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

All right. Welcome to White Mountains Annual Investor Day. Thanks for being here. First things first, many of you will have seen the recent news that Morgan Davis has retired from the White Mountains' Board. Morgan served as our Chairman for 6 years and as a Board member for 17 years and depending on your accounting, Morgan has been a member of the White Mountains family in one capacity or another for the better part of 40 years. Morgan has been a valued and trusted partner and a friend to great many people in this room over the years at White Mountains, including me, in fact, myself more than most. And I'd like to take this opportunity to recognize Morgan's many years of exemplary service to the company and to its shareholders. Morgan, could I ask you to stand and take a bow? All right. Next, I'd like to introduce the rest of the White Mountains' Board and just ask you to raise your hand when I call your name. David Tanner, Mary Choksi, Phil Gelston, Pete Carlson, Suzanne Shank is not with us today, Margie Dillon, Weston Hicks, and Stevie, he is not with us today. He's decided that shoulder surgery is more fun than Investor Day. Now I'd like to take a moment to introduce the new Chairman of the White Mountains' Board, and that's Weston Hicks. Weston is relatively new to our Board, but he's not new to our company or our industry. We know Weston all the way back to his days at Sanford Bernstein, where he was the best insurance stock analyst on the street. And then later, of course, the CEO of Allegheny, which is one of a handful of companies that you can truly say are cut from the same cloth as White Mountains. So Weston is uniquely qualified to be our Chairman, and we're thrilled to have him and excited about what's coming next. So let me invite Weston to say a few words, if you would.

Thanks, Manning. I'll be very brief. First of all, I am honored to step into this role and big shoes to fill. So hopefully, I will do a good job there. White Mountains is a company I've known for a long, long time. Going back to when Fireman's Fund was a public company, I was at Moody's, so I used to deal with Jack Byrne back then, and I've followed it ever since. So this is a real capstone to my time in the industry. It's a great company you all know, and I'm privileged to be a part of it. So I'm looking forward to at least a couple of terms in this job, and we'll see where it goes. Thanks.

All right. I'm going to quickly introduce the White Mountains' parent company senior team, Reid Campbell, President; Rob Seelig, General Counsel and Investor Relations, many of the shareholders will know Rob; Liam Caffrey, CFO; Mike Papamichael, Deputy CFO; Jason Lichtenstein, Deputy GC; Dave Staples, Head of Tax; Michaela Hildreth, Chief Accounting Officer; Caroline Fedorowicz, General Auditor; Mark Plourde, CEO of White Mountains Advisors; Jonathan Cramer, Chief Investment Officer; Chris Delehanty, Head of Corporate Development and M&A; and Jen Moyer, our Chief Administrative Officer. I would note, as I do every year that each member of the senior team is a White Mountains shareholder and in most cases, has shares worth many multiples of their salary. And I can assure you that every one of the folks I've just introduced thinks like an owner every day. I'm going to introduce the senior teams of our operating companies as we proceed. So we can get started. All right. 2022 was a strong year for White Mountains. Adjusted book value per share was up 26%. The stock price was up 40%. Clearly, the sale of NSM was a big driver of the results. If we put in some aside, we had good results in most areas of the company. Our 3 biggest operating companies, BAM/HG, Ark and Kudu, all produced good to better than good results year. And we'll hear more about those in detail as we go forward. Our investment portfolio produced a return of minus 2%. And in a year where financial market indices were down double digits across the board, this was an excellent relative return. And in particular, the equity portfolio at the parent company produced exceptional results. The stock price of MediaAlpha, or MAX declined for the second consecutive calendar year, and it drove an unrealized loss on the roughly 17 million shares that we continue to own. This is all about where we are in the underwriting cycle for Personal Lines P&C, which is MediaAlpha's largest vertical. For a number of reasons, it's been the most intense underwriting cycle in that sector that any of us have ever seen. Later in the presentation, we'll talk about the state of play and what we're going to do about it. Finally, the NSM transaction generated about $1.4 billion of cash proceeds. So it put us back in a position of having undeployed capital to work with of size. And capital management activity over the balance of the year was additive to value. We successfully completed the tender offer for $0.5 billion worth of shares. And we committed $200 million to Outrigger Re, which is a way of leaning into the hard market for property cat and supporting the teams at Ark. So we'll discuss those initiatives as we go. Here you get some context around the slides, starting around the returns. 2022 returns were strong by any measure. In the first quarter, book value per share was up about 5% while the stock price took a breather, time will tell. So here, we have NSM, which was a big driver of value last year. We talked about the deal in detail at last year's meeting and also in the annual report. So I'm not going to drag you through the whole story again. But I do want to make 2 quick points. First, the transaction increased our adjusted book value per share by about $300. And I want to point out that we've seen this movie before. We've had large gains on sale from Esurance, OneBeacon, Symetra and so on and so forth. It's not uncommon. And our guiding principles, all the way back to Jack, are to seek to produce a superior shareholder return over time and not to care whether that return is smooth or lumpy. So lumps happen and hopefully, they're for the good, and this was a big one. Fundamentally, we are not seeking to produce a steady stream of quarterly earnings but rather to grow adjusted book value per share for our shareholders over long periods. The second thing I would mention again is the proceeds, which left us with significant undeployed capital. We know what it takes to redeploy this capital and pursue to shareholder value, and Liam is going to talk about what we've done so far.

Thank you, Manning, and good morning. So first, I'd like to walk through our capital position over the past 9 quarters. What this does is following the sale of NSM last August, we found ourselves with just short of $1.6 billion of undeployed capital. And at the time, we said we would seek to put that to use through a combination of returns to shareholders as well as capital redeployment, which is exactly what we've done. Since last August, we've repurchased approximately 500 million of our shares back. The majority of that or about 460 million was through our self-tender offer, which we executed last August and September. And then the remaining 40 million has been through our normal 10b5 Share Repurchase Program. We've made a couple of major capital deployments in that time. The first, which we'll talk about in more detail later is $205 million into Outrigger Re to support Ark's reinsurance business out of Bermuda. And the second is an additional $150 million commitment to Kudu. And I'd say both of these are examples of where we'd love to put additional capital to work behind our existing operating companies and our proven management team. And then lastly, we had a number of smaller, both deployments and proceeds. This included our preferred investment in Doxa and some smaller strategic investments as well as some distributions from our operating companies as well as some smaller sales throughout the portfolio. So we ended the first quarter with approximately $720 million of undeployed capital. Next page seeks to put that into a little bit of context over the past 6-plus years. So again, if you go back to 2017, we were fresh on the heels of the sales of OneBeacon, Symetra, Sirius Group, TRANZACT. We found ourselves with $3.1 billion of undeployed capital on a capital base of $4 billion. So over 75% of our capital base, 80% was undeployed. And what we did over the following 4 years was a combination of the same playbook, which was returns to shareholders through a series of tender offers as well as new deployments into operating businesses, many of which you see here on this stage, so Kudu, NSM, Elementum and Ark, amongst others. Such that when we came into 2021, we were essentially fully deployed, having returned $1.3 billion to shareholders and redeployed $2 billion of those initial proceeds from 2017. Over the past 2 years, you've seen us generate additional proceeds through NSM, secondary offering at MediaAlpha, among other actions, such that we had the picture we saw in the previous slide of $1.6 billion of undeployed capital. And again, we've gotten busy putting that to work through a combination of returns to shareholders as well as redeployments. As Manning said, this is a playbook we've run many times over our history and are quite comfortable with it and are going to be patient in terms of how we those deployments. Maybe pause here. A question we often get from investors is: How do we think about the trade-off of redeploying capital versus share repurchase or returns to shareholders? And the answer is, it depends on a number of factors, but one of the main ones is our level of undeployed capital. In instances where we have what [ Vijay Dalian ] would refer to as excess, excess capital, which is we have more capital than we can hope to invest at a reasonable return over a reasonable period of time, we generally look -- we'll look to return that capital to shareholders. So if you go back to 2017, when we had $3.1 billion of capital, if you go back to last August when we had $1.6 billion, they was certainly a component of that, which we viewed as excess, excess, and hence, we executed the tender offers. When we're in a situation where we feel like that marginal dollar of capital can be equally either redeployed or repurchased, which is where we find ourselves today. We're really guided by what provides the highest return to shareholders. We have a view on the intrinsic value of our stock, and we adhere to the buffer rule, which is if we're trading below 80% of a conservative estimate for intrinsic value, we'll look to repurchase where possible. If not, we're going to look to redeploy. But we're constantly guided by what we think provides the best return. As Manning has stated over the past few quarters, we're pursuing redeployments with vigor right now. We'd love to add a fourth major operating unit going forward that can sit here next year. But depending on the share price, we'll do what's in the best interest of shareholders in terms of returns. So I think you'll see -- continue to see a little bit of a mix going forward, but we are approaching and pursuing redeployments with vigor and can talk about that a little bit later. So with that said on capital, maybe talk a little bit about our current financial position and our investment portfolio, investment returns. So our total capital position at the end of 1Q was $4.8 billion. That's principally roughly $3.94 billion of that is in shareholders' equity. We have no financial leverage at the parent. We do employ prudent levels of financial leverage at our individual operating companies, including HG Global, Ark and Kudu. On a consolidated basis, our debt to total capital ratio stands at 12%. That's down from about 15% a year ago when we owned NSM. And as we discussed, our undeployed capital is $0.7 billion or about 15% of our capital base today. Investments. Going back to our IPO, our approach on investments is to maximize long-term total returns on an after-tax basis, while taking prudent levels of financial risk and maintaining a diversified portfolio. So our total portfolio is defined here on more of a management basis. So within this, we've excluded our holdings in MediaAlpha. We've excluded our holdings and the participation contracts at Kudu to get a more of a management view of our investment portfolio, stood at $3.6 billion at the end of Q1. $2.5 billion of that was in policyholder funds at Ark and HG Global and $1.2 billion in shareholder funds. Our general philosophy is on policyholder funds, we invest conservatively, and we'll go through that, but predominantly in highly rated fixed income instruments. And our shareholder funds, we invest a little bit more aggressively. Versus insurance peers in the industry generally, I'd say our portfolio tends to have a bit of a shorter duration and higher equity exposure. But it's important to note that we don't make investment decisions in a vacuum. We're guided by our corporate needs and our known capital deployments in terms of how we think about the allocation of that parent portfolio. We have 3 main investment mandates across the company: Ark, HG Global and then our parent portfolio. Within Ark, total portfolio value at the end of 1Q was $1.9 billion. Here, the mandate is, first and foremost, to meet our insurance obligations; and second, to manage for total return. As a result, you'll see a mix of predominantly fixed income but also some equities and alternatives exposure. HG Global, that portfolio stands at $0.6 billion. Here, we're solely focused on preserving claims paying resources to support HG Global's reinsurance obligations to BAM. And as a result, we only hold highly rated fixed income instruments. There's no equity exposure in this portfolio. And then at the parent, the $1.2 billion, again, we want to safeguard our known capital commitments and then manage for total return otherwise. So again, you'll see a mix of fixed income and equities. To put some numbers behind that, again, as of the end of the first quarter, breakdown of those portfolios, again, Ark $1.9 billion portfolio, about 80% in highly rated fixed income, average duration of 1 year and an A+ rating, and the remainder in equities and alternatives. And I'd note that a decent portion of the equities exposure here is more market-neutral funds. So it's not straight beta exposure, it's actually managing for more of a total return, market-neutral approach within that allocation. HG Global, again, the $552 million, all in fixed income, average duration is a little bit longer, 4 years, credit quality, AA-. The parent, $1.2 billion portfolio. Again, here, it's 55% fixed income at the moment, 45% equities, again, shorter duration, higher quality on the fixed income side. And within that equities exposure, again, that includes a fair chunk of more market neutral versus straight beta positions. So on a consolidated basis, our equity exposure, this includes the equity exposure within this portfolio as well as for this metric, we've added back our MediaAlpha exposure. And our Kudu participation contract exposure is about 42% of our shareholders' equity at the moment. So then finally, portfolio returns over the last 2-plus years. 2021, I'd say, a good year in terms of both, absolute returns and relative returns. 2.3% total portfolio return, better than or in line with our total return benchmarks, driven by both, fixed income and then in-line performance on equities. As Manning mentioned, 2022 was a poor year, I think, for everybody on an absolute basis, but we're proud and really felt very good about our relative returns there, down 2.1% versus the total return benchmarks were down double digits, driven by both, fixed income, where we had a shorter duration portfolio, which helped us on the mark-to-market losses versus the industry averages, but particularly the parent equity performance and the Ark equity performance up 8% in total on a consolidated basis. And then so far through the first quarter, again, I'd say good results, generally in line, a little bit below benchmarks, driven by the same dynamics. We have more of a total return market-neutral approach in equities, which means we're going to trail the S&P a little bit. And then we have a shorter duration on the fixed income portfolio. So as the mark-to-market starts to unwind, we get less of a lift, but likewise, had less of a decline last year, so up 1% through the first quarter. And again, as Manning pointed out, a lot of the drivers that bottom lined, which is the equity and alternatives performance, heavily driven by our performance at the parent. So at this moment, I'd like to call out our CIO, Jonathan Cramer, thank him for his contributions to this excellent result. And I think Jonathan is happy to take any questions if we have them now or if you want to think about them, we can circle back at the end, happy to do that as well. All right. We'll wait. Everyone's shy at the moment. So we'll wait for Q&A a little bit later. So let me turn it back over to Manning to begin to walk through our operating company performance.

Okay. Thank you, Liam. This slide gives you a visual of the allocation of book value per share by operating business. And over the past 3 years, we've seen 3 large operating businesses really emerge: BAM/HG Global, Ark and Kudu. This reflects organic growth and also some knock-on capital deployment of different types at Ark and Kudu. And I think the current allocation here against these businesses sets us up quite nicely for going forward. Here, a little more detail on the 6 largest operating businesses. I won't drag you through it but instead just point out a couple of themes. First, all of our businesses are in the insurance or related financial services sectors. There are no exceptions to that. Second, we tend to prefer control positions in our operating businesses. This is true of 4 of the 6 businesses today, and it used to be true of MediaAlpha before the IPO. Elementum is the lone exception to that. And third, the management teams of our operating companies are significant owners in their businesses straight down the line. There are no exceptions. All right. Slide 19, I'm going to cover this first slide on BAM and HG Global and then hand things off to Sean. So BAM is a financial guarantor of a central public purpose municipal bonds. This means bonds issued by state and local governments to finance things like school districts and sewers. BAM is the primary insurer that faces the market. It's a mutual company, and it's owned by its memory municipalities, the same municipalities that use its insurance on their issuances. HG Re is a single-purpose, first-loss reinsurance company. It's a private stock company, essentially owned entirely by White Mountains. White Mountains provided the formation capital for BAM, including $500 million of surplus notes. So our economics from BAM and HG Re come from 2 places. The first is interest on the surplus notes, and the second is the reinsurance profit that's being generated at HG Re. Before I hand off to Sean, I want to call out one key development that happened at HG Global in 2022. In April, HGG, which is the ultimate parent in the HG Re chain, closed and funded a new $150 million investment-grade rated senior debt facility. And of that amount, $116 million proceeds were upstreamed to the parent company, and they're available for deployment elsewhere in the White Mountains family. And this is -- this deal is important. It demonstrates continued financial progress at BAM and HG Re. And it represents the most significant return of equity capital to White Mountains since we started the business in 2012. So very happy with that outcome in 2022. All right. Let me invite Sean up. I will introduce him first. CEO and Co-Founder of Build America Mutual, Sean McCarthy. Why don't you come on down and take it from here?

Thanks, Manning. BAM has now been in existence for 11 years. In that period of time, we've underwritten $126 billion worth of transactions. We have $100 billion worth of state and local governmental guarantees outstanding right now. During that period of time, we've had no payment defaults. We've had -- we have no credits on our credit watch. And I think that's really a testimony to first, sticking to our knitting as a municipal-only, and to having very strict credit discipline. So in that regard, we've been through a number of cycles the first 8 years, where interest rates were steadily going down. In the last couple of years, interest rates have been going up and creating a lot of volatility, but -- and then COVID. And throughout that entire period of time, really have to give credit to our surveillance team and our underwriting discipline to make sure that we maintain our #1 goal, which is to have no credit defaults. The last 3 years have been the strongest 3 years of -- in BAM's existence. 2022 actually was the strongest year we had. We underwrote $147 million worth of premiums, and that was up 24% from the year before. It's interesting because the pricing actually improved last year. And we're really in two businesses covering one market. And the two businesses can be defined as the primary market, which is a new issues that come to market and the secondary market, which is where we guarantee a bond that was not insured when it initially came to market. And that's primarily one of the big things that's happened right now is that business has really become a tool for institutional [ loan ] investors to not only protect their portfolios against payment default but also preserve liquidity, lower volatility in terms of how they trade and manage single risk. So all of those things have worked well to our benefit and to the market's benefit. The important thing about it is that as the primary market is very active, the secondary market is usually a little bit slower in that those same institutional investors are looking to digest the primary market volume. And then when the markets are slower, they're much more focused on creating relative value in their portfolio through our guarantee. So they complement each other well. And over the long period of time that they produce a stable result regardless of those market conditions. We're pleased to -- one of the fundamental things for BAM is it's making a surplus note payment. We think it's a demonstration of our financial health. Last year, we made our largest one of $36 million to HG Global. So if I can turn the slide. So a couple of interesting things. The primary market has been steadily going down since interest rates have steadily been going up. Now there's two things that caused that. The first is higher interest rates eliminate refinancings. Essentially, every municipal bond that is callable will eventually be called. But as interest rates have been -- gone from 3% to up to 5% and the number of refinancings, which has historically 25% to 30% of the volume, has really evaporated. That's not all bad. Although between 2021 and 2022, it declined 21%, between -- through '22, it declined 24%. So you can see that primary market has been going away. Municipalities have been standing on the sidelines for one reasons. One, they -- the Fed activity, there really is not very much political will to come to market with your transaction if you think interest rates are volatile and it might not be perceived or received well in the market. The second thing is that they -- a lot of municipalities got a ton of money from the federal government through COVID. And so their coffers were really full. And so the desire or the need to come to market for your financings has been decreased. One thing I'll point out is, we measure a right of different things to figure out what's going to happen in the future. One of them is referenda that have been voted on voter-approved bond issues. So in 2022, there were 1,174 referenda that were approved in 40 states for $127 billion worth of new money. So if you take that, it was $100 billion the year before that in 2021, voter-approved transactions that have yet to come to the market. So we combine that with the fact that the bipartisan infrastructure bill requires matched funding for -- to draw the federal monies out, which have a limit to it in terms of when it expires, use it or lose it. We think that the primary market is likely to rebound. I can't predict which quarter, whether it's going to be in the end of the summer, the third quarter, the fourth quarter into next year, but it's certainly going to happen. The history books would tell you that any voter-approved bond transaction will come to market. So -- and that sort of leads me to what is the industry penetration. Right now, it's about 8%. Actually, in the first quarter, it was 8.2%. We look at it differently than just the overall penetration market. We look at what is -- what we would define as our target market, meaning that transactions that are AA or AAA on the run rate, transactions that are noninvestment grade or unacceptable credits or in categories that we don't underwrite are excluded. So when we look at the target market, we've been underwriting about 26%, 27% for the last several years in terms of utilization in that market. In the first quarter, that number jumped up to 41%. So BAM's goal is to be active in the market, but to be focused on returns. The thing I will note that in this particular -- until the Fed sort of comes down, you can see that interest rates are going down a little bit, but the credit spread, which is really the thing to focus on, the spread between AA and A is actually tightening. So we think that will, again, adjust before. And for our capital markets effort, volatility is what drives activity more than absolute interest rates in one way to think about it. So on the third slide. So as you can see, our par amount of insured has been holding fairly steady. Our pricing holds fairly steady. And again, it's sort of complementary between the two markets. We focus very much on our returns. And we feel that, this year, as it's unfolding, is going to be an -- I couldn't promise you another record year, wouldn't promise you another record year, but I think that we're going to have a solid year going forward. And of course, our other thing that we really focus on is increasing our claims paying resources so that, as the company goes forward, you can see that we've been building that on a steady basis over that period of time. So are there any -- can I answer any questions?

So we'll pause there and open for questions on BAM and HG.

Yes.

[indiscernible]

There is. The first quarter is always the slowest quarter. It's been that way [indiscernible]. And the reason normally is that there's a tremendous push to get transactions done towards the end of the year. And then normally, the first quarter is sort of a respirate from that. Another thing that's happening right now, if you think about what happened in the -- through the December all the way through the last Fed meeting, having the market be unstable from the fact that if they don't know whether interest rates are going to go up 0.5 point, 0.25 point, not at all, are they going to start to decline over some period of time? All of that in the municipal market causes primary market participants to take a pause and so when we look at -- and we talk to -- and really, one of the things that we've done at BAM is we love data. So we have a centralized database that we're fortunate enough to have the Head of BlackRock IT Group joined us at the inception. We gather everything from dealing [indiscernible] to financial reporting. And one of the things we track is what is the backlog of transactions, so what are the level of transactions that financial advisers and investment bankers have on their portfolios to price? So we see that, that's sort of like identifying transactions long into the future. And what we hear from them is that there has been this delay for issuers, big and small, to come to market until they think the Fed is sort of all the way done. Any other questions? Again, thank you. And I want to -- I couldn't leave the podium without thanking White Mountains and its management team and Board for their support. Since inception, they have been really great partners and we really appreciate that. Thank you.

All right. Thank you, Sean. Let's turn now to Ark. Please allow me to introduce Ian Beaton, CEO and Co-Founder; and Nick Bonner, Chief Underwriting Officer and Co-Founder. And Ian, you're up.

Good morning, everyone. This year has started better than last year. Last year, I forgot to bring a jacket. It's there, but it's not perfect because this year, I forgot to bring a tie as well. One of these years, I'll bring either both and wear at least one of them. Happy to take questions as we go. But what I'm intending to do over the next few minutes is spend a little bit of time refreshing every memory of who is Ark and what we do, because there's quite a few things that happen in White Mountains, and we are just a small part of it. Secondly, talk about how we're doing, how we're doing with your money, your investment, and it's our investment, too. And then thirdly, have a little peek at the future, and what we think is happening in the market in terms of rate. It's not a crystal ball exercise or if it is, it's a badly designed and constructive crystal ball, but we'll talk about that. I'm sure there'll be some interest in it. So just a quick refresh on what Ark is, and what we do. We're a specialty lines company. We inhabit the P&C space. So we do property, about 45% of what we do at the moment. About half of that is reinsurance, and about half of that is what we call property D&F, but that's probably less familiar term. And it means E&S insurance property insurance, both primary and excess. That's the largest chunk of what we do right now, mostly driven by opportunity in rate. The next two big chunks are marine and energy and specialty in between them. They're about another 45%, about equally weighted, slightly more specialty at the moment. And the remaining 10% at the moment is A&H and Casualty. And we've been on a growth binge recently because of market opportunity, and those have definitely happened in the marine energy, specialty and property areas and less so in the other two areas, which is why the portfolio has changed that way. We're 16 years old. I may look at Nick, the silver-head gentleman over there, doesn't look [indiscernible], doesn't look bad. At least he's got a tie [indiscernible], jacket, thank you. We have two main platforms. We have two syndicates at Lloyd's. Lloyds of London is the largest insurance market in the world. It's actually a marketplace with a central fund. It's quite unique. And we have two of the approximately 90 syndicates there. There's no magic about having two. It's about, as we said, sort of 90-odd syndicates in total, and it's just grown up over the years. And we have a Bermuda-based business now, which we set up with the assistance of White Mountains when they took the investment in us at the beginning of '21 to rekey our Class III to Class IV, get an [ A invest A ] rating and build out the platform there. We write about 60% of our business now in London and about 40% in Bermuda. In London, it's about 80% insurance, 20% reinsurance because that's where we see opportunity in London and Lloyd's. And the other way around is about 90% reinsurance in Bermuda, which is what it is famous for, and 10% insurance. So that's what we are. We'll talk about Outrigger at the end, and we'll probably talk about our performance as we seamlessly move with a nod to the next slide, well done. Thank you. This slide is complicated, but the vertical axis really shows the volatility of our returns versus other syndicates in the Lloyd's market, other competitors in the Lloyd's market. That's volatility of returns. And then on the x-axis, it's the profitability of those syndicates. So the more volatile ones are towards the bottom and the more profitable ones are towards the right. Now intuitively, you would think that if you're more volatile, you'd be more profitable on average because risk and reward sort of seem to dictate that would make sense and less profitable will be less volatile. And what this scatter diagram shows is, actually, there's quite a few that actually don't fit that mold. In fact, the line is really the other way around. You can be profitable and you can be less volatile, and we've highlighted that by going green with it. We shan't talk about red because that's not a good place to be. So we're one of the most profitable and one of the least volatile businesses in the Lloyd's market. This is over the last 10 years, so this is 2013 to 2022. So it's not a 1-year, it's not a 2-year, it's a 10-year view on us. We could go back further, but I think we've made the point in 10 years. So that's how we've performed historically. And how are we doing right now? Well, it's a good time in our market. It's a good time, but it's not a great time in our market. we keep getting cats, right? But nonetheless, that is part of our business and what we do. Combined ratio last year was 82%, and we wrote about $1.5 billion of premium, which is up strongly only year before. It's just over $1 billion the year before. And post 1/1, which is a big renewal cycle for us, things are looking pretty good into '23 as well. First quarter for its worth as a combined 94%. And rate, we had a planned rate of up 3%, which was written before Hurricane Ian landed and it's up 14% or 15% right now. So we've seen strong continued momentum because of Ukraine and Ian and inflation and interest rates, those are big drivers for us. And it's probably the best rating environment that we've seen in our 16 years. So the bars show you how our premium has grown over the last 4 years. And the red line shows you our combined ratio, and it's dropped down. So we can have growth at this point in the market cycle. And we can also have increased profitability at the same time. It's not always possible. Obviously, in a soft market, we'll be shrinking the top line to protect the bottom line. But here, we can have both. And you can see the mix of business again, which as I pointed out, property at bottom, marine and engine specialty and A&H and casualty. Quick little picture. The one on the far left, the 98% combined is a U.K. combined number. The difference between U.K. combined and U.S. combined is you can probably drop that 3 or 4 points for like-for-like comparisons. So before we came to 1/1 and the renewal of a lot of reinsurance business, we saw quite a squeeze in the market cycle and a squeeze that we haven't seen for 10 or 15 years. And we saw a supply/demand imbalance of about what we would think would be about $50 billion. You'll have read in other trade press, I'm sure. Sometimes it's 30%, sometimes it's 80%, but somewhere between a substantial squeeze on an industry that has let's call it $0.5 trillion of capital. It's a big shortfall. And again, that was driven by willingness and ability to play. Some hedge funds, some [indiscernible] funds have tracked their capital because there was a large loss. Our [indiscernible] is going to cost us probably about $50 billion. It's a large number. That wasn't available for deployment. And a lot of people on the insurance and the reinsurance side had sort of given up the will to live in terms of interest in this market because quite frankly, it had disappointed for years and years and years. And so between the willingness and ability to play on one side and then increased demand because overall these frequency of severity of cats and inflation, that balance led to a repricing certainly in property treaty of upwards of 30%. The market was dislocated at 1/1. There was lots of negotiation about terms and conditions, and it was quite fractious, but we got through it. So now where are we? Where are we versus 1/1? How long will the market cycle last? Well, if you want those answers, I don't know. So -- but I will start with is the cure rate numbers. So on the left-hand side, you'll see numbers that you may have seen elsewhere. We, broadly speaking, agree with those numbers. We have seen property treaty rates go up 30%, 40%, 50% at 1/1, and that has continued at 1/4 and indeed at 1/6. So property in Florida -- so the Florida renewals are up between 25% and 35%, probably low 30s, and it's continued. It's continued the difference with 1/1 perhaps is that the expectations about terms and conditions have been sort of set. And that unruliness, that market behavior settled down, it's much more orderly renewal by the 1/6s than it was at the 1/1s, but the rate is just as good. Now property reinsurance has been hardening for 2 or 3 years, and it's accelerated this year. Low 30s isn't a bad place to be. The sort of 20 years last year, and it was up maybe [ 5 ] or so the year before. So we're in our third year of hardening property treaty, which is quite unusual. Property Insurance, this D&F, I was talking about, the E&S insurance, has been hardening for -- it's now in its fifth year, a long time. It started hardening well before property reinsurance did, but then it was a much darker place. It had demons. It had lost a lot of money, didn't turn to drink, but it did eventually turn. And it has, this year, picked up again. At the end of last year, we were seeing rates starting to go up but not as much. But with the reinsurance rates going up by a substantial amount, that's put pressure on the underlying profitability in the insurance market, and that has lifted it up. So we're seeing U.S. insurance up by 20, 25 points and non-U.S. international up 10, 15 points. Marine specialty, a big lump there, marine energy, hull, cargo, specialty, anything that doesn't fit the above, basically, so cyber, political risk. That's anywhere between small single digits and up 20%. We saw a very strong rate increase on marine energy composite reinsurances at 1/1. Composite is marine and energy and other stuff. But typically, previously, a lot of terror and war have been thrown in for very, very cheap. And those pillars were stripped out. Those components were stripped out and properly repriced. So there's a lot of squeeze on terror aggregates, for example, at 1/1, not just cat aggregates. But the point I want to make about rate is rate doesn't translate necessarily into great profits, right? Everything is probably being punted with this year as the year to be in property treaty in this year. I would say it is, but everybody says that. I don't mean it the year before and the before that and the year before that. Rate increases don't mean it's going to be profitable, because whilst you've all seen these charts about rate being at historic highs or decadal highs, cats are decadal highs as well. The last 5 or 6 years have had twice the volume and value of cats as the prior 5 years. So it's been like A Tale of Two Cities by Charles Dickens. Is it the best of times, or is it the worst of times? So we think it's good, but we don't think it's great, right? But we do think it is good, and we should be leaning hard into it, and that's what we have been doing. I won't probably focus too much on the middle section, but just to say, in this whole melange of things, don't forget the perils you cover, the attachment points you attach at, the pillars of risk you give, otherwise known as these terms conditions are very, very important of components of what will drive your profitability. And at the end, we all know about inflation, because we're all experiencing it every time I buy a coffee downstairs. Maybe that's a matter [indiscernible] of course. And that comes to Outrigger. And Outrigger was an opportunity to grow harder and faster than our balance sheet could sustain with our capital alone. So we believe there is a great opportunity in property treaty. We also believe we don't have the balance sheet and the risk tolerance to take that all on Ark's balance sheet. So we picked up the phone, guess who to? There'll be no prizes for that one, and we said we want to deploy $250 million supporting effectively a quota share of our Bermuda property [ CapEx ] outlook, property reinsurance. We think there's a year, 2, don't know, in this. Very quickly, the answer is yes. We've got a couple of other friends and family involved, and that was the $250 million, and we're into market. And that is on plan. It is on track, and it is deployed. It's now deployed. So we see that's a great opportunity. We don't know how long that will last, but we do think now is a good time to be involved. What I would say to all those people who do want to get into property treaty and thinking of investing in this space is don't come in, [indiscernible] for the rest of us. But also given the volume of capital that can come in very quickly, it also can very quickly become a crowded trade. So we need to think very carefully about what the needs are in terms of demand and what the supply is. That'd be my little Christmas present request. All right. Thank you.

Let's open for Q&A on Ark and Outrigger.

[indiscernible] -- given your noted historical lack of profitability, particularly in the cat segment and in the context of the significant price increases that you've levied on this segment, I guess my question is why fundamentally does pricing not keep up with elevated losses in this segment, if that question makes sense.

It does. I'll just correct you first, though, because we've been highly profitable as opposed to unprofitable. So us, but I suppose you meant the market. So why doesn't it behave logically? Well, there's loads of markets that are cyclical, yes, name a commodity market is not cyclical, name a stock market that's not cyclical, name an energy market that is not cyclical, because you have supply and demand imbalance. And effectively, the insurance industry, reinsurance industry is driven by supply side overhang cycle. And effectively, there's a lag between when people write business for a certain premium, certain rates and then when the losses come through. And when the losses come through, there may be more or less, and particularly with longer tail casualty classes, which is a huge part of our sector, because it's not just about a property or property reinsurance industry, that lag will really to several years of losses when premiums than have to hike up pretty quickly to rebalance and recalibrate. And so you get these sort of cycles almost the prices to go up because of prior losses that have only been recognized today by actual methods. And then they drift down again as people go, "Hey, this looks really good. I'll come back in." And then supply comes back in, competition drives down. And so it's an equilibrium, but not a stable one.

The only thing I would add to that is that the barriers to entry are fairly low at the further you get away from the primary customer, so into the reinsurance and retro markets. And it allows the equilibrium to be achieved pretty quickly.

At last year's Investor Day, you talked about you're feeling comfortable with the low 90s combined ratio in the future. And I think you also mentioned about $5 billion of gross written premium in 2025, maybe 2026. Are those targets still achievable? Has anything changed with those?

Can you say that last bit again, what premium in 2025?

I think you had mentioned an aspiration to get to $5 billion.

Not me. Okay. But what was that [indiscernible] You had a pretty good memory until then. What was I wearing? I wasn't wearing a jacket.

It wasn't an aspiration. You promised.

I did no such thing.

Yes, you did.

So we think we're at about $1.8 billion this year, right? And we don't know next year and the year after. We think the strong growth has gone. We think there's further growth to be had, but we don't think the rates of growth we're showing there will continue because of this sort of nature of the cycle. And we're always looking for opportunities. There's nothing wrong with that number that you said. It's just I ain't got a cutting plan right now heading to do that. And in terms of the combined ratios you mentioned, yes, we think there's a good combined ratios this year, last year, next year that we would like to operate at, but that's no promise.

A couple of things to add. In terms of returns, profitability, the mantra at Ark is to aim for 20% and hit 15%. That's net ROE. And you can work out depending on your interest rate assumption, your investment assumption, et cetera, what combines might be required to get you there. That remains the goal. And the other thing I would say in terms of scale, when we invested at the end of 2020, our expectation was to try to grow the business to $1.5 billion over 3 years, and so we've exceeded that. Where we go from here is hard to say.

Two unrelated questions. We've seen some consolidation with the Renaissance buying Validus. Do you think there will be further consolidation in reinsurance? And how will that -- how will you be involved in that or not? And then just secondly, the Outrigger transaction, can you talk about the pros and cons of doing that type of site car as opposed to just taking more equity and other equity investments from White Mountains just directly into the existing capital structure?

So consolidation first. There will be more consolidation. We all know it's all coming. Consolidation tends to as a macro phenomenon, follow the latter stages of the cycle as things soften, but it happens the whole time. So they're going very much for scale, power, presence. And that totally makes sense. The macro comment is really as organic growth tails off and people feel flushed with reported earnings, how do they continue to grow? And that's often through consolidation or inorganic growth. And so we absolutely believe it will continue. How we play and play into that? We're always looking, always [indiscernible] if there's a deal or it can be a JV or a partnership, doesn't have a M&A per se. We'll look at it if it makes sense. Nothing has, to date, but that doesn't mean it won't. So there's no -- I can't give you -- this is how we're going to play it. We'll be opportunistic about it. The second point on why did we take non-equity participation in the form of Outrigger rather than more equity straight in this investment in the balance sheet is twofold, threefold. [indiscernible] consultant, there's always 3 things. Firstly, risk tolerance. So you will notice that chart about being top quartile and volatility and profitability. And we think we can achieve low vol and high profitability with a certain business mix, with certain ways of protecting ourselves. And it's not to say that not writing more property reinsurance on our balance sheet is not a good thing. It's just -- it then pushes us to the outer bound of our comfort level with profitability and volatility. So #1, do we want that on balance sheet? The balance sheet our size. And that's a risk-reward trade-off that we feel comfortable with. We've got a significant stake in this business. So why take more permanently as equity when we know this is a cyclical industry at some stage? It will change and we might want to collapse it down and make it go away, in which case, why do we take that? Because we think -- don't know, but we think White Mountains, I've been involved in product a couple of cycles of investment into Ark. They have probably helped found Ark. So we like it as a form, but at some stage, they have to leave and, hey, guess what, 5 years' time is up, right? These guys don't have to, and they can play long and they can play short time. Very interesting capital pool, right, from my which is they don't have to disappear after 5, so we can carry on to trundle and the shrink can grow as a market cycle it takes, but we can also be sort of fast and furious. He can be Vin Diesel, he can be somebody else, right? And we can take capital and then shut it down again. So we think that timing is different for us versus equity, I think, would be pretty -- the other point I'd make and if I had a third point of [indiscernible].

I think the key is the flexibility of the format against the cyclical opportunity. It's simpler to unwind when the opportunity shifts.

Cost of equity standpoint, -- it's your cost of capital, MEMS return on investment, right? So you guys are facing off each other. So who...

So that's why I forgot my third thing because it's dilutive, right? I thought at their Investor Day, maybe I shouldn't say that. So you reminded me, so I had to [indiscernible]. So thanks for that. Won't get lunch now, will I?

Other questions on Ark?

A question that's come in from the Ether for you was with respect to the supply-demand imbalance that you talked about before, how much capital do you think would be needed to plug the imbalance?

Well, what I would say is the market cleared, right? So it's an artificial construct we put up there. So my apologies for being simplistic, but you have to shut something on the PowerPoint slide, don't you. And so as demand and supply move and pricing changes, and so what we know at 1/1 was the market cleared. So there is enough capital. The market did not fail. The market did fail around 9/11. Market sort of failed sort of back in the early '90s. This market did not fail. It repriced and cleared. And it was much more orderly than the 1/6s and the 1/1s. And there's a lot of capacity out there. There was 2 or 3 very large players taking very large lines around 1/6. But it's at a reprice level. So I don't think the shortfall is there necessarily. It's how much additional capital comes in to then put pressure on pricing. I don't know if that answers that question, but here you go.

All right. Any other questions on Ark? Thanks, Ian. All right. Let's turn now to Kudu. Please allow me to introduce Rob Jakacki, CEO; and Charlie Ruffel, Managing Partner. Rob, take it from here.

So happy to be here with you today to give you an update on Kudu. By way of a refresh, Kudu is an investment platform that buys minority interest in asset managers and wealth management firms. We focus on the lower middle market of these industries. And the value proposition that we deliver to our managers continues to resonate. Part of that is fueled by the permanent capital that we represent. It's a big part of our ability to achieve an alignment of interest with the teams that we're backing. And that capital oftentimes, since the beginning of the company, has been used to facilitate generational transfers of equity and succession initiatives. But increasingly, the capital has been used for growth initiatives as well, with an increasing requirement of a lot of our managers to meet co-investment requirements for their LPs. Charlie and I, and Charlie who doesn't sit with me up here anymore for some reason, we started the firm in 2015, but it was really in early 2018 when White Mountains made their first investment and recapitalized the business that started the proper history of Kudu. In that time, Kudu's made roughly $750 million of investments, of debt and equity capital, across 21 managers of high quality and of diverse investment strategies. Where we sit today is a strong pipeline of investment opportunities, and we're working with White Mountains and our capital partners to arrange an incremental $150 million, as you heard before, of capital to facilitate those opportunities. So an opportunity to thank Manning, Wes and Jonathan and the White Mountains team for their belief in us as evidenced by this capital commitment and the partnership over those 5 years. So thank you. 2022 was a difficult year in many respects. A dramatic rise in interest rates, coupled with the price pressure on virtually every asset class, meant that there's virtually nowhere to hide. Despite this, the portfolio at Kudu showed its resiliency. Our managers -- the diversification of our managers was on full display. And most of those managers retain the vast -- the majority of their clients. The client retention rates were very high across our portfolio, which is one of the characteristics we look for when we're selecting new investment candidates. And it was great to see during a time of stress that, that client retention was right there. So that was a very satisfactory outcome. Over the course of the year, our portfolio grew, on a same-store basis, 8%. That was partly benefited by some monetizations across our portfolio versus capital. A Denver-based real estate manager elected to sell itself to a strategic partner. They sought a relationship with a Canadian-based real estate firm, Colliers. And as a result, our investment was liquidated in full. And while we're sad to see the Versus partnership come to its conclusion, there is a highly profitable outcome for all of us, generating about 2.25x our initial capital in less than 3.5 years' time frame. So it's a very satisfactory outcome. In addition, Sequoia, our Ohio-based wealth manager, brought in a new private equity partner in the fourth quarter of last year to fuel their inorganic ambitions, so we achieved a partial monetization there. And also Tiedemann Investment Group, TIG, along with their affiliates, achieved their public listing in early 2023, of which we received a partial monetization as well. Those latter 2, we retained a significant portion of our initial interest in those businesses, so we'll continue to participate as they grow. But through those transactions, we completely derisked our initial capital outlay, so very, very pleased with those results. And then we're off to a solid start in 2023. The GAAP ROE for the trailing 12 months ending 3/31 was 13%, reflecting strong Q1 valuations in our portfolio over the quarter. And then also the other metric that we monitor is our levered return, which excludes the benefit of realized and unrealized gains as the GAAP ROE figure does and focuses more on a yield component. That figure was down slightly year-over-year. And if you want to go to the next slide, you can see the trend line where we were at the end of '22 at 8% off of a stronger 2021, reflecting higher borrowing costs at Kudu and the removal of some of the higher-yielding investments that were monetized, as I mentioned. As we look out to 2023, I showed you the GAAP ROE, that levered return at 7%, for those reasons. That right-hand column importantly shows -- the top 2 sections of the graph, I'm color blind so I have to point to the position they are on the chart, represent our dry powder. So significant dry powder at Kudu today, reflecting the sale events, the proceeds from those sale events as well as the 150 of new commitments. We're sitting on a very robust pipeline as we sit here today. One such is going to close today, so very exciting for us. The announcement will be made in the next week or two and then a couple, probably 3 or 4, to follow in the next several weeks. So we're quite bullish on where we sit right now with our pipeline and have the capital to drive it. So hopefully, we can push that levered return up over the course of the year as those investments are made.

All right. Thank you, Rob. We'll take some questions on Kudu. All right, hearing none, we'll move on.

Excellent.

All right. Let's turn to MediaAlpha. As I mentioned when we started, Steve Yi, the CEO and Co-Founder, is unable to be here today. He's undergoing shoulder surgery. So please allow me to introduce Pat Thompson, CFO of MediaAlpha, who is joining us today. And I'm going to cover these slides and then invite Pat to come up for Q&A. As a reminder, MediaAlpha is a customer acquisition technology platform. It operates in multiple verticals. It has particular expertise in the insurance verticals, P&C, health and life. In simple terms, MediaAlpha enables advertisers who are often insurance carriers to acquire potential customer traffic, whether it's clicks, calls or leads, efficiently and transparently. And MediaAlpha is essentially a toll business. It collects a percentage of all the volume of transactions that it facilitates. So in 2022, the MAX share price declined for the second consecutive year from about $15 a share at the outset to about $10 a share at the end of the year. And this drove an unrealized loss on our continuing position in MAX, and that negatively impacted White Mountain's adjusted book value per share. The main event here is the underwriting cycle in personal lines P&C insurance, which is MediaAlpha's largest vertical. And I think everybody understands this, but just to connect the dots, when underwriting profit for insurance carriers expand, they increase their spend on advertising and customer acquisition and that drives MediaAlpha's top line higher. We saw an extreme version of this in 2020 when COVID hit for 2 reasons. One is frequency went through the floor and carriers had found underwriting profits to spend. And second, the way they spent them was through online advertising disproportionately to off-line advertising. So that was a big boon to MediaAlpha's business. On the other hand, when underwriting profit contracts, carriers reduce spend on advertising and customer acquisition and that drives MediaAlpha's top line down. And we've seen an extreme version of that in late 2021 and into early 2023 as the cycle has turned and turned hard. And there are a bunch of reasons for that: frequency reversion; elevated severity, which has been affected by economic and social inflation; and a number of idiosyncratic factors. I'll say that in my career, this is the most extreme cycle we've seen in this line of business. So we've seen continued volatility in early 2023. In the Jan and Feb renewals, which are a big renewal period for this line, we saw year-over-year increases in ad spend on the MediaAlpha platform. And so we thought we were seeing the early signs of liftoff. That was wrong in retrospect. And then came Progressive when they announced their first quarter results in April and their decision to cut back on that spend in light of elevated loss ratios. And since then, there have been a flurry of similar announcements and rate filings. So it's pretty clear at this point that the industry as a whole remains in the phase of the cycle where their pricing is chasing their loss costs. How much longer that's going to be is hard to say, although I think it's measured in quarters and not in years. So when all of this happened in early 2023, there was also a lot of volatility in the MAX share price, which is understandable. Traded all the way up to $16 in February and then back down to $5 in May. So how do we at White Mountains interpret and react to all of these events? For us, the touchtone is always the intrinsic value of MediaAlpha. And on this point, I want to say that MediaAlpha is not and never has been a fancy, serially funded, cash burning insurtech. It's just not that business. It's produced positive cash flow and dividends to shareholders every year since we invested in 2014. And it continues to do that. The other thing to note is that MediaAlpha provides a differentiated solution to a market that is going to grow. If you look through the cycle, there's a healthy secular growth rate. And there should be. So when you think about what the intrinsic value of MediaAlpha is, it's not that difficult to put a number on it, except for one issue, which is handicapping the cyclicality in the core verticals. Now in terms of what we think that intrinsic value is, you can get a pretty good sense of it by reviewing the bidding. We sold shares in the IPO of MediaAlpha in October 2020 at $19 a share and trading into that first day at $33 a share, fully distributed. And then in March of 2021, we sold in a secondary offering at $46 a share. Now in May 2023, when the stock has sold off, we've launched a tender offer and stated our willingness to buy up to 5 million shares at a fixed price of $10. We think $10 is a significant discount to intrinsic value and that purchasing shares at this level is inherently attractive to White Mountains, as simple as that. So that's the tender and what we're up to. And then just a reminder for everybody on the big picture, we've generated a return on investment from MediaAlpha of 9x money in cash. And we also have continuing shares -- 17 million shares of continuing upside and maybe more depending on how this tender plays out. And we recognize that it's a matter of when and not if the cycle in P&C insurance turns. Looking through that cycle, the more powerful secular force here is the growth in online advertising and insurance, which has got a long way to run and against which MediaAlpha is very well positioned. Let me turn the slide. Yes, this more or less tells the whole story in a visual. I probably should have just started here and said a lot less. But let me point out a couple of things. One is, if you look at 2015 and '16, this is the last downturn in the cycle for personal auto in the U.S. And you can see it. You see the growth flattening. And then you see what happened on the back side as the cycle hardened coming into '16, '17, '18, where the growth at MediaAlpha just took off. You can see here what happened in 2020 with the COVID lockdown. And then you can see the cycle turn again in '21 and '22, but as we have turned into '23 with the rate of change flattening out. All right. Let me stop there. Let me ask Pat if he'll join me, and we'll take questions on MediaAlpha.

There was a pre-submitted question. This is a question directed to White Mountains about the MediaAlpha tender offer. And the question is, how do you navigate the potential conflicts of interest for Steve Yi in his role as a White Mountains Director and as CEO of MediaAlpha?

It's a good question. On the question of the tender specifically, this is a decision that's been made in the best interest of White Mountains, full stop, and Steve was not a part of that decision. More generally, Steve has joined our Board. We're very happy with that. It does raise potentials for conflicts. We have protocol around that. We faced this issue before. That's nothing new. I would say, in my opinion, that's the tail wagging the dog. The main event is that Steve brings a lot to the Board in terms of subject matter knowledge, expertise, entrepreneurship and a range of skills that are additive. So we're thrilled to have him.

Would you consider doing a primary purchase of shares? In other words, buying the $50 million directly from MediaAlpha and providing more cash for the business as opposed to doing the tender?

We considered a lot of options. I think this is the most direct, straightforward, controllable initiative to take, and so we've taken it.

Why 5 million shares? Why that number?

Well, there's a question really on what's realistic and feasible. There's 70 million shares outstanding that White Mountains owns a good chunk. Our partners in Insignia Capital own a good chunk. The founders own a good chunk. They're passive investors who probably are not -- don't have appetite for a tender. There are other long-term shareholders involved. So when you get down to the addressable market, shall we say, and share count that's interested realistically in a tender, it's a number way less than 70 million. And we're triangulating what we think is feasible to get done. The other thing I would say is that if it's fully subscribed at 5 million, it takes White Mountains ownership from 27% to 34%. And we think we're going to make great money on that. But it doesn't fundamentally change the position that White Mountains finds itself in today.

Maybe I'll sneak in another one. What is your long-term vision for MediaAlpha? Or kind of where do you see MediaAlpha in 5 years, right? Because it's not -- I mean, dare I say, it's not statistically cheap on current run rate, profitability, right? So when you say $10 is a significant discount to intrinsic value, what are you what is your framework?

Okay. So there are several questions there in terms of vision and value. Pat, I think we should tag-team the vision question. So I'll take the value question first and then come back. I don't think trailing or run rate earnings is the right metric. I think you need to look across the cycle, pick a midpoint to the cycle and then look at the trough and the peak. And I think if you work through that exercise, you'll come up with a number that you can capitalize. That's how we look at it. In terms of vision, White Mountains doesn't have to have a vision for 5 years, and we really don't. This is a business we believe in and a team we believe in. We don't have an exit plan for this business. We don't have an exit plan for any of our businesses. It's one of the great advantages to being at White Mountains and to being a capital partner with White Mountains. So when opportunities come, we take them. If an opportunity came to sell at $46, we might do that. As we did in March of 2021. Here, we have an opportunity to buy at $10, we're buyers at $10. And how it plays out from here plays out. Now that's a very White Mountains-centric view of things and, frankly, is steeped in our culture and approach. But let me talk turn to Pat and let you talk about MediaAlpha, where you think you're going in 5 years.

Yes. I could give the kind of the flip short answer and say P&C recovery is going to be really exciting, but I recognize that's probably an insufficient answer. There really is kind of one stat that got me excited when I joined MediaAlpha 18 months ago and still gets me really excited every time I look at it and talk about it, which is pretty frequent actually with investors, and it's understanding and looking at kind of how advertising dollars are spent in the U.S. as a whole and in P&C insurance kind of as a subsegment of that. So across the U.S., about 2/3 of media time is spent online and about 2/3 of media dollars are spent online. So the 2 of those are kind of well aligned now. And I think, over the last 10 or 15 years, the spend has been catching up to the eyeballs essentially. And now that has happened. Well, within P&C, around 20% to 25% of the working marketing spend is spent online. And I don't have a perfect crystal ball, and I haven't seen a perfect report that says 5 years from now that percentage is going to be x, but I am highly, highly confident that number is going to be a lot higher than 20%, and we will be one of, if not the biggest, beneficiary of that. It will probably be us and Google. And I look at what's happened to our business over the soft market run-up and then the hard market, and we've seen volumes grow. And it's really been kind of a pricing challenge that we have faced. And we know that insurers, P&C insurers, when the business is profitable, they are in growth mode. And we're excited to see that return. And we think we've got the wind at our back in P&C where we've got that 20% stat and on the health side where that number is actually even lower than it is in P&C because that business is probably 5 to 10 years behind auto insurance in terms of moving online. So we think the future is really bright, and we're excited for the journey and excited to have White Mountains by our side as we do it.

Other questions on MediaAlpha? Yes, please.

Can you talk about the acquisition costs over time? I know you just started, but let's just talk about the insurance industry. How is it trending versus Google and other platforms online? Is it mature? Or do you see areas that are kind of growing, that are going to be low cost or a competitive advantage for MediaAlpha?

Yes. And I would say that the vast majority of our business is we are a marketplace that allows publishers that effectively have customers that have some sort of intent to shop for insurance to be matched up with hundreds of different advertisers, the largest of which are carriers. And within P&C, we have essentially 4 groups of publishers. One of them would be price comparison sites. So you can think of folks like Insurify and Zebra. The second would be financial apps. So you can think of a Credit Karma or a Mint or a NerdWallet, somebody like that, for whom insurance is kind of a logical adjacency to their core business. Third would be traditional kind of lead-generation sites. And these can be anything from a couple of guys in their garage advertising on Google or Facebook to larger operations that are really doing variable marketing arbitrage. And insurance carriers themselves. So you can think of a carrier that has customers that don't qualify or states where they don't underwrite or customers where they feel like they're going to be price competitive. And as we look at across all 4 of those kind of different segments, we think there are interesting tailwinds there. The one that's probably the most exciting over time is the carriers becoming publishers. And we have data scientific statistical models that can ascertain likelihood of binding. And perhaps unsurprisingly, the top 10% or 20% of customers have a pretty interesting likelihood to bind. And then the lowest 20%, 40%, it's essentially 0 and an interesting monetization opportunity for carriers. And so I think as we look at each of those 4, we see pretty good growth trajectory over time. And so we're really excited to see the market recover and see that play out.

Yes. The segment of insurance carriers is important. And it's really the reason we're invested in the first place. We owned Esurance at the time. Esurance had challenges with monetization of [ revenue ] traffic for a bunch of reasons. They were licensed only in 15 states but advertise nationwide, so they needed to recoup their ad spend on the states in which they couldn't bind a policy. That's how we found our way to MediaAlpha, which we viewed as the best mousetrap for doing that. And at that time, it was really Esurance and only Esurance that was monetizing leads. And that's changed, and there's a long way to go. You rob banks because that's where the money is. Well, the carriers have the leads. And if they're willing to transacting the leads, that's a big market segment. Other questions on MediaAlpha. All right. Thanks, Pat.

Thanks.

All right. Let's turn now to PassportCard/DavidShield. Let me introduce Alon Ketzef, Group CEO and Founder. PassportCard is an MGA for travel and expat medical insurance. It delivers its services pretty much anywhere in the world. It provides coverage and settles claims in real time without any paper via a debit card solution. And we view this as a better mousetrap. And it observably drives higher levels of customer satisfaction, premium pricing levels and high reactivation rates. And that latter point is very important. Travelers and expats who use PassportCard/DavidShield once are highly likely to use it again. And that's quite unusual, especially in travel. Business was launched in Israel, and it remains Israeli centric. And what I mean by that is that the customers who buy our products, when traveling or living abroad, tend to be Israeli. Our long-term goal is to add more customer markets around the world. And what I mean by that is to be able to sell to consumers whose travel or overseas journey is emanating from another country. We can deliver everywhere in the world. It's a question of opening new customer-facing markets internationally. We're focused on the markets that [ resemble ] is real, and we're doing it selectively. And in particular, we want markets where travelers and expats value the services that are differentiated at PassportCard/DavidShield, chiefly the medical insurance component of the coverage. The last point I would make on the prior slide is that PassportCard/DavidShield doesn't retain any underwriting risk on a net basis. It's ceded to our global reinsurance partner, which is Allianz. Slide 37. I mean, obviously, PassportCard/DavidShield was the White Mountains business that was most directly impacted by COVID. Travel insurance volumes went to 0 for the better part of 2020 and into 2021. But the bounce-back started later in '21 and continued in '22, which was a record year, and you could see the numbers here. The main driver was the return of leisure travel where everything went in the right direction in 2022. Insured penetration was up, pricing was up, market share was up and days traveled for the year ended up more or less at pre-COVID levels. Nothing beats a vacation except for an insured vacation. So the expat medical business continues to produce steady growth and good results year in, year out. It's a real Steady Eddy. And early '23, the results are quite good, and it's a pretty safe bet. The PassportCard/DavidShield is going to have another record year in '23. Finally, I want to just comment on the international expansion initiatives. There's 2 to note. First, expat medical in Germany. We just continued plugging away on this one through COVID, and now we have a nice little business that's emerging, and we expect to hit breakeven with that business late this year or early next year. Second, travel insurance in Australia where we didn't keep plugging. Australia, as many of you know, is essentially shut down to travel in from overseas. So we put the business in mothballs. But we have made the decision to relaunch and we will begin selling policies imminently. Now the Australia business is a longer build-out. It's probably 3 to 5 years to break even. But the size of the prize is much bigger, and this would be a substantial business if and when we're successful. Yes. Again, this slide tells the whole story. And I should have just started here. So Alon, if you can join me, we'll open for Q&A.

So you mentioned Germany and Australia, especially are currently generating losses. So of the $32 million in trailing EBITDA, how much of -- how much kind of new launch losses are in that number or...?

So just to clarify how we do these numbers, we -- it's a phrase we call core EBITDA. And it excludes new growth initiatives. We made the decision in 2022 to move Germany into core, even though it was slightly loss-making. So Germany is in the core. The only things that are not in the core are Australia and central technology spend, away from the core business. Anything you want to add to that?

I think that when it comes to certain investments, some of them are still in the core, okay? Taking into consideration that if you want to move the business forward, it will always be kind of a core expense. But on top of that, there are other expenses that are associated with different new initiatives that are in the pipeline and are not considered to be a core activity. We will meet those initiatives, hopefully, next year.

Yes. So just to put a frame of reference around Australia, the spin that you would have seen in 2022 and so far into 2023 is pretty modest. And again, that's outside the core EBITDA figure. But we anticipate to $40 million of funded losses to reach breakeven over 3 to 5 years. I mean don't hold me to those numbers, but it will give you an order of magnitude for what we're planning to do. Any other questions, yes?

So LTM core EBITDA of $31 million, and I think it's on White Mountains' books for $140 million of book value...

Our interest is on the books for $140 million and we own 54%.

Just curious why you decided to expand first into Germany and Australia and then beyond Australia, what other international countries are in the pipeline?

Please.

Thank you very much for asking. Germany is one of the largest market for IPMI insurance for international private medical insurance. The German market sends many, many employees to different parts of the world and it was for us natural to pick this market as where we want to launch our European hub, if you like, headquarter. Mainland Europe, same license, largest market, so it's only natural that we will be there. The -- one has to take into consideration that we have extensive experience working in Germany. We work with certain insurance players over there. So it was a natural choice. And I think that we are very happy that we made this choice because business is moving in the right direction. Germany is a very conservative market. And despite that fact, we made a good entry and the results are positive. As for Australia, which is travel insurance activity, we actually had a scorecard looking at different markets, sizable markets, matured markets pretty much markets that have an island mentality. In other words, it's not just taking the car and go buy croissants over the borders in France, but rather go to the airport and fly for a few hours where the definition of going abroad is well felt. And there were other characteristics that we looked at that -- and then we compared it to the Israeli market where we had the proven success. Using this scoring system, we came up with a short list of markets that we want to enter. I would just mention 2 of them. One of them is the Australian market. The other one is the Canadian market. And we had quite a dilemma which market to enter first. Eventually, we decided to go with the Canadian -- with the Australian market, given the fact that it's 1 regulator, it's relatively a small market. I mean large in size, but it's kind of a 5 cities market. So you don't have to have hundreds of employees in order to service distribution channels. The unit economics is very favorable. And the unit size is very favorable as Australians, the shortest trip from Australia is like 8, 9 hours. So they take those trips and they stay for 14 days and even longer than that. Putting all that together gives you a good market to tap into. And indeed, in 2018, when we started off with Australia, it was very good entry. And by 2020, in January and February, we could see, as we say in Israel, the stores was coming back home. In other words, started to see the signs of investments that we expect to see back, unfortunately, COVID hit us. And unlike any other industry in Australia, the only industry that was completely shut down was the travel industry and we had to shut down to hibernate the operation. We kept a few executives on the payroll in order to be ready for restart. And here we are restarting now. So I think we are going to see good results there. When you're talking about the second market, one of the up there on the list is the Canadian market. It's a market that consists of 3 different segments. You have those who are going across the border to do shopping in Buffalo, none of our business. But then you have the snowbirds, which is a huge market. And that really ties into what we do because in the spectrum of international private medical insurance and travel medical -- and travel insurance, snowbirds are right in the middle. They go for few months. They need good medical care. They pay top dollar for their solution, and it's really where we want to be. And to that, you should add those who are going to Paris for a few days. So we expect the Canadian market, once we feel confident with Australia that this will be our next direction. But again, still in the planning. I hope I answered your question.

Other question is on PassportCard. Yes?

Please.

How comparable is this business to NSM? Can we compare it -- can we compare the margin profile? And I just note that NSM had EBITDA margins kind of north of 25% and margins, I guess, LTM here closer to 14% or 15%. Can we -- as this business scales, will look -- as this business scales can -- would it look like NSM from a profitability standpoint?

I -- the short answer is not really. I don't think they're directly comparable. This is a direct-to-consumer business for the most part. NSM had a couple of businesses that look like that, but generally not. I think the inherent profitability of PassportCard/DavidShield is higher than NSM as a whole over the fullness of time and at maturity. Other questions on PassportCard? Okay. Hearing none. Thank you.

Thank you very much.

All right. Last but not least, we're going to cover Elementum. Let me introduce the team, Tony Rettino, Senior Portfolio Manager, Founding Partner, John DeCaro, Senior Portfolio Manager, Founding Partner and Mike France, Chief Financial Officer. Elementum is an Asset Management business. It manages assets for institutional investors in separate account and commingled fund formats. It invests those assets in insurance-linked securities, things like CAT bonds and collateralized reinsurance. And it's a typical fee-based business, it earns management fees and performance fees. We own a 27% stake in the business, and that's the main event from our perspective when we think about our relationship with Elementum. Separately, we've invested funds out of our parent company portfolio that Jonathan runs into several of the Elementum funds. And in a way, it's just eating our own cooking, but these investments have attractive risk return profiles. They're generally liquid and they're a nice diversifier in the context of the overall portfolio. So we think of them as non-correlated high-yield bonds, and we like them. Slide 40. The ILS market had a tough year, and the same was true for Elementum in 2022. The main event was really Hurricane Ian which turned the funds from profits to losses in the course of a 1 weekend in November. The key metrics for Elementum's business are AUM, net revenues and EBITDA and all of those metrics were down in 2022, although the business does remain a positive cash flowing business that produced dividends for us last year. 2023 is off to a solid start, and there are some interesting developments. The first is that the conditions for ILS investing are strongly favorable for all the reasons that Ian mentioned earlier. The second is that Elementum has had some noteworthy fundraising success here in the first quarter, landing 3 new mandates of meaningful size. And a couple of observations on those new mandates. The first is the appetite we're seeing from institutional investors is barbelled, folks either want a low risk, low return, highly liquid CAT bond only product or at the other end of the spectrum, they want a high-risk, high-return, illiquid CRI strategy. And we're seeing inbound interest for both. Second, the appetite is coming from different places than where the market has been in the last few years, most notably hedge funds and endowments who have really picked up their interest and are moving money into the asset class. All right. So let me stop there. I'll ask Tony to join me, and we can open for questions on Elementum. Any questions. You scared them off.

That was easy.

All right. What to expect? More of the same. We're focused on growing our per share values over long periods of time and adhering to our core operating principles and above all else, thinking and acting like owners, which we are. Some wise words here from Ben Graham, and they apply to us pretty directly. All right. And with that, let's open for any other final Q&A.

Can you talk about your recent investment in Doxa. I understand it's preferred and not really large, but what do you plan to expand it further and kind of what your intention is here? And then you mentioned that you are vigorously pursuing capital deployment opportunity and looking to add the force large operating units, adding to Ark, HG Global and Kudu. So what's the most likely shape and form of this force? Kind of do you look to diversify what you have? Would it likely to look to repeat success of NSM or it will be more like a distribution area?

Okay. So first on Doxa. Doxa is a business that's not dissimilar to NSM in terms of business model and size, scope and scale when we got it started with NSM in 2018. We closed a deal in the first quarter or second quarter for a $50 million preferred equity investment into Doxa, that was used to finance roll-up activity under Doxa, not dissimilar from the activity that NSM pursued. That's the extent of our investment at this time. It's not -- I mean, as we talked about earlier, our preference -- our strong preference is for control positions in large businesses. But sometimes when there's an opportunity to make a -- to make money, we rise above our principles. And that's what we saw here. Like the team, like the business model, saw an opportunity, whether it goes further than that or not is impossible to predict. The other thing I would say that's interesting, if you look at what happened at Doxa, is it's a little bit of an indirect comment on the financing market for businesses like NSM or acquisitive brokers or MGAs. A little bit the -- I think we're past peak on the ability to put straight debt on those businesses. And if you don't -- can't get an extra turn of debt, you don't have equity to deploy or you don't want to, then these preferred financings are maybe a way to thread the needle. So I think there's some information content there for what's going on in the financing of the MGA in distribution world. In terms of where we're going with M&A more broadly, I couldn't tell you. We don't think about it strategically. We don't think about it from top down, really, although we do more thematic work than we used to. The strategy for us has always been to try to be in the marketplace in our defined sector of expertise to the full extent possible with intermediaries, with founders, with anybody and everybody. And then to find a deal that we like and feel good about and then work that deal. So I can't really tell you where that approach is going to lead us. I can just tell you that's the approach we've always taken all the way back to Jack, and that's still the approach we're following. Yes?

An online question building on Julia's question and combining 2 of them. Do you think at all about the diversity of businesses that White Mountains is invested in when you're looking at new investments. And when you are looking at new businesses to buy, be it a platform or a larger acquisition, what do you prioritize in looking at those businesses, current return valuations, future capital deployment, the management team, the market they're in, et cetera?

Yes. The short answer on the first question on diversification is it's not an objective or a consideration. The answer on the second question is there is no answer. It's all of those things and more things. It's no -- there's no 1 factor that drives the decision above and beyond other factors. I would say a couple of things. One is we tend to be looking for businesses that produce a healthy cash yield right away. And we're looking for businesses that are going to give us, we think, a baseline return in excess of our equity return targets at the price we go in at pretty reliably. So we're focused on that and then upside from there. On the question of the -- and whether we're agnostic to sector or style or model or so on within reason. On the question of management team, that's one where my bar has just gone up and up and up over the years. It used to be that if I saw something -- a business whose characteristics I really liked, and I wasn't 100% on the management team, I might do it and think that we could figure it out later, and I've learned the hard way not to do that anymore. Question?

A clarification on, I think Liam mentioned your decision-making on buybacks. Did you say 80% of the book or 80% of intrinsic value?

We look for -- we look to buy back at 80% or less of a conservatively calculated intrinsic.

How do you -- and what do you mean by intrinsic?

Our view of what the business is worth as a whole. Question?

Another pre-submitted question. Could you talk about interesting trends or classes of business that you see in small commercial P&C?

Yes. Small commercial P&C is a marketplace that I would characterize as historically dominated by brand name, blue-chip insurers. The hallmarks of the business have been relatively high acquisition costs, expense ratios and relatively low loss ratios. And that has been very tempting in the insurtech era to a lot of people because it feels intuitively like it's ripe for disintermediation and a solution that will lower those elevated expense ratios. So 5 years ago or so, this was the idea de jure. I mean we were pitched repeatedly on SME and commercial line start-up businesses that were going to go direct. It turns out that it's pretty hard, in particular, the last mile of sales and service to the policyholder. There have been some successes. Our friend, Adam Black, who is -- we're backing in his venture at Zillion, which is a new start-up that sort of on an aside, but he had great success at AP Intego with workers' comp because he figured out how to integrate it with payroll processing and make it easy for the small business owner to accomplish a couple of things at once. We have invested in Pie which is pursuing a not dissimilar business model initially for workers' comp. We're in there with some private equity partners who we know well and obviously, the founder and CEO of Pie is John Swigart, who was at one point, the CFO and the Chief Marketing Officer of Esurance. So a guy we've known for 20 years and believe in. So there, I think they feel that their data set gives them an advantage in underwriting and they can deliver and sell on direct basis pretty seamlessly. They have recently launched commercial auto. You might see them add things down the line. There's a long way to go. Any of these businesses face the same fundamental problem that all of these public insurtechs face, which is you've got a -- there's a law of gravity called customer acquisition cost. And it takes a while to build a business, but we're in there with John and feel pretty good about where it's headed. [ Israel ]?

How do you assess the relative attractiveness for new capital investment? And related, do you think that the opportunity is at the -- compared to the undeployed capital, how do you compare that and whether you think that you are...

You are talking about our capital?

Undeployed capital. Yes.

So I think Liam touched on this, but I'll just recapitulate. So 1 way to describe is we have a baseline return, threshold return that is the implied economics over a reasonable time frame to a share repurchase at the prices that are available. You can figure out based on our intrinsic value and where we think the business is headed you can derive an embedded return to that activity. And if you think about that as a base, starting point baseline, we then look at deployment opportunities into our existing businesses relative to that and into new businesses. And frankly, the threshold goes up as you proceed because we know these businesses and these teams quite well. Something brand new, new team concept, depending on its risk and volatility profile, the threshold needs to be a bit higher. So that's how I tend to think about it, which is there's a baseline running return available to us at all times. We need to do better than that when we go out to deploy capital into new businesses.

Another question that was submitted online. Could you talk about what market-neutral equity portfolio looks like at the parent level.

Jonathan, do you want to take this?

So the market-neutral equity portfolio is comprised of investments in vehicles that are exactly that. They are vehicles that are long and short with a market neutral basis.

Any other questions? All right, folks, I want to thank everybody for being here, everybody, for participating. See you next year.