual basis. And then we had to shut it off and as the borders were shut off completely. So it was quite an old deal for us. Trauma, I would say. But here we are picking back the slices and try to build it back from scratch again. Hopefully, we will manage to do this year as well. So overall, we are very bullish. We are excited. We monitor the situation. We want to see where COVID is heading. I have to say that if COVID is within a certain corridor, it actually works in our favor. It gives people on their toes. The penetration rate is higher. People are buying insurance, nobody is leaving the country now without insurance, which is a good thing. People are looking for a premium solution. We are a premium solution. And thus, we get the highest market share, highest NPS score and the lowest loss ratio in the industry. So keeping those 3 bases in line, puts us in a good spot. Thank you.

Questions on PassportCard/DavidShield. Okay. Thank you.

Thank you.

Last but not least, let's turn to Elementum. And let me introduce Tony Rettino, Senior Portfolio Manager and Founding Partner; John DeCaro, Senior Portfolio Manager and Founding Partner; and Mike France, CFO. So Elementum is an asset management business. It manages assets for institutional investors, and invests in mental cat-exposed risks, cap bonds, CRI and in some cases, primary insurance. Typical business model is fee-based; management fees and performance fees. We acquired a 30% stake in the business about 3 -- just about 3 years ago, 3 years and 6 days. And separately, we've put $50 million from our investment portfolio into the funds themselves to eat our own cooking. And we look at those investments as having an attractive risk return profile and a nice -- they're a nice diversifier in our portfolio. We think of them as a noncorrelated high-yield bond substitute. Slide 36. Elementum had a pretty flat 2021 and a pretty flat early '22 so far. Now flat in the current marketplace for ILS is actually quite good, and they have moved up the league table and improved their competitive position on a relative basis as a result of maintaining. The business is producing a nice distributable stream of cash flow at about 7% annual yield. And we've been investing in the business. The market conditions, I think, are pretty good for investments. And then there's a big question of if and when investor sentiment for this strategy will turn again and turn positive. So that's where we are. Please let me ask Tony to share a few words, starting with Florida.

Well, there's nowhere to go but up, if we start in Florida. So let's start there. First, thank you, Manning, the Board, and the White Mountains team for their partnership, it has been a great 3 years. We look forward to many more. Looking at Florida, I think as Ian mentioned, it's a mess. And unfortunately, we are in the midst of the hard landing that was inevitable after years of neglect by the legislature by rating agencies and others in the market. Our view on the recently passed legislation is mixed. There are certainly in the last 2 years, the legislature has genuinely try to address certain bad behaviors of the market. However, the focus of legislation continues to be on the abuses of the past and trying to address what's happening over here, but you're not changing the incentives that create that environment to begin with. That great environment, the state of Florida, 8% of property claims and 76% of the litigation in the U.S. right? That is the fundamental problem. And if you're not addressing that, and if you're not controlling that, you're not really doing anything. I've had a very measured and intentional approach to Florida. So we have raised opportunistic capital over the last couple of years to look at the most and invest in the most disruptive part of the market, which is the higher risk end of the spectrum, which is offering significantly higher risk-adjusted returns more than double versus 5 years ago. So we are fortunate to have a couple of investors who have leaned in to that environment, and that's not just for Florida, that's just -- that's end of the spectrum as well. And then we've actually have reduced the number of companies that we're supporting in Florida just because there is a significant deterioration in their infrastructure, in their financial condition. And we just think there's fewer good quality people to invest in. We think that there is -- we've already seen 8 companies go out of business in the last year. There's probably at least another 3 or 4 that probably should join them. We are encouraged by some of the larger companies that were somewhat dormant are starting to lean in, and so that is a positive for the market to have better well-capitalized companies with good infrastructure and good discipline, participating that's ultimately good for the market. So in terms of the last year, as I mentioned, we did raise from a new investor some dedicated capital for the higher risk, let's call it, our high-yield strategy in 2021. We were able to add to that with several investors in 2022. And that's really very complementary to what we're already doing and allow us to take advantage of the market disruption that we're seeing. As Manning mentioned, we maintained AUM despite significant headwinds on the investor side, it's really a little bit of a fatigue, 5 very significant years of loss activity, frequency of losses, hurricanes and floods and wildfires and everything else. And so that has really created a fatigue, but has also created this -- what is probably a once in a decade or 2 investment environment, probably the best we've seen since 2006 on the reinsurance side. And so eventually, that type of risk-adjusted expected returns leads to investor interest. And -- but that -- those investors who went through 11 years of very low loss activity following Katrina involvement in 2005 up until 2017. So a very, very quiet period. The market grew. As Ian mentioned, 2018, one of the great things about ILS was people always worried are they going to come back after an event? Well, they came back in droves. And so I refer to it as the great reload of 2018. So everybody did exactly what we said, which was when you get in a lot of catastrophes, come back in. That's good. That's good. But then those investors also then saw over the next couple of years and became much more disciplined. 3 years ago, I think people thought that the -- we had people telling us the cycle was pet. Like, oh, the institutional investors are just going to come in, and every time there's an amend it's just going to never change. And we were -- we chuckled a bit, and it's interesting to see that the market is in dead and it turns out that our clients, institutional investors are much more -- they have a lot of capital. They're very stable. They're very long term in their thinking, but they want to get paid an agri price for the risk that they're assuming. So they don't -- that doesn't just flow in, right? And the -- obviously, the big development in ILS is that you take these property risk that, Ian mentioned, they can only take so much on their balance sheet. Well, if you are a sovereign wealth fund and you're investing 2% of your assets, you can put it all in Florida. Most of our clients don't want us to be that concentrated, but you can be much more concentrated in the opportunities. That's why what we do and what Ark does is, is somewhat complementary because we are bringing different type of capital to bear on the market. Year ahead, we're really optimistic a couple of things. Obviously, the great investment environment. We've improved our relative position. As we've mentioned, we have low trapped capital levels, which increases our earnings power. The recent market volatility is a good reminder of the value of diversification including the fact that we do benefit from a rising interest rate environment, our investments do. And this has led to start because we're seeing some green shoots on the investor pipeline. And like I said, we -- the market eventually the level of investment generally follows the quality of the opportunity set. And so we've taken in the last couple of years and said, okay, we're going to invest in the business. We're going to invest in infrastructure. We're going to invest in people. We're going to invest in expertise and depth. So that when that market eventually turns, we're going to be in a great position to scale. And we're not going to be looking to add resources at that time, we're going to be poised and ready to go. And so thankful to Manning and the team for all their support in making that investment.

All right. I'm going to hand over to Reid now. President, Reid to cover investments.

Okay. Thank you, Manning. White Mountains has maintained a consistent approach to investments for many years. Our objective overall is to maximize long-term total returns after tax, while taking prudent levels of risk and maintaining a diversified portfolio. When you look at our asset allocation in this context, over the long term relative to our peers, our fixed income duration has generally been shorter and our exposure to equities has generally been higher as we basically prefer to take our investment risk in the equity portfolio. It's important to note that we do not make investment decisions in a vacuum. We consider our overall capital position as well as broader corporate needs. And we also consider our overall level of comfort with the risk profile of our businesses and balance sheet when constructing and managing the portfolio. And you can actually see that in practice today as we have historically low equity exposure due to limited undeployed capital of the parent company and limited capacity for equities at HG Global and at Ark. Once the NSM sale closes, this is likely to change based upon our view of market conditions at the time, as well as our outlook for new deployment opportunities. We're likely going to invest a portion of the proceeds in the equity markets. Next slide. So in order to better understand the positioning of our portfolio, it's helpful to first highlight, which Manning mentioned earlier that we now have 3 separate and distinct mandates within the consolidated portfolio, each with its own objectives. So the first and largest mandate is the Ark portfolio. Here, the objective is to safeguard capital and provide sufficient liquidity to meet insurance obligations while investing for total return. And here we're primarily invested in fixed income with a modest amount of equities. The second mandate is the HG Re portfolio. Here, the objectives are to preserve claims paying resources and liquidity in support of our reinsurance arrangements with BAM. And here, we are strictly invested in fixed income securities and cannot invest in equities. The third mandate is the parent company portfolio, and here the objectives are, first, to safeguard the amounts backing our known capital commitments and invest the balance, including our undeployed capital for total return. And here we're invested primarily in fixed income with a small amount of strategic investments in our alternative asset portfolio. And again, once we close on the sale of NSM, that's likely to change. Next slide. This is a snapshot of our current positioning as of March 31. And I'll highlight here that these numbers are on a management basis. So they exclude the investment portfolio of BAM. They exclude Kudu's participation contracts, and it also excludes our unconsolidated entities such as MediaAlpha, PassportCard and Elementum. And here you can see how the objectives within each of our mandates is impacting our current positioning. So in Ark, you see a large fixed income portfolio, low duration, average credit quality a day. And at Ark, there's only a modest amount of equities as they prefer to use the bulk of their risk budget in their insurance business. At HG Re, still a couple of more comments on this. So at HG Re, you can see we have a high-quality short to medium duration fixed income portfolio, supporting our obligations to BAM. And then lastly, at the parent, we have fixed income securities. And again, due to limited undeployed capital, we only have a small amount of equities and strategic investments. So when you add it all up, we have $2.1 billion of generally high-quality, short-duration fixed income instruments. And this is consistent with our historical positioning. And we have about $0.5 billion in equities at work and the parent company. So when you look at our consolidated equity exposure, that's the number in the bottom right there, even when including Kudu's participation contracts, which have mark-to-market exposure, but a much lower beta than the broader market as well as our shares in MediaAlpha, which obviously have mark-to-market risk. You can see that our equity exposure is just 38% of adjusted shareholders' equity. And that, again, is on the lower side of our historical positioning, but appropriate for current circumstances. Next slide. So this is a summary of our management basis returns for the past 2-plus years. 2020 was a good year on an absolute basis, but a disappointing year on a relative basis. And there were a couple of drivers behind this. One was some active investment decisions that we made, including -- could maintain our international common stock portfolios, which underperformed the broader equity markets in the first half of the year. The bulk of the underperformance, though, was driven by broader corporate needs affecting the portfolio. And specifically, in this case, our need to liquidate our entire parent company common stock portfolio in the second half of the year in anticipation of signing and funding the Ark transaction, which caused us to miss out on the fourth market -- fourth quarter equity market rally. And Ian actually apologized to us for that yesterday, but we told them we do it again in a heartbeat. So 2021, a good year on an absolute basis and a relative basis. Fixed income portfolio outperformed the index as short-term interest rates began to increase. And our equity portfolio mostly cope up with a very strong S&P 500 return, driven primarily by solid results in our alternative asset portfolio. Despite the market volatility that we've seen, we're off to a pretty good start in the first quarter in 2022. Solid results in our private equity portfolio have pretty much offset losses in the fixed income portfolio of interest rates have continued to increase. That volatility has obviously continued in the second quarter here, and we're continuing to outperform on a relative basis. So I would say in summary that we're pleased with our investment returns over the past 2-plus years. And going forward, we'll continue to look to maximize risk-adjusted returns. So with that, I'll pause and hand it back to Manning.

Questions for Reid. Did this answer your question about investments?

Yes.

Okay. Home stretch. What to expect more of the same. We're focused on growing our per share values over long periods of time, adhering to our core operating principles, which are unchanged, deploying and distributing capital intelligently, that's always on our minds and will be ever more so with the proceeds from the NSM transaction and above all, thinking and acting like owners. Wise words here from Ben Graham that applied directly to our mission here at White Mountains focused on growing adjusted book value per share with the full expectation over the fullness of time the share price will follow. Last slide, skip back, there you go. Another bragging slide, which we'll just leave up. One thing I would note on this slide, if you bought the IPO at $25.75 a share in 1985, and you pocketed your dividends, you've made a 50x return on your invested capital. So next stop is 100. I'm just not going to tell you when. I'll stop there. We'll open for Q&A.

There are a couple of questions from cyber space. HG is the biggest and longest held investment of White Mountains. What's the potential feet here an upside?

Well, I'll take that, I guess, from a White Mountains perspective. I think where we are now is -- HG Re is producing probably a high single-digit unlevered return on capital invested. And if you assume a 0 loss outcome, which is a big assumption, but I think the right assumption and history to date would support that assumption, then I think there's more upside to downside from that on a running return basis from here as the tailwinds kick in. Anything you want to add?

What I'd say is we are going through right now, a market that I think is going to be for the medium term favorable environment for us. Again, as a management team, we're committed to making sure that the economics of paying surplus notes, which is one of the key drivers, works well. And bear in mind, when we complete that goal, which we make a priority, the investment dynamics and attractiveness of the company multiplied dramatically.

As part of your capital management, how aggressive might White Mountains be in repurchasing shares?

Well, I think we've always been active repurchasers of shares in the right circumstances. I think you can look at to what we did most recently post 2017 after the sale of OneBeacon and get a sense for order of magnitude and pace. And we'll see what the situation looks like. It depends a bit on what capital deployment opportunities present themselves, and what the entire opportunity set looks like, including share repurchase. Anything you want to add to that, Reid?

I think that's appropriate. One more. The White Mountains shares are illiquid, would the Board consider a stock split. Well, I guess I'll speak for the Board. Jack always like the share price high because he thought it kept the [ RIF ] wrap out. But in all seriousness, I think the high share price is a factor, one of many that contribute to liquidity. And we're happy to consider it. I'm not sure whether we'll get there on the change, but happy to take it under advisement. You had another question?

[indiscernible]

On buybacks.

Our general philosophy and strategy, I guess, with respect to buybacks versus dividends versus just keeping the optionality and retaining the cash at the parent in the absence of something really interesting to be with.

It's a good question. It's a running judgment call. One thing I would say is, when we're in a situation where we have some undeployed capital, but not unlimited undeployed capital. We tend to just look at share repurchase or return of capital to shareholders in some form as an alternative investment to redeployment. And we look at the economics of that activity over a defined return period, and we compare that to the deals that we might consider, which I think is the financially logical way to think about it, and we're very disciplined about it. When you're in a situation, let's say, where you have what the borrower phrase from V.J. Dowling, you have excess, excess capital. So let's just say it's capital that I -- for whatever reason I have a crystal ball and I can guarantee you that I would never be able to deploy it in the next 5 or 10 years. Then I think we will move more aggressively to return it. And then, of course, the question is where you draw the line on your definition of excess-excess. And that, in turn, is sort of iterative. It depends what opportunity set is in front of you and what the market looks like and how many Ark transactions are going to walk in the door or what's there. So this is a nuanced running decision that we take very seriously. It's probably the #1 thing we focus on collectively as a senior team in discussing, debating and determining. Either one, do you want to add something on that? Other questions? Great. Let me thank everybody for being here. Nice to see you.