QuickLinks-- Click hereUse these links to rapidly navigate through thisreview the document
TABLE OF CONTENTS
Index to Consolidated Financial Statements and Financial Statement Schedules

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 1-8993

WHITE MOUNTAINS INSURANCE GROUP, LTD.
(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code:(603) 640-2200

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

None

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of voting shares (based on the closing price of those shares listed on the New York Stock Exchange and the consideration received for those shares not listed on a national or regional exchange) held by non-affiliates of the Registrant as of March 24, 2003,June 30, 2004, was $2,816,338,319.$2,938,462,920.

        As of March 24, 2003, 8,357,0871, 2005, 10,774,589 common shares, par value of $1.00 per share ("Common Shares"), were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission ("SEC") pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the Registrant's Annual General Meeting of ShareholdersMembers scheduled to be held May 19, 20032005 are incorporated by reference into Part III of this Form 10-K. With the exception of the portions of the Proxy Statement specifically incorporated herein by reference, the Proxy Statement is not deemed to be filed as part of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1. Business

GENERAL

        White Mountains Insurance Group, Ltd. (the "Company" or the "Registrant") was originally formed as a Delaware corporation in 1980. In October 1999, the Company completed a corporate reorganization that changed its domicile from Delaware to Bermuda (the "Redomestication").Bermuda. The Company's principal businesses are conducted through its subsidiaries and affiliates in the businesses of property and casualty insurance and reinsurance. Within this report, the consolidated organization is referred to as "White Mountains". The Company's headquarters are located at Crawford House, 23 ChurchBank of Butterfield Building, 42 Reid Street, Hamilton, Bermuda HM 11,12, its principal executive office is located at 80 South Main Street, Hanover, New Hampshire 03755-2053 and its registered office is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HM 11.

        The Company's White Mountains' reportable segments are OneBeacon, ReinsuranceWhite Mountains Re, Esurance and Other Operations.

        The OneBeacon segment consists of the OneBeacon Insurance Group LLC family of companies (collectively "OneBeacon"), which are U.S.-based property and casualty insurance writers, including, among several others,substantially all of which operate in a multi-company pool. OneBeacon Insurance Company, Pennsylvania General Insurance Companyoffers a wide range of specialty, personal and Camden Fire Insurance Association (collectively "OneBeacon").commercial products and services sold primarily through select independent agents. OneBeacon was acquired by White Mountains from Aviva plc ("Aviva", formerly CGNU plc)CGU) on June 1, 2001 (the "Acquisition""OneBeacon Acquisition").

        The White Mountains'Mountains Re segment consists of White Mountains Re Group, Ltd. and its subsidiaries. White Mountains Re offers lead capacity for reinsurance operations are conducted primarilyon most liability, property and accident & health exposures through its reinsurance subsidiaries, Folksamerica Reinsurance Company (together with its parent, Folksamerica Holding Company, Inc. (together with"Folksamerica", which has been a wholly-owned subsidiary of White Mountains since 1998) and Sirius International Insurance Corporation ("Sirius International"). On April 16, 2004, White Mountains acquired Sirius Insurance Holdings Sweden AB and its reinsurance subsidiary, Folksamerica Reinsurancesubsidiaries ("Sirius") from ABB Ltd. (the "Sirius Acquisition"). The principal companies acquired were Sirius International, Sirius America Insurance Company "Folksamerica"("Sirius America"). In connection with, which provides primary insurance programs in the Acquisition, Folksamerica was contributed by the Company to OneBeacon. OneBeaconUnited States, and Folksamerica are run as separate entities, with distinct operations, management and business strategies. White Mountains' reinsurance operations also include its wholly owned subsidiaries, Fund AmericanScandinavian Reinsurance Company Ltd. ("Fund AmericanScandinavian Re"), a reinsurance company that has been in run-off since 2002. White Mountains Re also provides reinsurance advisory services, specializing in international property and marine excess reinsurance, through White Mountains Underwriting Limited (domiciled in Ireland and formed in 2001) and White Mountains Underwriting (Bermuda) Limited, ("WMU"formed in 2003 (collectively, "WMU"), as well as.

        The Esurance segment consists of Esurance Holdings, Inc. and its investment in Montpelier Re Holdings Ltd. ("Montpelier"subsidiaries (collectively, "Esurance"),. Esurance, which has been a Bermuda-domiciled reinsurance holding company. Fund American Re is commercially domiciled in Bermuda but maintains its executive officeunit of White Mountains since October 2000, markets personal auto insurance directly to customers and an operating branch in Stockholm, Sweden, and operates through an additional branch in Singapore. WMU is an Ireland-domiciled consulting services provider specializing in international property excess reinsurance.select online agents.

        White Mountains' other operations consistOther Operations segment consists of the Company and its intermediate holding companies, as well as the International American Group, Esurance Inc. ("Esurance"(the "International American Group"), the Company and the Company's intermediate holding companies.. The International American Group, which was acquired by White Mountains in 1999, consists of Peninsula Insurance Company ("Peninsula"), American Centennial Insurance Company ("American Centennial") and British Insurance Company of Cayman ("British Insurance Company"), both of which were purchased byare in run-off.

        On November 30, 2004, White Mountains completed a significant corporate reorganization. As part of the Company in 1999. In connectionreorganization, ownership of Folksamerica was transferred to White Mountains Re from Fund American Companies, Inc. ("Fund American"), which remains OneBeacon's parent. As a result, the legal organization of White Mountains' subsidiaries is consistent with its main operating businesses (i.e., OneBeacon, White Mountains Re and Esurance), and White Mountains Re is now a cohesive,

global reinsurance organization. The reorganization also allows White Mountains to independently manage the Acquisition, Peninsula, American Centennial and British Insurance Company were contributed by the Company to Folksamerica.financial structures of its main operating segments.

White Mountains' Operating Principles

        White Mountains strives to operate within the spirit of four operating principles. These are:

        Underwriting Comes First.    WeAn insurance enterprise must respect the fundamentals of insurance. There must be a realistic expectation of underwriting profit on all business written, and demonstrated fulfillment of that expectation over time, with focused attention to the loss ratio and to all the professional insurance disciplines of pricing, underwriting and claims management.

        Maintain Aa Disciplined Balance Sheet.    InsuranceThe first concern here is that insurance liabilities must always be fully recognized. Loss reserves and expense reserves must be solid before any other aspect of the business can be solid. Pricing, marketing and

1

underwriting all depend on informed judgment of ultimate loss costs and that can be managed effectively only with a disciplined balance sheet.

        Invest for Total Return.    Historical insurance accounting has tended to hide unrealized gains and losses in the investment portfolio and over reward reported investment income (interest and dividends). Regardless of the accounting, White Mountains investsmust invest for the best growth in after-tax value over time whether reported as income or not and without regard to any need to report a smooth earnings stream.time. In addition to investing our bond portfolios for total after-tax return, that will also mean prudent investment in equitiesa balanced portfolio consistent with leverage and insurance risk considerations.

        Think Like Owners.    By taking accountability for one's actionsThinking like owners has a value all its own. There are stakeholders in a business enterprise and behaving with a sense of urgency, all employees demonstrate their stake in the business by working smarter and understanding that actions influence results. Thinkingdoing good work requires more than this quarter's profit. But thinking like an owner embraces all that without losing the touchstone of a capitalist enterprise.

ONEBEACON

        On June 1, 2001, White Mountains purchased CGU Corporation from Aviva and renamed the company OneBeacon. Headquartered in Boston, Massachusetts, OneBeacon is one of the oldest property and casualty insurers in the United States, tracing its roots to 1831 and the Potomac Fire Insurance Company. OneBeacon's legacy includes being among the first to issue automobile policies, honoring claims arising from the great San Francisco earthquake and the sinking of the Titanic, andas well as insuring several U.S. presidents. During 1998, Commercial Union plc

        At December 31, 2004 and General Accident plc, both U.K. corporations, were merged to form CGU plc. The U.S. operations2003, OneBeacon had $10.0 billion and $11.3 billion of these companies, General Accident Corporationtotal assets, respectively, and shareholder's equity of America ("General Accident")$2.3 billion and Commercial Union Corporation ("Commercial Union"), were merged to form CGU Corporation (the "Merger"). White Mountains agreed to purchase CGU Corporation in September of 2000, with the transaction closing on June 1, 2001. The name OneBeacon was introduced at the time of the Acquisition.$2.2 billion, respectively. OneBeacon's principal operating insurance subsidiaries are rated "A" (Excellent)(Excellent, the third highest of fifteen ratings) by A.M. Best, a rating agency which specializes in the insurance and reinsurance industry.

        In connection with the Acquisition, Aviva caused OneBeacon to purchase reinsurance contracts with two reinsurance companies rated "AAA" (Extremely Strong) by Standard & Poor's
Property and "A++" (Superior) by A.M. Best: a full risk-transfer cover from National Indemnity Company ("NICO") for up to $2.5 billion in old asbestos and environmental claims (the "NICO Cover") and an adverse development cover from General Reinsurance Corporation ("GRC") for up to $400.0 million on additional losses occurring in accident years 2000 and prior (the "GRC Cover").Casualty Insurance Overview

        On November 1, 2001, OneBeacon transferred its regional agency business, agents and operations in 42 states and the District of Columbia to Liberty Mutual Insurance Group ("Liberty Mutual") pursuant to a renewal rights agreement (the "Renewal Rights Agreement"). This transfer amounted to approximately 45% of OneBeacon's total business. The operating results and cash flows of policies renewed from November 1, 2001 through October 31, 2003 pursuant to the Renewal Rights Agreement are shared between Liberty Mutual and OneBeacon. A reinsurance agreement pro-rates results so that OneBeacon assumed approximately two-thirds of the operating results from renewals through October 31, 2002 and assumes approximately one-third of the operating results from renewals from November 1, 2002 to October 31, 2003. Additionally, OneBeacon has the option of assuming 10% of Liberty Mutual's regional agency markets business for the years 2004 to 2006 on a pari passu basis with Liberty Mutual. Since entering the Renewal Rights Agreement, OneBeacon has been focused on becoming a profitable independent agencyGenerally, property and casualty insurance company in the Northeast and for select specialty business on a national basis.

        OneBeacon conducts its primary personal and commercial business through independent agents in two regional operations (New England and the New York/New Jersey area), a New York limited assigned distribution servicing carrier (AutoOne Insurance) and one reciprocal exchange (New Jersey Skylands Management Corporation). Agents provide value to their customers through personal attention, coverage expertise and an understanding of local market conditions. The regional operations

2

target personal and commercial customers, focusing on the family account and small to mid-sized businesses. OneBeacon's objective is to underwrite only profitable business without regard to market share, premium volume or growth. In addition to these regional operations, OneBeacon is also committed to nurturing its select specialty businesses that focus on providing custom coverages to certain niche markets, including ocean marine, agricultural, professional liability and tuition reimbursement. Each specialty business has its own operations and appointed agents that target specific customer groups.

        At December 31, 2002 and 2001, OneBeacon had $15.8 billion and $16.5 billion of total assets, respectively, and shareholder's equity of $3.1 billion and $3.0 billion, respectively. OneBeacon's total assets and shareholder's equity include Folksamerica and its subsidiaries and OneBeacon's investment in Montpelier, which are covered elsewhere in this report.

Property and Casualty Insurance Overview

        As a property and casualty insurance company, OneBeacon writescompanies write insurance policies in exchange for premiums paid by its customers (the insured). An insurance policy is a contract between OneBeaconthe insurance company and the insured where OneBeaconthe insurance company agrees to pay for losses suffered by the insured that are covered under the contract. Such contracts often are subject to subsequent legal interpretation by courts, legislative action and arbitration. Property insurance generally covers the financial consequences of accidental losses to the insured's property, such as a home and the personal property in it, or a business' building, inventory and equipment. Casualty insurance (often referred to as liability insurance) generally covers the financial consequences of a legal liability of an individual or an organization resulting from negligent acts and omissions causing bodily injury and/or property damage to a third party. Claims on property coverage generally are reported and settled in a relatively short period of time, whereas those on casualty coverage can take years, even decades, to settle.

        OneBeacon provides a variety of property and casualty insurance products to individuals (personal lines) and to businesses (commercial lines), including the following:

•

Automobile: consists of physical damage and liability coverage. Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft or other causes. Automobile liability insurance covers bodily injury of others, damage to their property and costs of legal defense resulting from a collision caused by the insured.



•

Commercial property: covers losses to a business' premises, inventory and equipment as a result of weather, fire, theft and other causes.



•

Homeowners: covers losses to an insured's home, including its contents, as a result of weather, fire, theft and other causes, and losses resulting from liability for acts of negligence by the insured or the insured's immediate family.



•

General liability: covers businesses for any liability resulting from bodily injury and property damage arising from its general business operations, accidents on its premises and its products manufactured or sold.



•

Umbrella: supplements existing insurance policies by covering losses from a broad range of insurance risks in excess of coverage provided by the primary insurance policy up to a specified limit.



•

Workers compensation: covers an employer's liability for injuries, disability or death of employees, without regard to fault, as prescribed by state workers compensation law and other statutes.

3

•

Multiple peril: a package policy sold to small to mid-sized insureds or to members of trade associations or other groups that includes general liability insurance and commercial property insurance.



•

Inland marine: covers property that may be in transit or held by a bailee at a fixed location, movable goods that are often stored at different locations or property with an unusual antique or collector's value.

        OneBeacon also provides various specialty insurance products, including the following:

•

Ocean marine: covers losses to an insured's vessel and/or its cargo as a result of collision, fire, piracy and other perils. Ocean marine coverages include cargo, hull, protection and indemnity, primary and excess liability, marina package, comprehensive marina liability package and yacht products.



•

Agricultural: a package policy providing property, liability, automobile and/or umbrella coverages for the farm and ranch marketplace.



•

Directors and Officers ("D&O") and professional liability: covers liability that may arise as a result of omissions, misstatements, negligence or misconduct related to business operations. OneBeacon offers D&O and professional liability products to small and middle market businesses.



•

Tuition reimbursement: covers tuition payments due to schools and colleges when a student is unable to complete a semester as a result of an illness, accident or certain other causes.

        OneBeacon derivesInsurance companies derive substantially all of itstheir revenues from earned premiums, investment income and net gains and losses from sales of investment securities. Earned premiums represent premiums received from insureds, which are recognized as revenue over the period of time during which insurance coverage is provided (i.e., ratably over the life of the policy). A significant period of time normally elapses between the receipt of insurance premiums and the payment of insurance claims. During this time, investment income is generated, consisting primarily of interest earned on fixed maturity investments and dividends earned on equity securities. Net realized investment gains and losses result from sales of securities from OneBeacon'sthe insurance companies' investment portfolio.portfolios.

        OneBeacon incursInsurance companies incur a significant amount of itstheir total expenses from policyholder losses, which are commonly referred to as "claims". In settling policyholder losses, various loss adjustment expenses ("LAE") are incurred, such as insurance adjusters' fees and litigation expenses. In addition, OneBeacon incursinsurance companies incur policy acquisition expenses such as commissions paid to agents and premium taxes, and other expenses related to the underwriting process, including compensation and benefits for professional and clerical staff.

        Underwriting profit or loss is determined by subtracting loss and LAE, policy acquisition expenses and other underwriting expenses from earned premiums. AThe key measure of relative underwriting performance for an insurance company is the combined ratio. An insurance company's combined ratio under accounting principles generally accepted in the United States ("GAAP") is calculated by adding the ratio of incurred loss and LAE to earned premiums (the "loss ratio") and the ratio of commissions, premium taxes and other underwriting expenses including general and administrative expenses, to earned premiums (the "expense ratio"). WhenA combined ratio under 100% indicates that an insurance company is generating an underwriting profit. However, when considering investment income and investment gains or losses, insurance companies operating at a combined ratio of greater than 100% can be profitable despite incurring an underwriting loss.profitable.

Lines of Business

        OneBeacon writes three "core"provides specialty lines insurance products and a variety of segmented personal lines insurance products (for individuals) and commercial lines insurance products (for businesses).

        OneBeacon has built specialty businesses by providing customized coverages to certain niche markets. These specialty businesses are not subject to extreme competitive market conditions and are distinct in their product design. Each specialty business consistinghas its own operations and distribution channels that target specific customer groups. OneBeacon's specialty lines insurance products include the following:

•

Ocean marine: covers losses to an insured's vessel and/or its cargo as a result of collision, fire, piracy and other perils. Ocean marine coverages include cargo, hull, protection and indemnity, primary and excess liability, marina package, comprehensive marina liability package and yacht products.



•

Agricultural and rural marketplace products: policies providing property, liability, automobile and/or umbrella coverages for dairy farms, equine farms, farm equipment dealers, orchard and garden farms, as well as farm owners and rural telephone companies and personal auto and homeowners coverage in rural markets, excluding crop damage claims.



•

Limited Assigned Distribution ("LAD") services: OneBeacon offers LAD services and takeout credits to insurance companies required to accept future assignments from the New York Automobile Insurance Plan ("NYAIP") and the New Jersey Personal Automobile Insurance Plan ("NJ PAIP").



•

Medical errors and omissions: provides coverage for claims arising from direct patient treatment, such as making diagnoses, rendering opinions or providing advice or referral to another physician. Medical errors and omissions also provide coverage for professional committee activities as a member of an accredited hospital staff or any professional medical association or

committee. These coverages are generally offered to mid-sized hospitals and/or managed care organizations and to individual physicians, but only through selected programs.

•

Tuition reimbursement: covers tuition payments due to schools and colleges when a student is unable to complete a semester as a result of an illness, accident or certain other causes.



��

Excess and surplus property: excess property covers the insured against certain damages over and above those covered by primary policies. Surplus property provides specialized insurance coverage in instances where such coverage is unavailable from insurers licensed within a particular state. OneBeacon entered the excess and surplus lines property business in 2004.

        OneBeacon's personal lines coverages include homeowners insurance, segmented private passenger automobile and package policies sold through select independent agents. In addition, OneBeacon provides management services for a fee to reciprocal exchanges. OneBeacon's focus on commercial lines is to write property, liability, automobile and other related lines for small and mid-sized businesses for specific industry segments. While its personal and commercial businesses are subject to more competitive pressures, OneBeacon believes that through proper segmentation in product design and rating, OneBeacon has created certain specialty niches in these segments. OneBeacon's objective is to underwrite only profitable business without regard to market share or premium growth. OneBeacon's personal and commercial lines insurance products include the following:

•

Automobile: consists of physical damage and liability coverage. Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft or other causes. Automobile liability insurance covers bodily injury of others, damage to their property and costs of legal defense resulting from a collision caused by the insured.



•

Homeowners: covers losses to an insured's home, including its contents, as a result of weather, fire, theft and other causes, and losses resulting from liability for acts of negligence by the insured or the insured's immediate family.



•

Commercial property: covers losses to a business' premises, inventory and equipment as a result of weather, fire, theft and other causes.



•

General liability: covers businesses for any liability resulting from bodily injury and property damage arising from its general business operations, accidents on its premises and the products it manufactures or sells.



•

Umbrella: supplements existing insurance policies by covering losses from a broad range of insurance risks in excess of coverage provided by the Northeastprimary insurance policy up to a specified limit.



•

Workers compensation: covers an employer's liability for injuries, disability or death of employees, without regard to fault, as prescribed by state workers compensation law and certain specialty lines onother statutes.



•

Multi-peril: a national basis. "Non-core" linespackage policy sold to small to mid-sized insureds or to members of business include business

4

---

trade associations or other groups that includes general liability insurance and commercial property insurance.



•

Inland marine: covers property that may be in transit or held by a bailee at a fixed location, movable goods that are often stored at different locations or property with an unusual antique or collector's value.

assumed from Liberty Mutual in connection with the Renewal Rights Agreement and certain other non-core and run-off operations.

        For the twelve months ended December 31, 20022004, 2003 and 2001,2002, OneBeacon's net written premiums by line of business were as follows:

(1)

Other lines of business for 2004 are primarily from premiums written by reciprocal insurance exchanges administered by OneBeacon, while Other lines of business for 2003 and 2002 are primarily from business assumed from Liberty Mutual Insurance Group ("Liberty Mutual").

Specialty Lines

        OneBeacon's specialty businesses include a LAD service provider (AutoOne Insurance), rural and farm related products (offered through National Farmers Union Property and Casualty Company, "NFU"), ocean marine (offered through International Marine Underwriters, "IMU"), medical errors and omissions (offered through OneBeacon Professional Partners, "OBPP"), agricultural ("Agri"), and other specialty products, such as tuition reimbursement. Additionally, in 2004, OneBeacon entered into the excess and surplus lines property business with the introduction of OneBeacon Specialty Property ("OBSP"). For the twelve months ended December 31, 2004, 2003 and 2002, and seven months ended December 31, 2001, OneBeacon's underwriting gain (loss) by line of businessspecialty lines net written premiums were as follows:

        As a condition to its license to write automobile business within New York, an insurance carrier is obligated by statute to accept future assignments from the NYAIP, a residual insurance market that obtains personal automobile insurance for those individuals who cannot otherwise obtain it in the voluntary insurance market. Alternatively, an insurance carrier can contractually satisfy its NYAIP obligation by (1) transferring its NYAIP assignments to another insurance company, or (2) through utilization of various credits offered by New York to those insurers who voluntarily write policies for individuals in the NYAIP. The process of transferring NYAIP obligations is called Limited Assigned Distribution, and the companies that assume this obligation are called LAD servicing carriers. New Jersey and certain other states have similar programs for personal and commercial automobile.

        In 2001, OneBeacon created AutoOne Insurance to provide LAD services and takeout credits to insurance companies required to accept future assignments from the NYAIP. In January 2004, AutoOne

Insurance also began to handle NJ PAIP business as a LAD servicing carrier. New Jersey is now the second largest market in the United States for LAD servicing carriers, with nearly $300 million in NJ PAIP written premium over the last 12 months. Combined, the New York and New Jersey markets account for nearly 85 percent of personal automobile written premium serviced in the country through LAD servicing carriers. Additionally, AutoOne Insurance expects to begin writing LAD and commercial LAD business in several new states in 2005, including Pennsylvania, Texas, California, Connecticut, Vermont, Maine and Delaware.

        In late 2004, AutoOne Insurance introduced a multi-tiered private passenger auto product in New York. This sophisticated product utilizes underwriting tiers to move the price point higher or lower based on risk characteristics. The tiered structure is a key element in the design, as it provides the flexibility needed to adjust to changing market and competitor conditions.

        During 2004, OneBeacon entered the excess and surplus lines property business through its new OBSP division, which is focused on providing solutions for the excess property market. This new business is developing a portfolio with attachment points and policy limits tailored to specific business-class and market conditions. Target classes include schools and universities, municipalities, habitational risks (apartment/condos.), real estate and related classes (offices buildings, shopping centers), retail, wholesale (warehousing), builders risks and other inland marine classes.

        Since 2001, OneBeacon has expanded its specialty businesses to seven companies which represent 35% of OneBeacon's total net written premiums in 2004.

Core Operations

Personal Lines

        OneBeacon's personal lines principally include among others, automobile, homeowners and Custom-Pac products (Custom-Pac products are combination policies offering home and automobile coverage with optional umbrella, boatowners and other coverages). OneBeacon's mix of personal lines products between automobile and homeowners, including Custom-Pac products, was 67% and 25%, which represented 62%, 18% and 15%respectively, of personal lines net written premium forduring 2004, compared to 63% and 30%, respectively, during 2003 and 69% and 24%, respectively, during 2002. OneBeacon writes the twelve months ended December 31, 2002. Personal lines automobile includes AutoOne Insurancemajority of its personal business in New York, Massachusetts and New Jersey Skylands Management Corporation.Maine.

        During 2004, OneBeacon launched a new multi-tiered product, OneChoice, in the Northeast. OneChoice enables OneBeacon to offer a broader range of coverages by allowing it to develop more sophisticated pricing models that have a greater statistical correlation between historical loss experience and price than traditional pricing models have shown. OneBeacon believes this product will enable it to profitably expand in selected markets throughout the United States.

Commercial Lines

        OneBeacon's commercial lines products principally include among others, multiple peril,multi-peril, commercial automobile and workers compensation, which represented 52%54%, 29%23% and 14%, respectively, of commercial lines net written premium during 2004, compared to 55%, 23% and 8%, respectively, during 2003 and 52%, 29% and 14%, respectively, during 2002.

        On March 31, 2004, OneBeacon acquired Atlantic Specialty Insurance Company ("Atlantic Specialty"), a subsidiary of Atlantic Mutual Insurance Company ("Atlantic Mutual"), and the renewal rights to Atlantic Mutual's segmented commercial insurance business, including the unearned premiums on the acquired book (the "Atlantic Specialty Transaction"). The overall gross written premium for this book of business totals approximately $400 million. This transaction has allowed OneBeacon to sell a highly segmented product to small and mid-sized companies on an industry basis. These industries include but are not limited to technology, professional services, printers and wholesalers.

        During the twelve months endedthird quarter of 2004, OneBeacon entered into an agreement to sell the renewal rights to most of its pre-Atlantic Mutual New York commercial business to Tower Insurance Group. The transaction, effective with December 31, 2002. Nearly 90%1, 2004 renewals, will impact approximately $110 million of OneBeacon'spremiums. OneBeacon will retain the commercial accounts are comprised of policies with an annual premium of less than $50,000 and consist primarily of small, non-manufacturing accounts.business acquired from Atlantic Mutual.

SpecialtyOther Lines

        OneBeacon's specialty business focuses on providing custom coverages to certain niche markets, including ocean marine (offered through International Marine Underwriters, "IMU"), agricultural ("Agri"), professional liability (offered through OneBeacon Professional Partners, "OBPP")other lines include the results of reciprocal insurance exchanges that are included in OneBeacon's GAAP results and other specialty products, such as tuition reimbursement. Each specialty business has its own operations and distribution channel that target specific customer groups. For the twelve months ended December 31,

5

2002, IMU, Agri, OBPP and other specialty products represented 38%, 36%, 10% and 16%, respectively, of specialty lines net written premium.

        OneBeacon's IMU unit offers insurance products which specialize in the ocean marine marketplace. IMU's products include coverage for cargo, hull, yacht, marina and primary and excess liability.

        OneBeacon's Agri unit offers insurance products which focus on the farm and ranch marketplace. Agri's products include coverage for property and liability related claims, excluding crop damage claims, on dairy farms, equine farms, farm equipment dealers, orchard and garden farms. Additionally, since most farm and ranch businesses are proprietor-owned, Agri also offers personal and umbrella coverages for the farm or ranch owner as a package with its farm and ranch property and liability coverage.

        OneBeacon offers D&O and professional liability insurance under the name OneBeacon Professional Partners. OneBeacon entered the D&O and professional liability market in order to capitalize on a lack of available capacity within the marketplace. Due to the potential volatility of D&O and professional liability insurance, OneBeacon selectively underwrites each policy and does not write Fortune 1000 accounts, foreign businesses or large hospitals or groups. Further, OneBeacon does not write primary coverage.Most policies attach coverage in excess of $20 million of existing insurance and/or a deductible and have small limits of coverage, usually less than $5 million. OBPP's liability coverages are issued on a "claims made" basis, which means insurance that covers losses reported to OBPP during the time period when a liability policy is in effect, regardless of when the event causing the claim actually occurred. As a result, the ability of an insured to report claims outside of the policy term is limited, thereby limiting the claims tail.

        OneBeacon offers tuition reimbursement insurance through its subsidiary, A.W.G. Dewar, Inc. ("Dewar"). Dewar has offered tuition reimbursement insurance since 1930.

Non-core Operations

        Non-core operations are primarily from business assumed from Liberty Mutual.

        Reciprocal insurance exchanges are policyholder-owned insurance associations. As part of a restructuring of its New Jersey personal lines, in 2002, OneBeacon formed New Jersey Skylands Management LLC to provide management services for a fee to the New Jersey Skylands Insurance Association, a reciprocal exchange, and its wholly owned subsidiary New Jersey Skylands Insurance Company (together, the "Association"). The Association began writing personal automobile coverage for new customers in August 2002. Additionally, during 2004, OneBeacon formed Houston General Management Company to provide management services for a fee to another reciprocal exchange, Houston General Insurance Exchange (the "Exchange"). OneBeacon has no ownership interest in the Association or the Exchange. As a result of accounting literature changes, OneBeacon began consolidating the results of reciprocal insurance exchanges on March 31, 2004 (SeeNote 15—Variable Interest Entities in the accompanying Consolidated Financial Statements). Net written premiums written by the Association and the Exchange that were included in OneBeacon's 2004 results totaled $75.0 million.

        On November 1, 2001, OneBeacon transferred its regional agency business, agents and operations in 42 states and the District of Columbia to Liberty Mutual pursuant to a renewal rights agreement (the "Liberty Agreement"). This transfer amounted to approximately 45% of OneBeacon's total business at the time of transfer. The Liberty Agreement expired on October 31, 2003. As a result, OneBeacon earned premium in connection with2004 on policies written prior to the Renewal Rightsexpiration, but did not write any new premiums in 2004 under the Liberty Agreement. Net written premiums assumed under the Liberty Agreement ($496.7were $130.4 million in net written premiums for 2002). Premiums from non-core operations decreased from 49% of total premiums2003 and $496.7 million in 2001 to 28% of total premiums in 2002. Premiums from non-core lines will continue to diminish over the next year as OneBeacon's obligations under the Renewal Rights Agreement decrease and policies in run-off expire.

Geographic Concentration

        OneBeacon's grossnet written premiums are derived solely from business produced in the United States. The variousBusiness from specialty, businesses within core operations generate premiums from risks written in

6

markets across the country. Personalpersonal and commercial lines business from core operations was produced in the following states:

(1)

Growth inNo individual state is greater than 3% of specialty, personal and commercial net written premiums in New York State from 2001 to 2002 is primarily from AutoOne Insurance. See separate discussion of AutoOne Insurance below.

(2)

Vermont, New Hampshirefor the years ended December 31, 2004, 2003 and Rhode Island.2002.

Marketing

        OneBeacon sellsoffers its products though a combination of independent agents, regional and national brokers, wholesalers and captive agents (through NFU). In total, OneBeacon has approximately 2,000 agency and distribution relationships.

        OneBeacon's specialty businesses are located in separate locations, logistically appropriate to their target markets. AutoOne Insurance issues its LAD business through independent agents, generating takeout credits (in New York only) through this business to sell to other insurance carriers subject to NYAIP assignments. IMU distributes its products through a network of select agents that specialize in the ocean marine business. Agri distributes its products through independent agencies. NFU distributes its products primarily through a network of exclusive agents. Substantially all of these exclusive agents are under contract with NFU and the National Farmers Union, a non-profit organization founded in 1902 to advance the interests of family farmers. OBPP distributes its products nationally through excess and surplus lines brokers. OBSP's excess property solutions are provided primarily through surplus lines wholesalers. Through these distribution channels, OneBeacon leverages its knowledge about specialty markets to provide products and services that are tailored to meet customer needs.

        OneBeacon distributes its personal and commercial lines products through select independent insurance agents. OneBeacon believes that independent agents provide complete assessments of their clients' needs, which results in appropriate coverages and prudent risk management. OneBeacon believes that independent agents will continue to be a significant force in overall industry premium production.

        OneBeacon conducts its business through 11 branch offices and approximately 1,000 appointed agencies. OneBeacon's operations are located close to its agent partners and customers throughout New England, New York and New Jersey.

        OneBeacon's specialty businesses are located in separate locations, logistically appropriate to their target markets. IMU is headquartered in New York City and has nine branch locations located throughout the United States. Its products are distributed through a network of select agents that specialize in the ocean marine business. Agri has centralized operations in Lenexa, Kansas and distributes its products through independent agencies. OBPP, which is located in Avon, Connecticut, distributes its products nationally through excess and surplus lines brokers. Through these specialty businesses, OneBeacon leverages its knowledge about these markets to provide products and services that are tailored to meet customer needs.

Underwriting and Pricing

        OneBeacon believes that there must be a realistic expectation of attaining an underwriting profit on all the business written andit writes as well as a demonstrated fulfillment of that expectation over time. Pricing pressuresAdequate pricing is a critical component to the achievement of an underwriting profit and requires a disciplined approach towards pricing insurance products. Inadequate pricing can be caused by many factors such as:pressures from: (1) insurance companies selling their products at rates less than adequate rates,those acceptable to OneBeacon because they either underestimate ultimate claim costs or overestimate the amount of investment income and investment gains they will earn on premiums collected before the claims are paid;paid, (2) lower distribution costs for insurance companies utilizing direct-response marketing methods versus marketingwilling to accept a lower return on investment for their products through independent agents;stakeholders than OneBeacon, (3) insurance companies seeking to increase revenues and market share by reducing the price of their products beneath levels acceptable to OneBeacon;OneBeacon, (4) the emergence and (4) mutualcontinued growth of insurance companiescompany competitors that have lower cost structures, and other insurance companies who are willing to accept a lower return on equity on their insurance operations than White Mountains' management and its shareholders. Pricing levels can also be influenced by(5) state regulation, legislation and judicial decisions.mandates.

7

        Following the Merger, the integration of        Beginning in 2003 and continuing through 2004, OneBeacon introduced tiered rating plans in both its personal and commercial lines which permit OneBeacon to offer more price points to its customers based on underwriting and claims adjudication, settlement, administration, reporting and processing functions, which focused on expense savings, brought about numerous changes in business practices and philosophy, as well as in processes and systems. The operational integration of General Accident and Commercial Union (collectively, the "legacy companies") presented a challengecriteria applicable to OneBeacon in managing its business. It was necessary to combine the underwriting, pricing and claims recording practices of many organizations that had over time adopted differing operational methods, systems and means of coding and processing information. The integration of key data needed for financial reporting and regulatory compliance was given top priority; however, compromises were made in the integration of some additional information which limited the usefulness of certain analyses and tools used to manage and operate the business. This additional information, which included certain information relating to claim counts, insured values, exposure descriptors, risk classifications and pricing data, was often not captured fully or at all into the combined records of the legacy companies.each tier. As a result, it was difficult for OneBeacon's underwriters, claims managers and actuariesOneBeacon now has the flexibility to localize sources of and causes for changes in price adequacy, underwriting quality and claims experience. As a consequence, in hindsight, prior management was slowrenew expiring policies into the appropriate tier rather than being forced to respondchoose to external factors caused by market conditions and emerging claims trends in managingeither renew the business. However,policy at the operational challenges described above did not affect in any material respect OneBeacon's ability to estimate reserves for losses and LAE in accordance with GAAP.

        Subsequent tosame base rate or cancel the Acquisition, White Mountains brought a new management team to OneBeacon to improve operating resultspolicy. Management believes that this significant improvement in the short-termaccuracy and establish practices for sustaining acceptableprecision of OneBeacon's rate plans moves it toward the pricing sophistication of the best insurance underwriters in the market.

        These tiers are just one example of OneBeacon's segmented underwriting results going forward. White Mountains has taken significant actionsand pricing strategy. Segmentation is a key driver of OneBeacon's success in specialty lines and is being carried over into personal and commercial lines. OneBeacon develops proprietary knowledge about a given industry/class/risk type which provides it with respect to OneBeacon since it completed the Acquisition including (1) shedding non-core businesses through the Liberty Mutual transaction (as described herein), (2) increasing prices, (3) reevaluating the risks,a competitive edge when offering terms and conditions associatedon individual accounts. OneBeacon believes this will deliver superior returns versus a more "generalist" underwriting approach.

        OneBeacon also monitors pricing activity on a weekly basis and regularly measures usage of tiers, credits, debits and limits; this includes monthly review calls with renewing certain policies (and in appropriate cases decliningall field offices. In addition, it regularly updates base rates to issue a renewal policy), (4) eliminating unprofitable products, accountsachieve targeted returns on surplus and agents, such as National Accountsattempts to shift writings away from price inadequate lines/classes. Lastly, OneBeacon expends considerable effort to measure and National Programs business, (5) improving the claims adjudication, settlement, administrationverify exposure bases and processing functions and (6) improving management information systems and deploying new technology to contribute to process improvement and overall results.values.

        Further, as a result of the Renewal Rights Agreement, OneBeacon has focused its efforts on improving the ongoing operations in the Northeast, where it believes its agency relationships are the strongest and its historical results have been closer to profit targets. Under the terms of the Renewal Rights Agreement, Liberty Mutual assumed control over the underwriting and pricing of business subject to this agreement. The operating results and cash flows of policies renewed from November 1, 2001 through October 31, 2003 pursuant to the Renewal Rights Agreement are shared between Liberty Mutual and OneBeacon. A reinsurance agreement pro-rates results so that OneBeacon assumed approximately two-thirds of the operating results from renewals through October 31, 2002 and assumes approximately one-third of the operating results from renewals from November 1, 2002 to October 31, 2003. Liberty Mutual has control over a variety of factors which could impact the underwriting performance of Renewal Rights Agreement business, such as pricing adequacy, actual renewal premium volume, claims management, catastrophe exposures and other considerations. Management believes Liberty Mutual has done an acceptable job in each of these areas except for the handling of pre-November 1, 2001 claims. See "
Claims" below for a further discussion.

Competition

        Property and casualty insurance is highly competitive and extensively regulated by state insurance departments. In specialty lines, OneBeacon competes in the United States with numerous regional and national insurance companies, most notably The Robert Plan Corporation, The Chubb Corporation, American International Group, The St. Paul Travelers Insurance Group, Liberty Mutual, Selective Insurance Group,Companies and the regional Farm Bureaus. In personal and commercial lines, OneBeacon competes with numerous regional and national insurance companies, most notably The St. Paul Travelers Companies, Zurich Insurance Group, Hanover Insurance Company andCNA Financial, the Hartford Financial Services Group. It is often difficult for insurance companies to differentiate their products to consumers.Group, Allmerica Financial Corporation, W.R. Berkley Corporation, The Chubb Corporation, Progressive Insurance, Allstate Insurance and Liberty Mutual. The more significant

8

competitive factors for most insurance products offered by OneBeacon are price, product terms and claims service.service, which OneBeacon believes is the most important product differentiation that it brings to its agents and insureds. OneBeacon's underwriting principles and dedication to agency distribution are unlikely to make OneBeaconthem the "low cost"low-cost provider in most markets. However, as a property and casualty insurer that writes predominantly through independent agents,while it is often difficult for insurance companies to differentiate their products to consumers, OneBeacon believes that most propertyits dedication to providing superior product offerings, claims service, and casualty insurance customers value the counsel of a professional independent agent and that OneBeacon's use of independent agents islocalized underwriting experience gives it a competitive advantage over direct-response writers.typical low-cost providers.

Claims Management

        Effective claims management is a critical factor in achieving satisfactory underwriting results. Claims service is the most important product differentiation that OneBeacon brings to its agents and insureds. OneBeacon's near-term staffing and systems plans have caused and will continue to cause it to spend more on administrative claims costs in order to improve the efficiency of OneBeacon's claims function and ultimately to reduce overall loss costs. Additionally, in 2002, OneBeacon implemented a new claims workstation which is expected to provide management and claims adjusters with substantially more analysis and information to facilitate decision making and reduce overall claims costs in the future.

        Claims handling is located in various regional and local branch offices under the supervision of the Chief Claims Officer. OneBeacon maintains an experienced staff of appraisers, medical specialists, managers, attorneys and field adjusters strategically located throughout its operating territories. OneBeacon also maintains a special investigative unit designed to detect insurance fraud and abuse, and supportssupport efforts by regulatory bodies and trade associations to curtail the cost of fraud.

        PursuantOneBeacon's claims department's commitment to improvement is producing positive results. In 2004, OneBeacon made several operational changes in the Renewal Rights Agreement,claims department. Claims are now separately organized by specialty and commercial lines, personal lines and run-off operations. This segmentation has allowed OneBeacon to increase loss cost management specialization and better identify claims handling costs. OneBeacon introduced a total claims cost management practice which gives equal importance to controlling claims handling costs, legal expenses and claims payments, enabling OneBeacon to lower its overall claims handling costs. At the same time, over 97% of OneBeacon's insureds that responded to surveys were satisfied by the service provided by OneBeacon.

        OneBeacon's claims department utilizes a modern claims workstation, implemented in 2002, that in addition to recording reserves, payments and adjuster activity, assists each claims handler in evaluating bodily injury claims, determining liability and identifying fraud. OneBeacon's commitment and performance in fighting insurance fraud not only reduces claim costs but has aided law enforcement. Under OneBeacon's Staff Counsel Program, in-house attorneys defended 55% of its newly arising suits at a cost of $8.0 million less than it would have cost to use outside counsel. OneBeacon's internal legal bill audit team saved an additional $6.2 million by reducing legal invoices submitted by outside counsel.

        Calender year reported claims in OneBeacon's ongoing businesses were down 19% in 2004 compared to 2003. This allowed the claims department personnel to increase their focus on older open claims. At December 31, 2004, total open claims were down 22% from December 31, 2003.

        Calendar year reported claims in OneBeacon's operations in run-off were 5,900 in 2004 compared to 10,300 in 2003. Total open claims in run-off at December 31, 2004 were 14,600 compared to 28,500 at December 31, 2003, a 49% reduction. This number includes all of the claims that were previously handled by Liberty Mutual assumed controlas a Third Party Administrator ("TPA"). The majority of OneBeacon's claims officesare handled by in-house adjusters with the exception of certain claims of certain businesses in run-off. Additionally, National Indemnity Company ("NICO") is used as a TPA for asbestos and environmental reinsurance claims relating to the regionsNICO Cover (see "Asbestos and Environmental Reserves" discussion included inCRITICAL ACCOUNTING ESTIMATES inManagement's Discussion and Analysis of Financial Condition and Results of Operations below). OneBeacon claims department personnel are consulted by NICO on major claims. As with all TPAs, claims department personnel perform claim audits on NICO to ensure their controls, processes and settlements are appropriate.

        During the year, OneBeacon identified additional areas in claims processing which will be continuously improved in 2005, including litigation management, expense management and staff productivity.

Terrorism

        Since the terrorist attacks of September 11, 2001 (the "Attacks"), OneBeacon has sought to mitigate the risk associated with any future terrorist attacks by reducing the insured value of policies written in geographic areas with a high concentration of exposure to losses from terrorist attacks or by seeking to exclude coverage for such losses from their policies.

        On November 26, 2002, President Bush signed the Terrorism Risk Insurance Act (the "Terrorism Act") establishing a federal "backstop" for commercial property and casualty losses, including workers compensation, resulting from acts of terrorism by or on behalf of any foreign person or foreign interest. The Terrorism Act requires primary commercial insurers to make terrorism coverage available immediately and provides Federal protection above individual company retention and aggregate industry retention levels. OneBeacon estimates its individual retention level for commercial policies subject to the Renewal Rights Agreement andTerrorism Act to be approximately $160.0 million in 2005. Aggregate industry retention levels are $15.0 billion for 2005. The Federal government will pay 90% of covered terrorism losses that exceed either OneBeacon's or the industry's retention levels up to $100.0 billion. The fate of the Terrorism Act beyond 2005 remains uncertain. It is responsible for servicing claims from the OneBeacon policies written prior to November 1, 2001, as well as policies which have renewed in those regions sinceanticipated that date. Service agreements were put in place in connection with the Renewal Rights Agreement, through which Liberty Mutual becameCongress will likely rule on a third party administrator ("TPA") for those claims. Upon review of claims informationpossible extension during the thirdsummer of 2005; however, there is a chance that the Terrorism Act could expire on December 31, 2005. To prepare for that possibility, OneBeacon is notifying customers (in states where permitted) with policies that expire in 2006 of the potential implications to their coverage. OneBeacon's current property and fourth quarterscasualty catastrophe reinsurance programs provide coverage for "non-certified" events as defined under the Terrorism Act, provided such losses are not the result of a nuclear, biological or chemical attack. See the discussion in the"Reinsurance Protection" section below for a further description of OneBeacon's catastrophe program.

        OneBeacon closely monitors and manages its concentration of risk by geographic area. Beginning in 2002 OneBeacon's management determinedand continuing through 2004, OneBeacon aggressively reduced its terrorism exposure in the largest metropolitan areas in which OneBeacon writes insurance by implementing a strategy that average paid claimslimits total probable maximum loss ("PML") from a terrorism event in offices where Liberty was actingany half mile radius. (PML is a statistical modeling technique that measures a company's catastrophic exposure as the maximum probable loss in a TPA were higher than expected. As a result, management has begun a processgiven time period.) The addition of the Atlantic Mutual book in 2004 resulted in some areas exceeding corporate PML thresholds. In these areas, specific account exposure reduction plans have been established to directly handle more of those claims related to policies written prior to the Renewal Rights Agreement and expects that substantially all such claims will be handled directly by OneBeaconbring exposures within tolerance levels by the end of 2003.2005. The financial exposure of potential new business is evaluated when it is located in an area of existing concentration or individually presents significant terrorism exposure. Additionally, formal reports are generated quarterly to validate that action adheres to corporate standards. As a result, OneBeacon believes that it has taken appropriate actions to mitigate its exposure to losses from future terrorist attacks and will

continue to monitor its terrorism exposure in the future. Nonetheless, risks insured by OneBeacon, and those contemplated by the enacted Terrorism Act, remain exposed to future terrorist attacks and the possibility remains that any future terrorist losses could prove to be material to the Company's financial position and/or its cash flows.

Reinsurance Protection

        In the ordinary course of its business, OneBeacon purchases reinsurance from high-quality, highly rated third party reinsurers in order to provide diversification of its business and minimize loss from large risks or catastrophic events. OneBeacon uses PML forecasting to quantify its exposure to catastrophic losses.

        The timing and size of catastrophe losses are unpredictable and the level of losses experienced in any year could be material to OneBeacon's operating results and financial position. Examples of catastrophes include losses caused by earthquakes, wildfires, hurricanes and other types of storms and terrorist acts. The extent of losses caused by catastrophes is both a function of the amount and type of insured exposure in an area affected by the event and the severity of the event. OneBeacon continually assesses and implements programs to manage its exposure to catastrophe losses through individual risk selection and by limiting its concentration of insurance written in catastrophe-prone areas, such as coastal regions. In addition, OneBeacon imposes wind deductibles on existing coastal windstorm exposures. OneBeacon's largest single natural catastrophe risk is Northeast windstorm.

        OneBeacon seeks to further reduce its exposure to catastrophe losses through the purchase of catastrophe reinsurance. Effective July 1, 2004, OneBeacon renewed its normal property catastrophe reinsurance program to cover its full estimated PML (one-in-250 year) through June 30, 2005. Under that cover, the first $200.0 million of losses resulting from any single catastrophe are retained by OneBeacon and losses from a single event in excess of $200.0 million and up to $850.0 million are reinsured for 100% of the loss. In the event of a catastrophe, OneBeacon can reinstate its property catastrophe reinsurance program for the remainder of the original contract term by paying a reinstatement premium which is based on the percentage of coverage reinstated and the original property catastrophe coverage premium.

        OneBeacon's property catastrophe reinsurance program does not cover personal or commercial property losses resulting from nuclear, biological or chemical terrorist attacks. The program covers personal property losses resulting from other types of terrorist attacks, and commercial property losses resulting from other types of domestic terrorist attacks or events not "certified" as defined under the Terrorism Act. The Terrorism Act provides protection for commercial property losses for certified events including those arising from nuclear, biological, or chemical attacks.

        OneBeacon also uses TPAspurchases individual property reinsurance coverage for certain otherrisks to reduce large loss volatility. The Property per Risk reinsurance program reinsures losses in excess of $5.0 million up to $75.0 million. Individual risk facultative reinsurance may be purchased above $75.0 million where OneBeacon deems it appropriate. The Property per Risk treaty also reinsures losses in excess of $10.0 million up to $75.0 million on an individual risk basis for terrorism losses. However nuclear, biological, and chemical events are not covered.

        OneBeacon also maintains a casualty reinsurance program which provides protection for catastrophe losses involving workers compensation, general liability or automobile liability in excess of $5.0 million up to $60.0 million. This program provides one full $55.0 million limit for either "certified" or "non-certified" terrorism losses but does not provide coverage for losses resulting from nuclear, biological or chemical attacks.

        In connection with the OneBeacon Acquisition, Aviva caused OneBeacon to purchase reinsurance contracts with two reinsurance companies rated "AAA" (Extremely Strong) by Standard & Poor's and

"A++" (Superior) by A.M. Best: a full risk-transfer cover from NICO for up to $2.5 billion in old asbestos and environmental claims especially(the "NICO Cover") and an adverse development cover from General Reinsurance Corporation ("GRC") for National Accountsup to $400.0 million on additional losses occurring in accident years 2000 and National Programs business which is in run-off. Additionally, NICO is handling the claims processing for claims ceded under the NICO Cover under a TPA agreement. OneBeacon's claims staff performs on-site claim auditsprior (the "GRC Cover").

        Reinsurance contracts do not relieve OneBeacon of its TPA'sobligation to ensureits ceding companies. Therefore, collectibility of balances due from its reinsurers is critical to OneBeacon's financial strength. SeeNote 4, "Third Party Reinsurance" in the proprietyaccompanying Consolidated Financial Statements for a discussion of the controls and processes over claims serviced by the TPA on behalf of OneBeacon.OneBeacon's top reinsurers.

9

Loss and Loss Adjustment Expense Reserves

Non-asbestos and Environmental Reserves

        OneBeacon establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. The process of estimating reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain.

        Reserve estimates at OneBeacon are subject to additional uncertainty as See "CRITICAL ACCOUNTING ESTIMATES" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a consequence of a number of factors that occurred prior to and since the Acquisition. As previously discussed, OneBeacon is the result of the merger of the U.S. operations of General Accident and Commercial Union. While relatively the same size, the legacy companies had different underwriting and claims management practices, which produced different business and underwriting results. The operational integration of the two companies was complex and included changes in underwriting and claims operations. Beginning in the mid-1990s, and continuing through the Merger, the subsequent operational integration of the legacy companies and the Acquisition, OneBeacon experienced an environment of significant change, both in its business and operations. Generally accepted actuarial techniques used to estimate reserves rely in large degree on projecting historical trends, such as patterns of claim development (i.e., reported claims and paid losses), into the future. Accordingly, estimating reserves becomes more uncertain if business mix, coverage limits, case reserve adequacy, claims payment rates and other factors change over time. The breadth and depth of the business and operational changes that occurred at OneBeacon (1) led to a wider range in the reserve estimates produced by a variety of actuarialfull discussion regarding OneBeacon's loss reserving techniques, especially those that rely upon consistent claim development patterns, and (2) introduced greater complexity to the judgments required to be made by management in determining the impact of the business and operational changes on the development patterns used to estimate reserves.

        Reserves are typically comprised of (1) case reserves for claims reported and (2) reserves for losses that have occurred but for which claims have not yet been reported, referred to as incurred but not reported ("IBNR") reserves, which include a provision for expected future development on case reserves. Case reserves are estimated based on the experience and knowledge of claims staff regarding the nature and potential cost of each claim and are adjusted as additional information becomes known or payments are made. IBNR reserves are regarded as the most uncertain reserve segment and are derived by subtracting paid loss and LAE and case reserves from estimates of ultimate loss and LAE. Actuaries estimate ultimate loss and LAE using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made.

        Ultimate loss and LAE are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to persist into the future. In forecasting ultimate loss and LAE with respect to any line of business, past experience with respect to that line of business is the primary resource, but cannot be relied upon in isolation. OneBeacon's own experience, particularly claims development experience, such as trends in case reserves, payments on and closings of claims, as well as changes in business mix and coverage limits, is the most important information for estimating its reserves. External data, available from organizations such as statistical bureaus, consulting firms and reinsurance companies, is sometimes used to supplement or corroborate OneBeacon's own experience, and can be especially useful for estimating costs of new business. For some lines of business, such as "long-tail" coverages discussed below, claims data reported in the most recent accident year is often too limited to provide a meaningful basis for analysis due to the typical delay in reporting of claims. For this type of business, OneBeacon uses a selected loss ratio method for the initial accident year or years. This is a standard and accepted actuarial reserve estimation method in these circumstances in which the loss ratio is selected based upon information used in pricing

10

(1)

In 1998, OneBeacon was formed  ��     The following table includes the complete loss development history for all periods presented for all companies acquired by White Mountains Re as a result of a pooling of interests between Commercial Union and General Accident. All historical balances have been restated as thoughif the companies had been merged throughoutcombined from their inception.

This table includes development on reserves reported by acquired companies before those companies were acquired by White Mountains Re

			White Mountains Re Loss and LAE(1),(2),(3)(4) Years Ended December 31,
($ in millions)
			1994			1995			1996			1997			1998			1999			2000			2001			2002			2003			2004
I.    Liability for unpaid losses and LAE:
	Gross balance		$	1,642.7		$	1,895.7		$	2,448.2		$	2,386.1		$	2,524.2		$	2,299.6		$	3,175.1		$	3,917.3		$	3,925.1		$	3,910.4		$	4,170.3
	Less: reins. recoverables on unpaid losses and LAE			(299.2	)		(336.6	)		(524.7	)		(513.3	)		(592.9	)		(651.0	)		(1,148.5	)		(1,353.7	)		(1,277.6	)		(1,214.6	)		(1,346.6	)
Net balance			$	1,343.5		$	1,559.1		$	1,923.5		$	1,872.8			1,931.3		$	1,648.6		$	2,026.6		$	2,563.6		$	2,647.5		$	2,695.8		$	2,823.7
II.    Net liability re-estimated as of:
	1 year later			1,411.7			1,470.8			1,937.9			1,855.4			2,001.3			1,908.2			2,491.9			2,617.0			2,844.0			2,718.4			—
	2 years later			1,372.1			1,482.1			1,871.0			1,889.2			2,036.4			2,169.0			2,500.7			2,844.8			2,881.9
	3 years later			1,382.3			1,423.4			1,909.2			1,862.8			2,011.9			2,175.0			2,744.5			2,907.7
	4 years later			1,326.0			1,499.0			1,903.8			1,834.3			2,012.5			2,369.9			2,793.7
	5 years later			1,408.0			1,483.4			1,870.1			1,817.6			2,065.9			2,388.3
	6 years later			1,395.6			1,445.3			1,842.7			1,837.0			2,079.0
	7 years later			1,364.0			1,416.8			1,854.5			1,842.1
	8 years later			1,345.3			1,426.7			1,857.4
	9 years later			1,360.6			1,426.5
	10 years later			1,365.3
III.    Cumulative net (deficiency)/redundancy			$	(21.8	)	$	132.6		$	66.1		$	30.7		$	(147.7	)	$	(739.7	)	$	(767.1	)	$	(344.1	)	$	(234.4	)	$	(22.6	)		—
	Percent (deficient)/ redundant			(1.6	)%		8.5	%		3.4	%		1.6	%		(7.6	)%		(44.9	)%		(37.9	)%		(13.4	)%		(8.9	)%		(.8	)%		—	%
IV.    Reconciliation of net liability re-estimated as of the end of the latest re-estimation period (see II. above):
	Gross re-estimated liability			1,691.6			1,753.4			2,402.0			2,402.8			2,738.2			3,052.2			4,135.2			4,412.4			4,256.3			4,005.6			—
	Less: gross re-estimated reinsurance recoverable			(326.3	)		(326.9	)		(544.6	)		(560.7	)		(659.2	)		(663.9	)		(1,341.5	)		(1,504.7	)		(1,374.4	)		(1,287.2	)		—
Net re-estimated liability			$	1,365.3		$	1,426.5		$	1,857.4		$	1,842.1		$	2,079.0		$	2,388.3		$	2,793.7		$	2,907.7		$	2,881.9		$	2,718.4			—
V.    Cumulative net amount of liability paid through:
	1 year later			479.7			463.5			504.5			498.7			542.9			420.5			689.2			729.8			994.0			720.9			—
	2 years later			710.1			665.3			771.2			830.9			741.1			860.2			1,167.4			1,429.6			1,394.5
	3 years later			836.0			788.4			1,007.0			975.3			1,008.0			1,142.4			1,731.1			1,720.3
	4 years later			905.3			940.9			1,147.4			1,129.5			1,181.6			1,516.1			1,936.7
	5 years later			1,012.8			1,018.6			1,258.2			1,242.9			1,382.7			1,658.7
	6 years later			1,062.6			1,088.7			1,351.0			1,317.4			1,487.3
	7 years later			1,111.0			1,158.8			1,405.6			1,384.2
	8 years later			1,162.4			1,200.7			1,457.7
	9 years later			1,195.1			1,246.1
	10 years later			1,235.2

---

(1)

The table includes the complete loss development history for all periods presented.presented for all companies acquired by Folksamerica through an instrument of transfer and assumption approved by the appropriate insurance regulators. Under the instrument, insurance regulators require that Folksamerica report reserve development as if the companies had been combined from their inception.

(2)

In 1998, OneBeacon acquired HG and NFU. All liabilities related to these entities have been shown fromFolksamerica became a wholly owned subsidiary of White Mountains during 1998. Reserve development for the acquisition date forward in this table.years ended 1994 through 1997 reflects development on reserves established before White Mountains consolidated Folksamerica's results.

(3)

ThisSirius, including Scandinavian Re, became a wholly owned subsidiary of White Mountains during 2004. Reserve development for the years ended 1994 through 2003 reflects development on reserves established before White Mountains consolidated Sirius' results. See table, reflects the effectsbelow.

(4)

Loss and LAE reserves for Tryg Baltica (acquired in November, 2004) are only included as of the NICO CoverDecember 31, 2004, due to lack of availability of loss development history on a comparable basis. Net loss and the GRC CoverLAE reserves for Tryg Baltica are $134.5 million as if they had been in effect for all periods presented.of December 31, 2004.

16

---

        The cumulative net (deficiency)/redundancy in the table above reflects reinsurance recoverablesadverse development recorded by Scandinavian Re, which was acquired by White Mountains Re in connection with the Acquisition under the NICO Cover.2004 and has been in run-off since 2002. This cover applies to losses incurred in 2000 and prior years. As a result, it has the effect of significantly increasing OneBeacon's reinsurance recoverables in 2001 and 2002 and reducing its reserve White Mountains Re's cumulative

deficiency for each of the years presented in the table, including the years prior to the Acquisition, by the amountWhite Mountains Re's acquisition of the reserves ceded at the time their cover was purchased. See "Asbestos and Environmental Reserves" for a discussion of the impact of this reinsurance contract on OneBeacon's net loss and LAE reserve position.Sirius. The table presented below represents OneBeacon'sWhite Mountains Re's cumulative net deficiency without regard to the NICO Cover.(deficiency)/redundancy excluding Scandinavian Re:

		Years Ended December 31,
		1992		1993		1994		1995		1996		1997
		Dollars in Millions
Cumulative net deficiency adjusted for the NICO Cover		(1,355.4	)	(1,179.8	)	(1,181.3	)	(1,258.1	)	(1,406.7	)	(1,507.6	)
Percent deficient		(31.8%	)	(27.0%	)	(26.5%	)	(27.7%	)	(31.0%	)	(33.5%	)

		Years Ended December 31,
		1998		1999		2000		2001		2002
		Dollars in Millions
Cumulative net deficiency adjusted for the NICO Cover		(736.5	)	(897.4	)	(162.4	)	(57.4	)	—
Percent deficient		(13.9%	)	(17.7%	)	(2.8%	)	(1.2%	)	—

		Years Ended December 31,
($ in millions)
		1994			1995			1996			1997			1998			1999			2000			2001			2002			2003			2004
Cumulative net (deficiency) /redundancy, excluding Scandinavian Re		$	(6.3	)	$	159.2		$	90.6		$	42.1		$	(64.6	)	$	(244.8	)	$	(74.0	)	$	(20.8	)	$	(30.6	)	$	13.7		$	—
Percent (deficient) / redundant			(0.5	)%		10.4	%		4.8	%		2.3	%		(3.6	)%		(17.8	)%		(5.5	)%		(1.5	)%		(1.9	)%		0.7	%		—	%

        The following table reconciles loss and LAE reserves determined on a Statutoryregulatory basis to loss and LAE reserves determined in accordance with GAAP at December 31, as follows:

		Year Ended December 31,
($ in millions)
		2002			2001			2000
Statutory reserves		$	6,029.0		$	6,795.8		$	5,730.1
Reinsurance recoverable on unpaid losses and LAE (1)			1,650.9			1,606.5			1,276.4
Purchase accounting adjustments (2)			(481.0	)		(567.8	)		—
Other			(49.4	)(3)		22.9	(4)		(23.8	)(3)
GAAP reserves		$	7,149.5		$	7,857.4		$	6,982.7

		December 31,
(Millions)
		2004			2003			2002
Regulatory reserves		$	3,092.0		$	1,325.9		$	1,148.8
Reinsurance recoverable on unpaid losses and LAE(1)			948.2			480.5			513.2
Discount on loss reserves			245.2			—			—
Reserves allocated to other segments			(91.2	)		(31.5	)		—
Purchase accounting and other			(23.9	)		2.3			2.3
GAAP reserves		$	4,170.3		$	1,777.2		$	1,664.3

---

(1)

Represents adjustments made to add back reinsurance recoverables included with the presentation of reserves under Statutoryregulatory accounting.

(2)

Represents fair value adjustment to reserves recorded in purchase accounting. See Note 3 to the Financial Statements.

(3)

Represents long-term workers compensation loss and LAE reserve discount recorded of $42.2 million in 2002 and $42.1 million in 2000, partially offset by incremental guaranty fund assessments required to be recorded under GAAP.

(4)

Represents incremental guaranty fund assessments required to be recorded under GAAP, partially offset by long-term workers compensation loss and LAE reserve discount of $42.2 million.

17

---

TerrorismESURANCE

        The Esurance group of companies, which is headquartered in San Francisco, have been part of White Mountains since October 2000. Esurance markets personal auto insurance directly to customers and through select online agents. Most customer interaction with the company takes place through Esurance's website, www.esurance.com. Through the website, customers can get real-time quotes, compare quotes from other companies, purchase their policies, report claims and manage their accounts.

        Esurance's underwriting companies, Esurance Insurance Company and Esurance Property and Casualty Insurance Company, are both rated "A" (Excellent, the third highest of fifteen ratings) by A.M. Best. Additionally, the Esurance segment also includes insurance ceded by Esurance to its affiliate, Folksamerica.

Geographic Concentration

        As a result of the terrorist attacks of September 11, 2001 (the "Attacks"), OneBeacon incurred approximately $75.0 million of pretax loss and LAE net of reinsurance, or approximately $248.0 million gross of reinsurance. The Attacks have had a profound impact on the U.S. property and casualty insurance marketplace. Prior to the Attacks, most U.S. insurance companies had not contemplated the risk of terrorist attacks when underwriting their policies. In light of the Attacks, OneBeacon and other property and casualty insurance companies have sought to mitigate the risk associated with any future terrorist attacks by seeking to exclude coverage for such losses from their policies.

        On November 26, 2002, President Bush signed the Terrorism Risk Insurance Act (the "Terrorism Act") establishing a federal "backstop" for commercial property and casualty losses, including workers compensation, resulting from acts of terrorism by or on behalf of any foreign person or foreign interest. The Terrorism Act requires primary commercial insurers to make terrorism coverage available immediately and provides Federal protection above individual company retention and aggregate industry retention levels. OneBeacon estimates its individual retention level for commercial policies subject to the Terrorism Act to be approximately $100 million in 2003.

        Aggregate industry retention levels are $10.0 billion from the date the Terrorism Act was enacted through December 31, 2003, $12.5 billion for 2004 and $15.0 billion for 2005. The Federal government will pay 90% of covered terrorism losses that exceed either OneBeacon's or the industry's retention levels up to $100.0 billion. The Terrorism Act is in effect until December 31, 2004, at which time certain members of the U.S. government have the authority to renew it for another year. Should the Terrorism Act be renewed on December 31, 2004, it will expire on December 31, 2005. OneBeacon's current property and casualty catastrophe reinsurance programs provide coverage for "non-certified" events as defined under the Terrorism Act, provided such losses are not the result of a nuclear, biological or chemical attack. See the discussion in the "Reinsurance Protection" section below for a further description of OneBeacon's catastrophe program and see "REGULATION" for a further description of the Terrorism Act.

        OneBeacon closely monitors its concentration of risk by geographic area and primarily writes small commercial and personal lines business, under which the insureds are unlikely to be direct targets of terrorism. During 2002, OneBeacon aggressively reduced its terrorism exposure in its commercial linesEsurance is writing business in the largest metropolitan areas in which OneBeacon writes insurance. In the workers compensation line, total covered lives in the ten largest metropolitan areas were reduced 60% from May 31, 2002 (the first date for which OneBeacon accumulated such data) to December 31, 2002, and total insured property values were reduced 52% from December 31, 2001 to December 31, 2002. Total insured property values in New York City were reduced 84% from May 31, 2002 to December 31, 2002. As a result, OneBeacon believes its exposure to losses from future terrorist attacks has been reduced. Nonetheless, risks insured by OneBeacon, and those contemplated by the enacted Terrorism Act, remain exposed to future terrorist attacks and the possibility remains that any future terrorist losses could prove to be material to the Company's financial position and/or its cash flows.

Reinsurance Protection

        In the ordinary course17 states. These states represent 66% of its business, OneBeacon purchases reinsurance from high-quality, highly rated third party reinsurers in order to provide diversification of its business and minimize loss from large risks or catastrophic events. OneBeacon uses probable maximum loss ("PML") forecasting to quantify its exposure to catastrophic losses. PML is a statistical modeling technique that measures a company's catastrophic exposure as the maximum probable loss in a given time period.

        The timing and size of catastrophe losses are unpredictable and the level of losses experienced in any year could be material to OneBeacon's operating results and financial position. Examples of catastrophes include losses caused by earthquakes, wildfires, hurricanes and other types of storms and

18

---

terrorist acts. The extent of losses caused by catastrophes is both a function of the amount and type of insured exposure in an area affected by the event and the severity of the event. OneBeacon continually assesses and implements programs to manage its exposure to catastrophe losses through individual risk selection and by limiting its concentration of insurance written in catastrophe-prone areas, such as coastal regions. OneBeacon's largest single natural catastrophe risk is Northeast windstorm. During 2002, OneBeacon reduced its total insured property values in coastal regions that could be affected by Northeast windstorms by 14%.

        OneBeacon seeks to further reduce its exposure to catastrophe losses through the purchase of catastrophe reinsurance. OneBeacon's 2002 catastrophe reinsurance program was through a group of reinsurers, with a $125.0 million retention for losses resulting from any single catastrophe. Property catastrophe losses from a single event in excess of $125.0 million and up to $200.0 million were reinsured for 75% of the loss. Property catastrophe losses from a single event in excess of $200.0 million and up to $750.0 million were reinsured for 95% of the loss. The 2002 catastrophe program was developed based on OneBeacon's exposure to a one-in-250 year Northeast windstorm.

        When evaluating its catastrophe reinsurance program for 2003, OneBeacon determined that its exposure to risks resulting from a catastrophic Northeast windstorm are mitigated in the early part of calendar years due to the seasonality of such storms. Accordingly,premium volume for the first four months of 2003, OneBeacon entered into a catastrophe reinsurance program under which (1) the first $125.0 million of losses resulting from any single catastrophe are retained by OneBeacon and (2) property catastrophe losses from a single event in excess of $125.0 million and up to $325.0 million are reinsured for 99% of the loss. Effective May 1, 2003, OneBeacon intends to enter into a property catastrophe cover that is consistent with the coverage provided by its 2002 catastrophe reinsurance program.

        OneBeacon's property catastrophe reinsurance program does not cover personal or commercial property losses resulting from nuclear, biological or chemical terrorist attacks or from "certified" events as defined under the Terrorism Act. The program covers personal property losses resulting from other types of terrorist attacks and commercial property losses from other types of domestic terrorist attacks. As a result, OneBeacon does not have reinsurance protection under either the Terrorism Act or its catastrophe reinsurance program for personal property losses resulting from a nuclear, biological or chemical attack. In the event of a catastrophe, OneBeacon can reinstate its property catastrophe reinsurance program for the remainder of the original contract term by paying a reinstatement premium which is based on the product of the percentage of coverage reinstated and its original property catastrophe coverage premium. OneBeacon also maintains a casualty reinsurance program which provides protection for catastrophe losses involving worker's compensation, general liability or automobile liability in excess of $5.0 million up to $60.0 million. This program provides one full $55.0 million limit for either "certified" or "non-certified" terrorism losses but does not provide for losses resulting from nuclear, biological or chemical attacks. OneBeacon also purchases reinsurance coverage for certain risks at levels below $125.0 million, on either a facultative or treaty basis, where it deems appropriate.

        In connection with the Acquisition, OneBeacon obtained the NICO Cover under which OneBeacon is entitled to recover up to $2.5 billion in ultimate losses and LAE incurred related to asbestos claims arising from business written by OneBeacon prior to 1992, environmental claims arising from business written by OneBeacon prior to 1987 and certain other exposures. See the "Asbestos and Environmental Reserves" section above for a description of the NICO Cover.

        Also in connection with the Acquisition, OneBeacon obtained the GRC Cover which provided up to $570.0 million of reinsurance protection, consisting of $400.0 million of adverse development coverage on losses occurring in years 2000 and prior, in addition to $170.0 million of reserves ceded as of the date of the Acquisition. Pursuant to the GRC Cover, OneBeacon is not entitled to recover losses to the full contract limit if such losses are reimbursed by GRC more quickly than anticipated at the

19

---

time the contract was signed. OneBeacon has recorded $531.7 million in recoverables due from GRC at December 31, 2002 and December 31, 2001. OneBeacon will only seek reimbursement from GRC for claims which result in payment patterns similar to those supporting its recoverables recorded pursuant to the GRC Cover. The economic cost of not submitting certain other eligible claims to GRC is primarily the investment spread between the rate credited by GRC and the rate achieved by OneBeacon on its own investments. This cost, if any, is expected to be small.

        At December 31, 2002, OneBeacon had $77.9 million of reinsurance currently recoverable on paid losses and $3,560.6 million that will become recoverable if claims are paid in accordance with current reserve estimates. Because reinsurance contracts do not relieve OneBeacon of its primary obligation to its policyholders, the financial position and solvency of OneBeacon's reinsurers is critical to the collectibility of its reinsurance coverages. OneBeacon is selective with regard to its reinsurers, placing reinsurance with only those reinsurers having strong financial strength ratings. OneBeacon monitors the financial strength of its reinsurers on an ongoing basis. As a result, uncollectible amounts have not historically been significant. Excluding industry pools and associations of $376.2 million, which are not rated by A.M. Best, 96% of OneBeacon's total reinsurance recoverables at December 31, 2002 were with reinsurers that had an A.M. Best rating of "A-" (Excellent) or better. The following table provides a listing of OneBeacon's top reinsurers, excluding industry pools and associations, based upon recoverable amounts, the percentage of total reinsurance recoverables and the reinsurer's A.M. Best rating.

Top Reinsurers ($ in Millions)		Balance at December 31, 2002			% of Total		A.M. Best Rating
Subsidiaries of Berkshire Hathaway Inc. (NICO and GRC)		$	2,585.1		71	%	A++
Liberty Mutual and subsidiaries*			273.8		8		A
Tokio Fire and Marine Insurance Company			67.1		2		A++
American Re-Insurance Company			47.0		1		A+
Aviva plc and its affiliates**			34.9		1		not rated

---

*

At December 31, 2002, OneBeacon had assumed balances payable and expenses payable of approximately $266.9 million under the Renewal Rights Agreement. In the event of Liberty Mutual's insolvency, OneBeacon has the right to offset these balances against its reinsurance recoverable due from Liberty Mutual.

**

Represents non-U.S. insurance entities whose balance is fully collateralized through funds held, letters of credit and/or trust agreements.

New York Assigned Risk Market

        OneBeacon writes voluntaryentire U.S. personal automobile insurance in the State of New York. As a condition to its license to write automobile business within that state, OneBeacon is obligated by statute to accept future assignments from the New York Automobile Insurance Plan ("NYAIP"), a residual insurance market that obtains personal automobile insurance for those individuals who cannot otherwise obtain it in the voluntary insurance market. The share of involuntary written premium for policies assigned by the NYAIP to a particular insurer in a given year is based, in general, on the proportion of the total voluntary writings in New York two years prior. Therefore, by voluntarily writing automobile policies in New York, an insurer has an obligation under New York State insurance laws to provide insurance two years later to individuals assigned to it from the NYAIP.Alternatively, an insurance company can contractually transfer its NYAIP obligation to another insurance company for a fee in satisfaction of its NYAIP obligation. This process is called Limited Assigned Distribution ("LAD"), and the companies that assume this obligation are called LAD servicing carriers. LAD

20

---

servicing carriers are paid fees (referred to as buy-out fees) to assume the insurance risk of NYAIP obligations in addition to the premiums it receives for writing the involuntary policy. The fees are typically a percentage of the total premiums the LAD servicing carrier must write to fulfill the NYAIP obligation of the transferor company. In return, the LAD servicing carrier is contractually obligated to pay all loss and loss adjustment and other underwriting expenses related to the NYAIP assigned premiums of the transferor company, with no recourse to the transferor. At December 31, 2002, White Mountains' estimated liability for discharging its obligations associated with NYAIP assignments resulting from voluntary business written by OneBeacon in the preceding two-year period was $103.0 million.

AutoOne Insurance

        In the last few years, NYAIP assignments and LAD fees have both increased significantly. During October of 2001, OneBeacon licensed one of its insurance companies, General Assurance Company, to act as a LAD servicing carrier in order to mitigate OneBeacon's exposure to the cost of future NYAIP assignments and to take advantage of rapidly rising LAD servicing fees. This company, which does business as "AutoOne Insurance", wrote 18 LAD contracts with third parties that resulted in approximately $203 million of assigned personal automobile written premium and LAD fees for unaffiliated companies in 2002. Additionally, AutoOne Insurance performed LAD services relating to OneBeacon's obligation to write $53 million in assigned premium in 2002, thereby fulfilling the obligation that arose from voluntary premium written by OneBeacon in 2000. OneBeacon believes that AutoOne Insurance's current business strategy will enable it to capitalize on continued demand for LAD services and improve the results of OneBeacon's overall New York automobile business by reducing its cost of obtaining LAD services. AutoOne Insurance is operated as a separate division of OneBeacon. AutoOne Insurance's primary competitors are Robert Plan and Clarendon Insurance Group, a subsidiary of Hannover Re.

        LAD servicing contracts between AutoOne Insurance and other insurers are for a period of one year. Once an assigned risk policy has been written, AutoOne Insurance is obligated to provide insurance for two more years unless the insured departs from the NYAIP, regardless of whether the LAD contract is renewed. This risk can be mitigated in whole or in part through (i) renewal of the LAD contract in the subsequent year; (ii) through "disengagement" fees due to AutoOne Insurance from the transferor company upon non-renewal of the LAD servicing contract; and (iii) through utilization of various credits offered by New York to those insurers who voluntarily provide coverage to individuals in the NYAIP, the largest of which are referred to as "take-out credits". In recent years, insurers and LAD servicing carriers have not utilized credits to a large extent as the costs to generate these credits did not outweigh the benefits. Under the credit programs in effect for NYAIP assignments written in 2002, an insurer could generally reduce its future NYAIP assignments by one dollar for every dollar of NYAIP premium voluntarily written by the insurer. These credits often could not be used to reduce NYAIP assignments for two years. The NYAIP has revised the structure of its credit programs effective for NYAIP assignments written in 2003 to increase the economic benefits of these credit programs. Under the revised structure, writing a NYAIP assignment on a voluntary basis generates two dollars of credit for each dollar of applicable premium. Takeout credits may be applied to reduce NYAIP assignments in the quarter after the takeout policy is written. OneBeacon believes that AutoOne Insurance will be able to voluntarily write policies currently in the NYAIP thereby generating takeout credits which can be used to reduce its own assignment obligations or sold to other insurance companies to reduce their NYAIP assignments.

New Jersey Skylands

        As part of a restructuring of its New Jersey personal lines, OneBeacon formed New Jersey Skylands Management Corporation and the New Jersey Insurance Department approved the formation

21

---

of New Jersey Skylands Insurance Association and its wholly owned subsidiary New Jersey Skylands Insurance Company (together, the "Association") during the third quarter of 2002. The lead company of the Association, New Jersey Skylands Insurance Association, is a not-for-profit, policyholder-owned reciprocal insurance carrier. The Association was capitalized by OneBeacon with a $31.3 million surplus note. Principal and interest on the surplus note are repayable upon regulatory approval. OneBeacon has no ownership interest in the Association. As a result, OneBeacon's future operating income derived from the New Jersey automobile insurance market will consist of management and service fees charged by New Jersey Skylands Management Corporation to the Association and interest on the surplus note. The Association began writing personal automobile coverage for new customers in August and, beginning with policies renewing on or after October 23, 2002, is offering all of OneBeacon's current New Jersey personal automobile policyholders coverage upon renewal.

Main Street America Holdings, Inc. ("MSA")

        MSA is a subsidiary of National Grange Mutual Insurance Company ("NGM"), a New Hampshire-domiciled property and casualty insurance company, which insures risks located primarily in New York, Massachusetts, Connecticut, Pennsylvania, New Hampshire, Virginia and Florida. OneBeacon owns 50% of the outstanding common stock of MSA and accounts for this investment using the equity method. OneBeacon's investment in MSA was $128.1 million and $133.7 million at December 31, 2002 and December 31, 2001. MSA's net written premiums totalled $357.3 million, $306.8 million and $265.4 million and its net income (loss) was ($13.5) million, $6.8 million and $3.8 million in 2002, 2001 and 2000. MSA's total assets as of December 31, 2002 and 2001 were $704.5 million and $653.8 million and its shareholders' equity was $253.7 million and $262.3 million. The principal insurance operating subsidiaries of NGM and MSA are rated "A" (Excellent) by A.M. Best.

REINSURANCE

Reinsurance Overview

        Reinsurance is an arrangement in which a reinsurance company (the "reinsurer") agrees to indemnify an insurance company (the "ceding company") for all or a portion of the insurance risks underwritten by the ceding company under one or more insurance policies. Reinsurance can benefit a ceding company in a number of ways, including reducing net liability exposure on individual risks, providing catastrophe protections from large or multiple losses, stabilizing financial results and assisting in maintaining acceptable operating leverage ratios. Reinsurance can also provide a ceding company with additional underwriting capacity by permitting it to accept larger risks and underwrite a greater number of risks without a corresponding increase in its capital or surplus. Reinsurers may also purchase reinsurance, known as retrocessional reinsurance, to cover their own risks assumed from primary ceding companies. Reinsurance companies often enter into retrocessional agreements for many of the same reasons that ceding companies enter into reinsurance agreements.

        Treaty reinsurance is an agreement whereby the reinsurer assumes a specified portion or category of risk under all qualifying policies issued by the ceding company during the term of the agreement, usually one year. In the underwriting of treaty reinsurance, the reinsurer does not evaluate each individual risk and generally accepts the original underwriting decisions made by the ceding insurer. Facultative reinsurance, on the other hand, is underwritten on a risk-by-risk basis, which allows the reinsurer to assess pricing on an individual exposure. Facultative reinsurance is normally purchased by insurance companies for individual risks not covered under reinsurance treaties or for amounts in excess of limits on risks covered under reinsurance treaties.

        A significant period of time normally elapses between the receipt of reinsurance premiums and the payment of reinsurance claims. The claims process generally begins upon the occurrence of an event causing an insured loss followed by: (1) the reporting of the loss by the insured to the ceding company;

22

---

(2) the reporting of the loss by the ceding company to the reinsurer; (3) the ceding company's adjustment and payment of the loss; and (4) the payment to the ceding company by the reinsurer. During this time, reinsurance companies generate investment income, consisting primarily of interest earned on fixed maturity investments and dividends earned on equity securities. The period of time between the receipt of premiums and the payment of claims is typically longer for a reinsurer than for a primary insurer.

Folksamerica

        Folksamerica, through its wholly owned subsidiary, Folksamerica Reinsurance Company (a New York-domiciled reinsurance company), is a multi-line, broker-market reinsurer which provides reinsurance to insurers of property, casualty, accident and health and marine risks primarily in the United States, Canada, Continental Europe, Latin America, the Caribbean and Japan. Folksamerica became a wholly-owned subsidiary of White Mountains during 1998. Folksamerica Reinsurance Company is rated "A-" (Excellent) by A.M. Best. At December 31, 2002 and December 31, 2001, Folksamerica had $3.4 billion and $3.2 billion of total assets and $976.4 million and $901.7 million of shareholder's equity, respectively. Folksamerica's total assets and shareholder's equity include the International American Group and Esurance, which are covered elsewhere in this report.

        Folksamerica writes both treaty and facultative reinsurance. The majority of Folksamerica's premiums are derived from treaty reinsurance contracts both on an excess of loss and quota share basis, which in 2002 amounted to 39.0% and 54.7% of its total gross earned premiums, respectively. A quota share reinsurance treaty is an arrangement whereby a reinsurer assumes a predetermined proportional share of the premiums and losses generated on specified business. An excess of loss treaty is an arrangement whereby a reinsurer assumes losses that exceed the retention of loss by the ceding company, as provided by the contract.

        Folksamerica derives its business from a broad spectrum of ceding insurers including national, regional, specialty and excess and surplus lines writers. Folksamerica determines which risks it accepts based on the anticipated underwriting results of the transaction, which are evaluated on a variety of factors including the quality of the reinsured, the attractiveness of the reinsured's insurance rates and policy conditions and the adequacy of the proposed reinsurance terms.

        Folksamerica commenced writing reinsurance coverage in 1980 as one of a host of newly formed, foreign-owned reinsurers capitalized with minimal surplus. In 1991, recognizing that surplus size would become an increasingly important business issue, Folksamerica launched an aggressive strategy to increase its resources and capacity through the acquisition of select broker-market reinsurance and property and casualty insurance companies. Since 1991, Folksamerica has acquired eight other reinsurers. These acquisitions have served to raise Folksamerica's surplus and asset base, broaden its skill set and contribute a number of important business relationships. Folksamerica's acquisition strategy is to seek fundamentally sound companies whose owners are no longer committed to the business. In these cases, the owner's lack of interest in its specific operations which are available for sale have had more to do with difficulties experienced by the owner in its core business rather than problems with the operations being sold. Folksamerica's more recent acquisitions included USF Re Insurance Co. ("USF Re") in 1999, PCA Property & Casualty Insurance Company ("PCA") in 2000, substantially all the reinsurance operations of Risk Capital Reinsurance Company ("Risk Capital") in 2000, C-F Insurance Company ("C-F") in 2001 and Imperial Casualty and Indemnity Insurance Company ("Imperial") in 2002. Folksamerica will continue to seek additional insurance and reinsurance acquisitions in the future.

        In December 2001, Folksamerica received a $400.0 million cash capital contribution from OneBeacon that was provided to increase Folksamerica's capacity to capitalize on improved pricing

23

---

trends which accelerated after the Attacks. As a result, Folksamerica is now among the largest U.S.-domiciled property and casualty reinsurers as measured by statutory surplus.

Classes of Business

        Folksamerica writes three main classes of reinsurance: liability reinsurance, property reinsurance and accident and health reinsurance. Folksamerica's net written premiums by class of business forFor the years ended December 31, 2004, 2003 and 2002, 2001 and 2000 were as follows:Esurance's business was produced in the following states:

			Year Ended December 31,
Business class ($ in millions)
			2002			2001			2000
Liability			$	381.6		$	310.6		$	208.4
Property				205.3			93.5			91.6
Accident and Health				68.1			25.1			26.4
Other				23.7			29.7			6.2
	Total		$	678.7		$	458.9		$	332.6

			Year Ended December 31,
Net written premiums by state
			2004		2003		2002
California			25	%	32	%	43	%
Florida			24		24		14
Texas			11		15		12
Michigan			7		5		1
Pennsylvania			5		7		7
New York			5		2		4
Other			23		15		19
	Total		100	%	100	%	100	%

Geographic Concentration
Marketing

        Folksamerica's net written premiums by geographic region for the years ended December 31, 2002, 2001 and 2000 were as follows:

			Year Ended December 31,
Geographic region ($ in millions)
			2002			2001			2000
United States			$	579.9		$	408.3		$	296.7
Canada				28.3			26.6			21.6
Latin America, the Caribbean and Europe				70.5			24.0			14.3
	Total		$	678.7		$	458.9		$	332.6

Marketing

        Folksamerica obtains most of its reinsurance business either directly through brokers and reinsurance intermediaries that represent the ceding company or indirectly through placements recommended by WMU. Folksamerica considers both the intermediary and the ceding company its clients in any placement. Much of Folksamerica's business is conducted with ceding companies and their management, with whom Folksamerica has developed strong business relationships over a long period of time. The process of placing a brokered reinsurance program typically begins when a ceding company enlists the aid of a reinsurance broker in structuring a reinsurance program. Often the ceding company and the broker will consult with one or more lead reinsurers as to the pricing and contract terms for the reinsurance protection being sought. Once the ceding company has approved the terms quoted by the lead reinsurer, the broker will offer participation to qualified reinsurers until the program is fully subscribed by reinsurers at terms agreed to by all parties. Folksamerica was a lead or co-lead reinsurer onEsurance distributes approximately 80% of its reinsurance arrangements in 2002.business directly to customers online and over the phone. For this business, Esurance does not pay agent commissions on either new or renewal policies. The remaining 20% of Esurance's business is distributed through large online agents. Esurance targets convenience-focused, technology savvy consumers who use the Internet for most of their financial services transactions.

        Folksamerica pays ceding companiesEsurance attracts its target customers through a ceding commission under most quota share reinsurance treatiescontinuously optimized mix of online and some excessoffline advertising. Esurance advertises on a wide variety of loss reinsurance treaties. The ceding commission is generally basedinsurance, finance, and automotive sites, along with major portals (e.g., MSN and Yahoo!) and search advertisers, like Google. Esurance also advertises on the ceding company's cost of acquiring the business being reinsured (commissions, premium taxestelevision, radio and certain miscellaneous expenses). During the years ended December 31, 2002 and 2001, Folksamerica received no more than 10% of its gross reinsurance premiums from any individual ceding company. Additionally, Folksamerica pays reinsurance brokers commissions based on negotiated percentages of the premium it writes. These commissions, which average approximately 5% of premium, constitute athrough direct mail.

24

---

significant portion of Folksamerica's total acquisition costs and are included in its underwriting expenses. During the years ended December 31, 2002 and 2001, Folksamerica received approximately 57.0% and 54.4%, respectively, of its gross reinsurance written premiums from three major reinsurance brokers as follows: (1) AON Re, Inc. - 28.2% and 21.3%, respectively; (2) Benfield Blanch -13.5% and 17.2%, respectively; and (3) Guy Carpenter -15.3% and 15.9%, respectively.

Underwriting and Pricing

        Folksamerica's underwriters and pricing actuaries perform a comprehensive review of the underwriting, pricing, claims handling and general business controls of potential clients before quoting a price for its reinsurance products. Folksamerica prices its products by assessing the desired return on the capital determined to be needed to write a given contract and by estimating future loss and LAE costs and investment income to be earned on net cash flow from the contract. Folksamerica will only accept contracts with a high likelihood of generating acceptable returns on equity. Folksamerica's pricing indications are based on a number of underwriting factors including historical results, analysis of exposure and estimates of future loss costs, a review of other programs displaying similar exposure characteristics, the primary insurer's underwriting and claims experience and the primary insurer's financial condition. Folksamerica's underwriters perform regular underwriting audits to monitor the ceding company's pricing discipline. Additionally, Folksamerica's finance staff reviews the financial stability and creditworthiness of current ceding companies. Such reviews provide important input to support renewal discussions.

        FolksamericaWith its web-enabled technology, Esurance collects and other reinsurance companiesverifies detailed underwriting information in real-time while customers transact with the company online. This real-time access to customer information allows Esurance to continually develop and refine its highly segmented, tiered pricing models. Esurance believes that its tiered pricing models have sought to mitigate the risk associateda greater statistical correlation with future terrorist attacks in a similar manner as primary insurers. Since the Attacks, reinsurershistorical loss experience than traditional pricing models have attained significant price increases across all lines of reinsurance in response to greater perceived policy exposures. Regulations regarding permitted policy exclusions applicable to reinsurance contracts are often less stringent than those imposed upon primary insurers. For example, the Terrorism Act is not applicable to reinsurers.shown. As a result, exclusions are more often dictated by the marketplace than by regulation. Folksamerica's reinsurance contracts on commercial risks written subsequentEsurance can quote rates to customers that most closely correspond to the Attacks contain clausesindividual risk characteristics of the customer, enabling Esurance to focus on keeping insurance rates competitive without compromising the company's loss ratio targets.

Competition

        Esurance competes with national and regional personal automobile insurance companies, though Esurance's main competition is other direct writers like Progressive, GEICO, and 21st Century.

        Esurance leverages web-enabled technology, allowing it to capture data real-time and react to market shifts. With an array of customer information at its disposal, Esurance is continually able to refine pricing, enhance its auto product and optimize dollars spent on marketing. Technology also allows Esurance to provide high quality,²⁴/7 customer service and claims handling for a competitive price.

        Esurance's paperless business process allow the company to significantly reduce operating costs typically associated with policy processing, verification and endorsement activities. As a result, the company is able to achieve efficient, low-cost acquisition and operating expense structures.

Claims Management

        Esurance handles its claims through regional claim centers in California, Florida, Texas and New York. Esurance takes the initial notice of loss at the company's customer service center, which exclude terrorist exposure. Reinsurance contracts on personal risks written subsequentis available for customers 24 hours a day, 365 days a year. The loss reporting unit then assigns claims to the Attacks generally contain exclusions relatedregional claim centers.

        Esurance's claims organization leverages technology to nuclear, biologicalreduce cycle times. Rapid response to and chemical attacks.resolution of claims creates a stronger relationship with customers, while also decreasing ancillary claims costs, such as rental car fees. Additionally, Esurance maintains a special investigative unit designed to detect insurance fraud, and actively supports efforts by regulatory bodies and trade associations to curtail the cost of insurance fraud.

Competition

        There are 20 U.S.-based reinsurance companies with broker-market operations which Folksamerica views as its direct competition. These companies report operating data to the Reinsurance Association of America ("RAA"). Based on surplus size as of December 31, 2002, Folksamerica is the fifth largest of these companies. Additionally, there are reinsurance divisions or departments of four U.S.-based insurers that, while not separate reinsurance companies, participate in the U.S. broker reinsurance market.Catastrophe Risk

        Across allEsurance's sole line of business is personal automobile insurance that covers liabilities and physical damage arising from the operation of automobiles. The majority of Esurance's customers elect coverage for physical damage (85%), resulting in exposure to catastrophe losses at Esurance for hurricanes, hailstorms, earthquakes and other acts of nature. Generally, catastrophe costs are low for personal auto in relation to other lines of business, Folksamerica competes with allsuch as homeowners and commercial property. Additionally, Esurance's broad geographic distribution limits its concentration of risk and the larger broker-market reinsurance companies and reinsurance departments or divisionspotential for losses to accumulate from a single event. Esurance estimates that its PML for a single event is less than 1% of primary insurance companies. As reported by the RAA, Folksamerica wrote approximately 4.6% of grossnet written premiums of all broker-market reinsurance companies and reinsurance divisions of insurance companies in 2002. The broker-market companies or divisions writing the largest portion of gross premiums in 2002 were: XL Reinsurance America (16.4%),Transatlantic Reinsurance Company (13.1%) and Everest Reinsurance Company (12.5%).premium.

        Folksamerica has a 20-year history of close relationships with ceding companies and maintains a disciplined underwriting strategy which, among other things, focuses on writing more business when market terms and conditions are favorable and reducing business volume during soft markets when

25

---

terms and conditions become less favorable. Folksamerica also employs a multi-line approach, offering clients a wide range of reinsurance products to satisfy their risk management needs. Additionally, during soft markets, Folksamerica utilizes an acquisition-based growth strategy by seeking to acquire fundamentally sound competitors whose ownership structure or other factors limit their ability to compete effectively.

        In general, poor market conditions for primary companies in recent years have caused insurers to reduce their own premium writings or restructure their reinsurance programs, thereby reducing the amount of reinsurance they purchase. As a result of consolidation within the industry, many ceding companies are now larger and financially stronger, thereby enabling them to retain more risk. In addition, increasingly intense competition in the reinsurance markets, primarily as a result of excess industry capital, has historically driven reinsurance prices on many programs below levels that Folksamerica will accept. The significant insured losses resulting from the Attacks, as well as other factors, have reduced the capacity of several reinsurers resulting in marked improvements in reinsurance pricing, terms and conditions. However, due to recent capital raising activities by several Bermuda-based and other reinsurers, there is no assurance that such improved conditions will continue over an extended period. Folksamerica's management believes that the reinsurance industry, including the intermediary market, will continue to undergo further consolidation. Management further believes that size and financial strength will become increasingly important factors in selecting reliable reinsurance partners, particularly in light of the weakening of several reinsurers in the wake of the Attacks.

Claims

        Folksamerica maintains a staff of experienced reinsurance claim specialists that work closely with reinsurance intermediaries to obtain specific claims information from its customers. Folksamerica's claims staff also regularly perform on-site claim reviews to assess and improve the reinsured's claim-handling ability and reserving techniques. In addition, Folksamerica's claim specialists review loss information provided by the reinsured for adequacy. The results of Folksamerica's on-site claim reviews are shared with its actuaries and underwriters to ensure that they are making the correct assumptions in pricing its products and that all relevant information is used in establishing loss reserves.

Loss and Loss Adjustment Expense ReservesInformation

        Folksamerica establishes reserves that are estimates of future amounts needed to pay claims and related expenses for insured events that have already occurred.        The process of estimating reserves for FolksamericaEsurance is similar to the process described in ""Loss and Loss Adjustment Expense ReservesReserves" in the" in the "ONEBEACON"ONEBEACON" discussion and, as of any given date, is inherently uncertain. For Folksamerica, reserve estimates reflect the judgment of both the ceding company and Folksamerica, based on the experience and knowledge of their respective claims personnel, regarding the nature and value of the claim. The ceding company may periodically adjust the amount of the case reserves as additional information becomes known or partial payments are made. Upon notification of a loss from a ceding company, Folksamerica establishes case reserves, including LAE reserves, based upon Folksamerica's share of the amount of reserves established by the ceding company and Folksamerica's independent evaluation of the loss. In cases where available information indicates that reserves established by the ceding company are inadequate, Folksamerica establishes case reserves in excess of its share of the reserves established by the ceding company.

        Folksamerica uses a combination of actuarial methods to determine its IBNR reserves. These methods fall into two general categories: (1) methods by which ultimate claims are estimated based upon historical patterns of paid and reported claim development experienced by Folksamerica, as supplemented by reported industry patterns, and (2) methods in which the level of Folksamerica's

26

---

IBNR reserves are established based upon the application of expected loss ratios relative to earned premium by accident year, line of business and type of reinsurance written by Folksamerica.

As described previously, uncertainties in projecting estimates of ultimate loss and LAE are magnified by the time lag between when a claim actually occurs and when it is reported and settled, i.e., the "claim-tail". During"claim-tail." Esurance writes primarily "short-tail" personal automobile insurance policies, which reduces the long claims reporting and settlement period, additional facts regarding coverages writtenuncertainty inherent in prior accident years, as well as about claims and trends may become known and, as a result, Folksamerica may adjust its loss and LAE reserves. If management determinesreserves when compared to insurance companies that an adjustment is appropriate, the adjustment is booked in the accounting period in whichwrite "long-tail" policies, such determination is made in accordance with GAAP.as workers compensation.

        Management believes that Folksamerica'sEsurance's loss and LAE reserves as of December 31, 20022004 are reasonably stated;adequate; however, ultimate loss and LAE may deviate, perhaps materially, from the amounts currently reflected in the reserve balance. Adverse development, if any, would impact the Company's future results of operations.

Reinsurance Protection

        Folksamerica has exposure to losses caused by hurricanes, earthquakes, winter storms, windstorms, terrorist acts and other catastrophic events. In the normal course of business, Folksamerica seeks to reduce the risk of loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance and reinsurance enterprises and by closely monitoring aggregate property exposures and related PMLs. To manage and analyze aggregate exposures and PML, Folksamerica utilizes a variety of tools and analyses, including catastrophe modeling software packages. Folksamerica regularly assesses its concentration of underwriting exposures in catastrophe prone areas and develops strategies to manage this exposure, primarily through limiting accumulation of exposure to acceptable levels and the purchase of catastrophe reinsurance. Folksamerica's current catastrophe protection program includes $35.0 million of protection in excess of a $60.0 million retention for a second loss. The current program also includes coverage of $15.0 million in excess of a $5.0 million retention for Folksamerica's proportional property portfolio. Each of the above contracts are 100% placed with a single, top quality reinsurer and have reinstatement provisions whereby, in the event of one covered loss, the coverage is reinstated for additional premium. Folksamerica's reinsurance program also includes annual aggregate stop loss protection from London Life and General Reinsurance Company, Ltd. ("London Life") which protects the Company's accident year loss ratio from the effect of a very large catastrophic event or a number of smaller events. Folksamerica's limit of coverage under its accident year 2002 contract with London Life was $50.0 million, attaching at a 78% loss ratio.

        In 2000, Folksamerica purchased a reinsurance contract from Imagine Re (the "Imagine Cover") to reduce its statutory operating leverage and protect its surplus from adverse development relating to A&E exposures as well as the reserves assumed in several recent acquisitions. Specifically, the Imagine Cover provided an aggregate of $115.0 million in reinsurance protection on:

•

adverse development on loss and LAE reserves as of December 31, 2000 from the USF Re acquisition and as of September 30, 2000 from the Risk Capital acquisition;



•

adverse development on Folksamerica's A&E reserves as of December 31, 2000; and



•

losses, LAE and acquisition expenses incurred in excess of premiums earned after September 30, 2000 on underwriting year 2000 and prior Risk Capital contracts.

        In connection with the Imagine Cover, Folksamerica transferred loss and LAE reserves of $250.0 million and unearned premium reserves of $65.0 million to Imagine Re for consideration of $315.0 million. As of December 31, 2002, there was approximately $9.9 million of coverage remaining under the Imagine Cover.

27

---

        Folksamerica has a quota share retrocessional arrangement with Olympus Reinsurance Ltd. ("Olympus") which is designed to increase Folksamerica's capacity to capitalize on the improved pricing trends which accelerated after the Attacks and to reduce its potential loss exposure to any large, or series of smaller, property catastrophe events. Olympus is a Bermuda-domiciled insurance and reinsurance company that was formed in December 2001 with an initial capitalization of more than $500.0 million to respond to the favorable underwriting and pricing environment in the reinsurance market. Olympus is rated "A-" (Excellent) by A.M. Best. Under the quota share treaty with Olympus, Folksamerica cedes 75% of its short-tailed excess of loss business, mainly property and marine, to Olympus and receives an override commission on the premiums ceded to Olympus. During 2002, Folksamerica received $17.1 million in override and profit commissions from Olympus.

        White Mountains does not have an ownership stake in Olympus, however, certain of the Company's directors, officers and affiliates own approximately 5% of the common shares of Olympus Re Holdings, Ltd. ("Olympus Holdings"), Olympus's parent. Mr. Joseph S. Steinberg, one of the Company's directors, is Chairman of Olympus Holdings.

        At December 31, 2002, Folksamerica had $67.9 million of reinsurance currently recoverable on paid losses and $807.1 million that will become recoverable if claims are paid in accordance with current reserve estimates. Because reinsurance contracts do not relieve Folksamerica of its obligation to its ceding companies, the financial position and solvency of Folksamerica's reinsurers is critical to the collectibility of its reinsurance coverages. Folksamerica is selective with regard to its reinsurers, placing reinsurance with only those reinsurers having strong financial strength ratings. Folksamerica monitors the financial strength of its reinsurers on an ongoing basis. The following table provides a listing of Folksamerica's top reinsurers based upon recoverable amounts, the percentage of total recoverables and the reinsurer's A.M. Best Rating.

Top Reinsurers ($ in Millions)		Balance at December 31, 2002			% of Total		A.M. Best Rating
Imagine Re*		$	381.2		42	%	A-
London Life*			135.4		15		A
Olympus*			45.5		5		A-
GRC and affiliates			34.9		4		A++
Federal Insurance Company			34.6		4		A++

---

*

Represents non-U.S. insurance entities whose balances are fully collateralized through funds held, letters of credit and/or trust agreements.

28

---

Montpelier

        In December 2001, White Mountains, the Benfield Group plc and several other private investors established Montpelier and its wholly owned subsidiary Montpelier Reinsurance Ltd. ("Montpelier Re"). Montpelier Re is a Bermuda-domiciled insurance and reinsurance company that was formed with approximately $1.0 billion in capital to respond to the then favorable underwriting and pricing environment in the reinsurance industry. Montpelier Re has initially focused on property reinsurance business. Montpelier Re is rated "A-" (Excellent) by A.M. Best. On October 15, 2002, Montpelier successfully completed an initial public offering and its common shares are listed on the New York Stock Exchange. Through holdings of common shares and warrants, White Mountains owns approximately 21% of Montpelier on a fully converted basis. As of December 31, 2002, White Mountains' investment in Montpelier consisted of 10,800,000 common shares valued at $16.67 per share and warrants to acquire an additional 4,781,572 common shares at $16.67 per share that are exercisable until December, 2011.

        Montpelier's net written premiums totalled $565.9 million and its net income was $152.0 million in 2002, its first full year of operations. Montpelier's total assets as of December 31, 2002 and 2001 were $1.8 billion and $1.0 billion and its shareholders' equity was $1.3 billion and $860.7 million.

White Mountains Underwriting Limited

        In December 2001, White Mountains formed WMU, an underwriting advisement company domiciled in Ireland. WMU, a wholly-owned subsidiary of White Mountains, has expanded Folksamerica's access to international property and marine excess of loss reinsurance business in Continental Europe and Japan and provides professional insurance services to both Folksamerica and Olympus. WMU receives management fees and a profit commission on business placed with Folksamerica and Olympus. During 2002, WMU placed $120.2 million and $40.4 million of written premiums and recorded $35.7 million and $8.2 million of management fees and profit commissions from Olympus and Folksamerica, respectively.

Fund American Re

        On December 20, 2001, Fund American Re acquired substantially all of the international reinsurance operations of the Folksam Group ("Folksam") of Stockholm, Sweden. A $64.0 million purchase price was paid in a combination of cash, a note and Common Shares. Fund American Re is commercially domiciled in Bermuda but maintains its executive office and an operating branch in Stockholm, Sweden, and operates through an additional branch in Singapore. Fund American Re principally writes property, liability, transportation and hail and crop reinsurance for insurance companies based in the United States and in Europe. At December 31, 2002 and 2001, Fund American Re had $149.9 million and $126.3 million of total assets, respectively, and $58.1 million and $63.9 million of shareholder's equity, respectively. Fund American Re wrote $62.5 million in net premiums during the year ended December 31, 2002. Fund American Re is rated "A-" (Excellent) by A.M. Best.

Additional Loss and Loss Adjustment Expense Information

        The following information presents (1) White Mountains' reinsurance segment'sEsurance's reserve development over the preceding tenfour years since inception and (2) a reconciliation of reserves on a Statutory basis to reserves determined in accordance with GAAP, each as prescribed by Securities Act Industry Guide No. 6.

        Section I of the ten year table shows the estimated liability that was recorded at the end of each of the indicated years for all current and prior accident year unpaid losses and LAE. The liability represents the estimated amount of losses and LAE for claims that were unpaid at the balance sheet date, including IBNR reserves. In accordance with GAAP, the liability for unpaid losses and LAE is recorded in the balance sheet gross of the effects of reinsurance with an estimate of reinsurance recoverables arising from reinsurance contracts reported separately as an asset. The net balance represents the

estimated amount of unpaid losses and LAE outstanding as of the balance sheet date, reduced by estimates of amounts recoverable under reinsurance contracts.

29

---

        Section II shows the re-estimated amount of the previously recorded net liability as of the end of each succeeding year. Estimates of the liability for unpaid losses and LAE are increased or decreased as payments are made and more information regarding individual claims and trends, such as overall frequency and severity patterns, becomes known. Section III shows the cumulative net (deficiency)/redundancy representing the aggregate change in the liability from original balance sheet dates and the re-estimated liability through December 31, 2002.2004. Section IV shows the re-estimated gross liability and re-estimated reinsurance recoverables through December 31, 2002.2004. Section V shows the cumulative amount of net losses and LAE paid relating to recorded liabilities as of the end of each succeeding year.

				Years Ended December 31,
				Reinsurance Loss and LAE(1),(2),(3)
Dollars in Millions
				1992			1993			1994			1995			1996			1997			1998			1999			2000			2001			2002
I. Liability for unpaid losses and LAE:
		Gross balance		$	758.3		$	798.4		$	856.2		$	981.5		$	1,578.7		$	1,461.3		$	1,437.6		$	1,210.6		$	1,500.7		$	1,610.6		$	1,664.3
		Less: reins recoverables on unpaid losses and LAE			(172.0	)		(154.4	)		(182.4	)		(201.0	)		(390.2	)		(352.0	)		(398.0	)		(324.0	)		(702.8	)		(879.5	)		(815.0	)
Net balance				$	586.3		$	644.0		$	673.8		$	780.5		$	1,188.5		$	1,109.3			1,039.6		$	886.6		$	797.9		$	731.1		$	849.3
II. Net liability re-estimated as of:
		1 year later			601.5			672.5			701.8			834.1			1,222.6			1,125.5			1,036.0			914.4			803.5			743.8			—
		2 years later			626.0			706.0			748.6			855.4			1,224.6			1,108.5			1,047.8			917.4			788.5
		3 years later			653.2			746.3			763.7			862.7			1,206.4			1,114.5			1,032.3			919.3
		4 years later			680.7			761.3			767.0			874.9			1,214.2			1,088.7			1,027.9
		5 years later			694.8			764.1			778.8			874.2			1,188.9			1,071.6
		6 years later			699.6			772.8			779.2			844.9			1,164.9
		7 years later			706.5			774.2			755.8			817.6
		8 years later			709.1			756.4			736.5
		9 years later			696.8			747.4
		10 years later			708.0
III. Cumulative net (deficiency)/redundancy				$	(121.7	)	$	(103.4	)	$	(62.7	)	$	(37.1	)	$	23.6		$	37.7		$	11.7		$	(32.7	)	$	9.4		$	(12.7	)	$	—
	Percent (deficient)/ redundant				(20.8	)%		(16.1	)%		(9.3	)%		(4.8	)%		2.0%			3.4%			1.1%			(3.7	)%		1.2%			(1.7	)%		—	%
IV. Reconciliation of net liability re-estimated as of the end of the latest re-estimation period (see II. above):
	Gross re-estimated liability				954.9			964.2			973.2			1,029.8			1,589.9			1,470.7			1,433.6			1,330.9			1,616.0			1,702.2
	Less: gross re-estimated reinsurance recoverable				(246.9	)		(216.8	)		(236.7	)		(212.2	)		(425.0	)		(399.1	)		(405.7	)		(411.6	)		(827.5	)		(958.4	)
Net re-estimated liability				$	708.0		$	747.4		$	736.5		$	817.6		$	1,164.9		$	1,071.6		$	1,027.9		$	919.3		$	788.5		$	743.8
V. Cumulative net amount of liability paid through:
		1 year later			165.1			219.8			201.9			225.5			322.6			277.5			291.4			102.3			370.8			250.9
		2 years later			289.8			337.3			323.4			363.6			506.7			472.0			390.6			348.9			512.9
		3 years later			366.2			418.2			412.8			457.0			656.6			582.4			552.9			452.8
		4 years later			423.9			481.2			474.3			542.8			774.0			680.9			626.9
		5 years later			467.9			521.4			530.8			608.2			843.1			733.3
		6 years later			495.2			565.8			572.7			644.1			883.1
		7 years later			530.6			596.3			598.3			672.8
		8 years later			554.6			618.2			616.8
		9 years later			572.2			636.0
		10 years later			590.4

			Esurance Loss and LAE(1),(2) Years Ended December 31,
($ in millions)
			2001			2002			2003			2004
I.    Liability for unpaid losses and LAE:
	Gross balance		$	4.0		$	15.5		$	39.1		$	63.0
	Less: reinsurance recoverables on unpaid losses and LAE			—			—			—			0.1
Net balance			$	4.0		$	15.5		$	39.1		$	62.9
II.    Net liability re-estimated as of:
	1 year later			4.0			16.0			34.0			—
	2 years later			4.4			15.3
	3 years later			4.3
III.    Cumulative net (deficiency)/ redundancy			$	(0.3	)	$	0.2		$	5.1		$	—
	Percent (deficient)/redundant			(6.7	)%		1.3	%		13.0	%		—	%
IV.    Reconciliation of net liability re-estimated as of the end of the latest re-estimation period (see II. above):
	Gross re-estimated liability			4.3			15.3			34.2			—
	Less: gross re-estimated reinsurance recoverable									0.2
Net re-estimated liability			$	4.3		$	15.3		$	34.0		$	—
V.    Cumulative net amount of liability paid through:
	1 year later			2.5			9.3			18.9			—
	2 years later			3.3			12.2
	3 years later			3.9

---

(1)

The table consists of reserve information for FolksamericaEsurance Insurance Company, Esurance Property & Casualty Insurance Company, and for Fund American Re.business ceded by Esurance to Folksamerica.

(2)

The table includes the complete loss development history for all periods presented for all companies acquired by Folksamerica through an instrument of transfer and assumption approved by the appropriate insurance regulators. Under the instrument, insurance regulators require that Folksamerica report reserve development as if the companies had been combined from their inception.

(3)

FolksamericaEsurance became a wholly owned subsidiary of White Mountains during 1998. Reserve development for the years ended 1991 through 1997 reflects development on reserves established before White Mountains consolidated Folksamerica's results.2000.

30

---

        The following table reconciles loss and LAE reserves determined on a Statutory basis to loss and LAE reserves determined in accordance with GAAP at December 31, as follows:

		Year Ended December 31,									December 31,
(in millions)
		2002			2001			2000
(Millions)											December 31,
Statutory reserves		$	1,148.8		$	1,002.7		$	776.7		$	16.2		$	7.6		$	15.5
Reserves allocated from other segments												46.7			31.5			—
Reinsurance recoverable on unpaid losses and LAE(1)			513.2			586.7			702.8			.1			—			—
Other(2)			2.3			21.2			21.2
GAAP reserves		$	1,664.3		$	1,610.6		$	1,500.7		$	63.0		$	39.1		$	15.5

---

(1)

Represents adjustments made to add back reinsurance recoverables included with the presentation of reserves under Statutoryregulatory accounting.

(2)

Primarily represents purchase accounting adjustments made in connection with Folksamerica acquisition of PCA Property and Casualty Insurance Company.

OTHER OPERATIONS

        White Mountains' other operations consist of the International American Group, Esurance, the Company and the Company's intermediate holding companies.

International American Group

        In October 1999, White Mountains completed its acquisition of International American Group, a collection of insurance and reinsurance companies, for $86.7 million in cash. White Mountains acquired Peninsula, American Centennial and British Insurance Company through its acquisition of International American Group.

        Peninsula, which was established in 1960, is a Maryland-domiciled property and casualty insurer which writes both personal and commercial lines, primarily private passenger automobile, homeowners, commercial automobile and commercial multi-peril. Most of Peninsula's insurance products are sold in Maryland, Delaware and Virginia. Peninsula is rated "A" (Excellent) by A.M. Best. Peninsula markets insurance products principally through independent agents. Peninsula's primary business focus is to establish strong long-term relationships with its agents and insured customers by focusing on providing quality insurance products to families and small private businesses. At December 31, 2002 and 2001, Peninsula had $57.1 million and $55.9 million of total assets and $21.2 million and $22.5 million of shareholder's equity, respectively. For the years ended December 31, 2002, 2001 and 2000, Peninsula had $29.5 million, $28.3 million and $22.7 million in net written premiums.

        American Centennial and British Insurance Company are Delaware-domiciled and Cayman Island-domiciled, respectively, property and casualty insurance and reinsurance companies in run-off. At December 31, 2002 and 2001, American Centennial had $60.9 million and $66.2 million of total assets and $26.7 million and $37.0 million of shareholder's equity, respectively. At December 31, 2002 and 2001, British Insurance Company had $24.7 million and $22.4 million of total assets and $4.3 million and $4.4 million of shareholder's equity, respectively.

Esurance

        Esurance is an online insurance provider that has been writing personal automobile insurance since 2000. Esurance attempts to leverage technology to reduce costs in order to offer its products at competitive prices. The company markets its products through a multi-channel approach, with the majority of its policies sold directly to consumers. Most customer interaction with the company takes place through Esurance's website, www.esurance.com, where customers can get real-time online quotes and purchase their policies. Esurance also offers policyholders 24-hour customer service and claims handling, along with online account management.

        By predominantly interacting with customers through the internet, Esurance is able to collect detailed underwriting information in real-time. This real-time access to customer information has allowed Esurance to develop its own highly segmented, tiered pricing model.

31

---

        During 2002, substantially all of the business generated by Esurance was directly written or assumed by subsidiaries of White Mountains. The underwriting results of this business are included in the underwriting unit that ultimately retains the risk under the policies written through Esurance. Esurance increased its direct written premium volume from $17.4 million in 2001 to $52.6 million in 2002.

        Esurance is headquartered in San Francisco and has operated as an independent subsidiary of Folksamerica since October 2000, when Folksamerica purchased 80% of the company for $9.0 million. During the fourth quarter of 2001, Folksamerica purchased the remaining outstanding stock for $1.4 million. As of December 31, 2002, Folksamerica owned 99.1% of Esurance's outstanding stock. For the years ended December 31, 2002 and 2001, Esurance had total assets of $38.2 million and $16.9 million, total revenues of $10.9 million and $3.1 million and an accumulated shareholder's deficit of $24.9 million and $8.9 million.

The Company and Itsits Intermediate Holding Companies

        The Company's intermediate holding companies include Fund American Companies, Inc. ("FAC") and Fund American Enterprises Holdings, Inc. ("FAEH"), both U.S.-domiciled companies, as well as various intermediate holding companies domiciled in Barbados.the United States, Barbados, Luxembourg, Sweden and Bermuda. White Mountains arranges the majority of its financing through the Company and these intermediate holding companies.

        FAC acquired OneBeaconIn May 2003, Fund American issued $700 million face value of senior unsecured debt through a public offering, at an issue price of 99.7% (the "Senior Notes"). The net proceeds from the issuance of the Senior Notes were used to repay all of the term loans and a portion of the revolving loan (with the remainder repaid with cash on June 1, 2001.hand) under Fund American's previous bank facility.

        In connectionSeptember 2003, Fund American terminated its old revolving credit facility, which then consisted solely of an undrawn $175 million revolving credit line, and replaced it with the Acquisition, FAC and FAEH entered into the following financing arrangements:

•

FAC borrowed $825.0a new $300 million in June 2001 from a banking syndicate arranged by Lehman Brothers, Inc.revolving credit facility (the "Bank Facility"). FAC subsequently entered into a series, under which both Fund American and the Company are permitted borrowers. In August 2004, Fund American restructured and re-syndicated the Bank Facility to increase the availability under the revolving credit facility to $400 million and to extend the maturity from September 2006 to August 2009. As of interest rate swaps with large financial institutions that were undertaken to achieve a fixed interest rate on $700.0 millionDecember 31, 2004, the Bank Facility was undrawn.

        As part of the borrowings underfinancing for the Bank Facility.



•

FAC issued $300.0 million in face value of cumulative non-voting preferred stock toOneBeacon Acquisition, Berkshire Hathaway, Inc. ("Berkshire") invested a total of $300 million in cash, of which (1) $225 million was for the purchase of preferred stock of Fund American (the "Berkshire Preferred Stock"), which has a $300 million redemption value; and (2) $75 million was for $225.0 million.



•

FAEH issued a $260.0 million seller notethe purchase of warrants to Avivaacquire 1,724,200 Common Shares of the Company (the "Seller Note""Warrants"). The Seller Note was repaidBerkshire Preferred Stock is entitled to a dividend of no less than 2.35% per quarter and is mandatorily redeemable on November 29, 2002.



•

FAEH issued $20.0May 31, 2008. During 2004, Berkshire exercised its warrants for $294 million in face valuecash.

        Also as part of cumulative non-voting preferred stock tothe financing of the OneBeacon Acquisition, Zenith Insurance Company ("Zenith") purchased $20 million in cumulative non-voting preferred stock of FAEH (the "Zenith Preferred Stock").

The Zenith Preferred Stock is entitled to a dividend of no less than a 2.5% per quarter through June 30, 2007 and a dividend of no less than 3.5% per quarter thereafter. The Zenith Preferred Stock is mandatorily redeemable on May 31, 2011. At the Company's option, the Zenith Preferred Stock may be redeemed on June 30, 2007.

International American Group

        In October 1999, White Mountains acquired the group of companies included in the International American Group, which included American Centennial, British Insurance Company and Peninsula.

        Delaware-domiciled American Centennial and Cayman Island-domiciled British Insurance Company are property and casualty insurance and reinsurance companies in run-off. At December 31, 2004 and 2003, American Centennial had $61.3 million and $61.1 million of total assets and $21.0 million and $22.6 million of shareholder's equity, respectively. At December 31, 2004 and 2003, British Insurance Company had $33.4 million and $25.7 million of total assets and $4.5 million and $5.6 million of shareholder's equity, respectively.

        In January 2004, White Mountains sold Peninsula, which is a Maryland-domiciled property and casualty insurer, for $23.3 million. At December 31, 2003 Peninsula had $60.6 million of total assets and $21.7 million of shareholder's equity, respectively. For the years ended December 31, 2003 and 2002, Peninsula had $34.1 million and $29.5 million of net written premiums, respectively.

INVESTMENTS

        The investment portfolios of White Mountains' insurance and reinsurance operations consist primarily of fixed maturity investments but also consist, in part, of short-term investments, common equity securities and other investments.investments (principally investments in limited partnership interests). White Mountains' management believes that prudent levels of investments in common equity securities and other investments within its investment portfolio are likely to enhance after-tax total returns without significantly increasing the risk profile of the portfolio when considered over long periods of time and balanced with leverage and insurance risk considerations. White Mountains seeks to maximize after-tax risk-adjusted returns over the long term.

32

---

        TheAt December 31, 2004, approximately 99% of White Mountains' fixed maturity portfolios of White Mountains are comprised primarily ofinvestments received an investment grade corporate debt securities, U.S. government and agency securities and mortgage-backed securities (greater than 99% of such securities received a rating from Standard and Poor's ("S&P") or from Moody's Investor Services ("Moody's") if a given security is unrated by S&P. S&P and Moody's are two third party rating agencies that assess the National Associationcredit quality of Insurance Commissioners ("NAIC")companies that have publicly issued debt. An investment grade rating, which is indicative of 1a strong credit profile of an issuer, is defined as "BBB-" (Adequate, the 10^th highest of 24 ratings) or 2). Nearly allbetter by S&P and "Baa3" (Adequate, the fixed maturity securities currently held10^th highest of 21 ratings) or better by White Mountains are publicly traded.Moody's. White Mountains expects to continue to invest primarily in high quality, fixed maturity investments. Nearly all the fixed maturity investments currently held by White Mountains are publicly traded, and as such are considered to be liquid.

        At December 31, 2002,2004 White Mountains' consolidated investment portfolio consisted of $6,669.1$7,900.0 million (75%) of fixed maturity investments, $1,790.6$1,058.2 million (20%(10%) of short-term investments, and $439.7$1,043.9 million (5%(10%) of common equity securities and $527.4 million (5%) of other investments. White Mountains' fixed maturity portfolioinvestments at December 31, 20022004 consisted principally of corporate debt securities (49%), U.S. government and agency securities (32%(30%), foreign government obligations (10%), mortgage-backed securities (14%(9%) and preferred equity securities foreign government obligations and municipal bonds (5%(2%).

        White Mountains' investment philosophy is to invest all assets with a view towards maximizing its after-tax total return over extended periods of time. Under this approach, each dollar of after-tax investment income, realized and unrealized gains and losses is valued equally. White Mountains' overall fixed maturity investment strategy is to purchase securities that are attractively priced in relation to perceived credit risks. White Mountains generally manages the interest rate risk associated with holding fixed maturity investments by actively monitoring and maintaining the average duration of the portfolio with a view towards achieving an adequate after-tax total return without subjecting the portfolio to an unreasonable level of interest rate risk. At December 31, 2002,2004, the duration of White Mountains' fixed maturity portfolioinvestments and short-term investments was approximately 3.43 years.

Montpelier Re Holdings Ltd. ("Montpelier")

        In December 2001, White Mountains, the Benfield Group plc and several other private investors established Montpelier and its wholly owned subsidiary Montpelier Reinsurance Ltd. ("Montpelier Re"). Montpelier Re is a Bermuda-domiciled insurance and reinsurance company that was formed with approximately $1.0 billion in capital to respond to the then favorable underwriting and pricing environment in the reinsurance industry. Montpelier Re has initially focused on property reinsurance business. Montpelier Re is rated "A" (Excellent, the third highest of fifteen ratings) by A.M. Best. On October 15, 2002, Montpelier successfully completed an initial public offering and its common shares are listed on the New York Stock Exchange. White Mountains initially invested $180 million in Montpelier in exchange for 10.8 million common shares and warrants to acquire 4.8 million additional common shares of Montpelier.

        During the first quarter of 2004, White Mountains sold 4.5 million common shares of Montpelier to third parties. As a result of this sale, as well as changes to the composition of the Board of Directors of both Montpelier and White Mountains, White Mountains changed the method of accounting for its remaining common share investment in Montpelier as of March 31, 2004 from an equity method investment in an unconsolidated affiliate to a common equity security classified as available for sale and carried at fair value. Also during the first quarter of 2004, White Mountains purchased additional warrants to acquire 2.4 million common shares of Montpelier from an existing warrant holder for $54.1 million in cash, thereby raising the total number of such warrants owned by White Mountains to 7.2 million. The Montpelier warrants have an exercise price of $16.67 per share (as adjusted for stock splits) and are exercisable until December 2011.

Investments in Unconsolidated Affiliates

Symetra Financial Corporation ("Symetra")

        On August 2, 2004, White Mountains, Berkshire and several other private investors capitalized Symetra in order to purchase the life and investment operations of Safeco Corporation for $1.35 billion. The acquired companies, which are now operating under the Symetra brand, focus mainly on group insurance, individual life insurance, structured settlements and retirement services. Symetra had an initial capitalization of approximately $1.4 billion, consisting of $1,065 million of common equity and $315 million of debt. White Mountains invested $194.7 million in Symetra in exchange for 2.0 million common shares of Symetra. In addition, White Mountains and Berkshire each received warrants to acquire an additional 1.1 million common shares of Symetra at $100 per share. White Mountains owns approximately 19% of the outstanding common shares of Symetra and approximately 24% of Symetra on a fully-converted basis including the warrants. Three White Mountains designees serve on Symetra's eight member board of directors.

        Symetra's total revenues and net income for the five months ended December 31, 2004 were $701.9 million and $54.3 million, respectively. Symetra's total assets and shareholders' equity as of December 31, 2004 were $22.1 billion and $1.4 billion, respectively. As of December 31, 2004, White

Mountains' total investment in Symetra was $248.4 million, excluding $56.6 million of equity in unrealized gains from Symetra's fixed maturity investments.

Main Street America Holdings, Inc. ("MSA")

        MSA is a subsidiary of National Grange Mutual Insurance Company ("NGM"), a New Hampshire-domiciled property and casualty insurance company, which insures risks located primarily in New York, Massachusetts, Connecticut, Pennsylvania, New Hampshire, Virginia and Florida. White Mountains owns 50% of the outstanding common stock of MSA and accounts for this investment using the equity method. White Mountains' investment in MSA was $161.6 million and $142.8 million at December 31, 2004 and December 31, 2003, respectively. MSA's net written premiums totaled $454.5 million, $427.6 million and $357.3 million and its net income (loss) was $29.6 million, $29.3 million and ($13.2) million in 2004, 2003 and 2002. MSA's total assets as of December 31, 2004 and 2003 were $978.1 million and $875.1 million and its shareholders' equity was $323.3 million and $290.4 million. The principal insurance operating subsidiaries of NGM and MSA are rated "A" (Excellent, the third highest of fifteen ratings) by A.M. Best.

REGULATION

United States

        White Mountains' U.S.-based insurance and reinsurance operationsoperating subsidiaries are subject to regulation and supervision in each of the jurisdictionsstates where they are domiciled and licensed to conduct business. Generally, regulatory authorities have broad supervisory and administrative powers over such matters as licenses, standards of solvency, premium rates, policy forms, investments, security deposits, methods of accounting, form and content of financial statements, reserves for unpaid loss and LAE, reinsurance, minimum capital and surplus requirements, dividends and other distributions to shareholders, periodic examinations and annual and other report filings. In general, such regulation is for the protection of policyholders rather than shareholders. White Mountains believes that it is in compliance with all applicable laws and regulations pertaining to its business that would have a material effect on its financial position in the event of non-compliance.

        Over the last several years most states have implemented laws that establish standards for current, as well as continued, state accreditation. In addition, the NAIC has adopted risk-based capital ("RBC") standards for property and casualty companiesinsurers as a means of monitoring certain aspects affecting the overall financial condition of insurance companies. The current RBC ratios of White Mountains' active insurance and reinsurance operating subsidiaries are satisfactory and such ratios are not expected to result in any adverse regulatory action. White Mountains is not aware of any current recommendations by regulatory authorities that would be expected to have a material effect on its results of operations or liquidity.

        As a condition of its license to do business in certain states, White Mountains' insurance operationsoperating subsidiaries are required to participate in mandatory shared market mechanisms. Each state dictates the types of insurance and the level of coverage that must be provided. The most common type of shared market mechanism in which White Mountains is required to participate is an assigned risk plan. Many states operate assigned risk plans. The NYAIP and New Jersey commercial automobile insurance plans are two such shared market mechanisms in which OneBeacon is required to participate. These plans require insurers licensed within the applicable state to accept the applications for insurance policies of individuals who are unable to obtain insurance in the voluntary market. The total number of such

33

---

policies an insurer is required to accept is based on its market share of voluntary business in the state. Underwriting results related to assigned risk plans are typically adverse. Accordingly, OneBeacon may be required to underwrite policies with a higher risk of loss than it would otherwise accept.

        Reinsurance facilities are another type of shared market mechanism. Reinsurance facilities require an insurance company to accept all applications submitted by certain state designated agents. The

reinsurance facility then allows the insurer to cede some of its business to the reinsurance facility so that the facility will reimburse the insurer for claims paid on ceded business. Typically, however, reinsurance facilities operate at a deficit, which is funded through assessments against the same insurers. The Massachusetts Commonwealth Automobile Reinsurers ("MassCAR") is one such reinsurance facility in which OneBeacon is compelled to participate. As a result, OneBeacon could be required to underwrite policies with a higher risk of loss than it would otherwise accept.

        The insurance laws of many states generally provide that property and casualty insurers doing business in those states belong to a statutory property and casualty guaranty association. The purpose of these guaranty associations is to protect policyholders by requiring that solvent property and casualty insurers pay certain insurance claims of insolvent insurers. These guaranty associations generally pay these claims by assessing solvent insurers proportionately based on the insurer's share of voluntary written premiums in the state. While most guaranty associations provide for recovery of assessments through rate increases, surcharges or premium tax credits, there is no assurance that insurers will ultimately recover these assessments. At December 31, 2002,2004, the reserve for such assessments at OneBeacon totalled $24.7 million, of which $7.7 million related to the insolvency of Reliance Insurance Company.totaled $18.3 million.

        Many states have laws and regulations that limit an insurer's ability to exit a market. For example, certain states limit a private passenger automobile insurer's ability to cancel and non-renew policies. Furthermore, certain states prohibit an insurer from withdrawing from one or more lines of insurance business in the state, unless the state regulators approve the company's withdrawal plans. State regulators may refuse to approve such plans on the grounds that they could lead to market disruption. Such laws and regulations may restrict White Mountains' ability to exit unprofitable markets.

        Nearly all states have insurance laws requiring personal property and casualty insurers to file price schedules, policy or coverage forms, and other information with the state's regulatory authority. In most cases, such price schedules and/or policy forms must be approved prior to use. While pricing laws vary from state to state, their objectives are generally to ensure that prices are adequate, not excessive and not discriminatory. For example, Massachusetts, a state where OneBeacon has a sizable presence, sets virtually all aspects of automobile insurance rates, including agent commissions. Such regulations often challenge an insurers ability to adequately price its product, which often leads to unsatisfactory underwriting results.

        White Mountains' U.S. insurance and reinsurance operating subsidiaries are subject to state laws and regulations that require investment portfolio diversification and that limit the amount of investment in certain categories. Non-compliance may cause non-conforming investments to be non-admitted in measuring statutory surplus and, in some instances, may require divestiture. White Mountains investment portfolio at December 31, 20022004 complied with such laws and regulations in all material respects.

        One of the primary sources of cash inflows for the Company and certain of its intermediary holding companies is dividends received from its insurance and reinsurance operating subsidiaries. Under the insurance laws of the jurisdictionsstates under which White Mountains' U.S.-based insurance and reinsurance subsidiaries are domiciled, an insurer is restricted with respect to the timing or the amount of dividends it may pay without prior approval by regulatory authorities. In a given calendar year, the insurance subsidiaries can generally dividend up to the greater of 10% of their statutory surplus at the beginning of the year or the prior year's statutory net income without prior regulatory approval, subject to the availability of unassigned funds (the statutory accounting equivalent of retained earnings). Larger dividends generally can be paid only upon

34

---

regulatory approval. Accordingly, there is no assurance regarding the amount of such dividends that may be paid by such subsidiariesSee "Dividend Capacity" in the future. During 2002, White Mountains' first-tier insurance subsidiaries declared and paid $172.6 million in dividends to FAC. White Mountains' first tier insurance subsidiaries have the ability to pay dividends"LIQUIDITY AND CAPITAL RESOURCES" section of approximately $261.5 million to FAC in 2003 without approval of regulatory authorities.Item 7 for further discussion.

        White Mountains is subject to regulation under certain state insurance holding company acts. These regulations contain reporting requirements relating to the capital structure, ownership, financial condition and general business operations of White Mountains' insurance and reinsurance operating subsidiaries. These regulations also contain special reporting and prior approval requirements with respect to certain transactions among affiliates. Since the Company is an insurance holding company, the domiciliary states of its insurance and reinsurance operating subsidiaries impose regulatory application and approval requirements on acquisitions of Common Shares which may be deemed to

confer control over those subsidiaries, as that concept is defined under the applicable state laws. Acquisition of as little as 10% of White Mountains' Common Shares may be deemed to confer control under the insurance laws of some jurisdictions, and the application process for approval can be extensive and time consuming.

        While the federal government does not directly regulate the insurance business, federal legislation and administrative policies affect the insurance industry. In addition, legislation has been introduced from time to time in recent years that, if enacted, could result in the federal government assuming a more direct role in the regulation of the insurance industry. A recentlyfederal law enacted federal law,in 2002, the Terrorism Act, provides a "back-stop" to property and casualty insurers in the event of future terrorist acts perpetrated by foreign agents or interests. The law limits the industry's aggregate liability by requiring the federal government to share 90 percent of certified losses once a company meets a specific retention or deductible as determined by its prior year's direct written premiums and limits the aggregate liability to be paid by the government and industry without further action by Congress at $100 billion. In exchange for this "back-stop", primary insurers are required to make coverage available to commercial insureds for losses from acts of non-domestic terrorism as specified in the Terrorism Act. OneBeacon is actively complying with the requirements of the Terrorism Act in order to ensure its ability to be reimbursed by the federal government for any losses it may incur as a result of future terrorist acts. (See "Terrorism" in the "ONEBEACON" `section of this Item for a further discussion of the Terrorism Act.) A number of additional enacted and pending legislative measures could lead to increased consolidation and increased competition for business and for capital in the financial services industry. White Mountains cannot predict whether any state or federal measures will be adopted to change the nature or scope of the regulation of the insurance business or what effect such measures may have on its insurance and reinsurance operations.

        Environmental cleanup of polluted waste sites is subject to both federal and state regulation. The Comprehensive Environmental Response Compensation and Liability Act of 1980 ("Superfund") and comparable state statutes govern the cleanup and restoration of waste sites by potentially responsible parties ("PRPs"). These laws can impose liability for the entire cost of clean-up upon any responsible party, regardless of fault. The insurance industry in general is involved in extensive litigation regarding coverage issues arising out of the cleanup of waste sites by insured PRPs and as a result has disputed many such claims. From time to time, comprehensive Superfund reform proposals are introduced in Congress, but none has yet been enacted. At this time, it remains unclear as to whether Superfund reform legislation will be enacted or that any such legislation will provide for a fair, effective and cost-efficient system for settlement of Superfund related claims. The NICO Cover includes coverage for such exposures;exposures at OneBeacon; however, there can be no assurance that the coverage provided under the NICO Cover will ultimately prove to be adequate.

Sweden

        In accordance with provisions of Swedish law, Sirius International can voluntarily transfer its pretax earnings, or a portion thereof, subject to certain limitations, into an untaxed reserve referred to as a safety reserve. The safety reserve is a Swedish regulatory concept that has no equivalent under GAAP. Accordingly, under GAAP, an amount equal to Sirius International's safety reserve of $1.1 billion at December 31, 2004, net of the related deferred tax liability established at the statutory Swedish tax rate of 28%, is classified as equity. Generally, this deferred tax liability is only required to be paid by Sirius International if it fails to maintain predetermined levels of premium writings in future years. As a result of the indefinite deferral of these taxes, Swedish regulatory authorities do not apply any taxes to the safety reserve when calculating solvency capital under Swedish insurance regulations.

RATINGS

        Insurance and reinsurance companies are evaluated by various rating agencies in order to measure each company's financial strength. Higher ratings generally indicate financial stability and a stronger

35

---

ability to pay claims. A.M. Best currently rates OneBeacon's, White Mountains Re's and Esurance's principal operating insurance subsidiaries "A" (Excellent), Folksamerica's principal reinsurance operating subsidiary(Excellent, the third highest of fifteen ratings) and NFU "A-" (Excellent) and Fund American Re "A-" (Excellent)(Excellent, the fourth highest of fifteen ratings). White Mountains believes that strong ratings are important factors in the marketing of insurance and reinsurance products to agents and consumers.consumers and ceding companies.

EMPLOYEES

        As of December 31, 2002,2004, White Mountains employed 5,1155,030 persons (consisting of 1265 persons at the Company and its intermediate holding companies, 10 persons at WMU, 70 persons at Fund American Re and 5,0233,868 persons at OneBeacon, 542 persons at White Mountains Re, 542 persons at Esurance and its subsidiaries, including Folksamerica and its subsidiaries)13 persons at the International American Group companies). Management believes that White Mountains has satisfactory relations with its employees.

AVAILABLE INFORMATION

        The Company is subject to the informational reporting requirements of the Exchange Act. In accordance therewith, the Company files reports, proxy statements and other information with the SecuritiesSEC. These documents are available at www.whitemountains.com shortly after such material is electronically filed with or furnished to the SEC. In addition, the Company's code of business conduct and Exchange Commission (the "SEC").ethics as well as the various charters governing the actions of certain of the Company's Committees of its Board of Directors, including its Audit Committee, Compensation Committee and its Nominating and Governance Committee, are available at www.whitemountains.com.

        The Company will provide to any shareholder, upon request and without charge, copies of allthese documents (excluding any applicable exhibits unless specifically requested) filed by the Company with the SEC.. Written or telephone requests should be directed to the Corporate Secretary, White Mountains Insurance Group, Ltd., 80 South Main Street, Hanover, New Hampshire 03755, telephone number (603) 640-2200. Additionally, all such documents are physically available at the Company's registered office at Clarendon House, 2 Church Street, Hamilton, HM 11 Bermuda and are available for viewing at www.whitemountains.com shortly after such material is electronically filed with or furnished to the SEC.Bermuda.

Item 2. Properties

        The Company maintains two professional offices in Hamilton, Bermuda which serve as its headquarters and its registered office. Fund American Re maintains branch officesWhite Mountains Re's headquarters is in Stockholm, Sweden andHamilton, Bermuda with an additional office in Singapore. The home offices of OneBeacon andNew Jersey. Folksamerica are locatedis headquartered in Boston, Massachusetts and New York, New York respectively, with branch offices in various cities throughout the United States. Sirius International is headquartered in Stockholm, Sweden with various branch offices in Europe and Asia. WMU maintains offices in Dublin, Ireland and Hamilton, Bermuda. The home office of OneBeacon is located in Boston, Massachusetts, with branch offices in various cities throughout the United States. Esurance is headquartered in San Francisco, California with various offices throughout the United States. In addition, the Company maintains a professional office in Hanover, New Hampshire which serves as its principal executive office, and an additional professional office in White River Junction, Vermont.Guilford, Connecticut, which houses its investment and corporate finance functions.

        The Company's headquarters, registered office, and principal executive officesoffice and investment and corporate finance office are leased. Fund American Re's branch officesSirius International's home office in Sweden and Singaporesubstantially all of its branch offices, as well as WMU's offices in Ireland and Bermuda are leased. Folksamerica's home office, and its branch offices are leased as well. The home officesoffice of OneBeacon and Folksamerica and most of its branch offices are leased with the exception of branch offices located in New Jersey and New York, which are owned by OneBeacon. Additionally, OneBeacon owns office facilities in Illinois, Pennsylvania and Oregon. Certain leased and owned OneBeacon office locations have been leased or subleased to

Liberty Mutual in connection with the Renewal RightsLiberty Agreement for a period of no more than three years. Management considers its office facilities suitable and adequate for its current level of operations.

Item 3. Legal Proceedings

        White Mountains, and the insurance and reinsurance industry in general, are subject to litigation and arbitration in the normal course of business. Other than those items listed below, White Mountains was not a party to any material litigation or arbitration other than as routinely encountered in claims activity, none of which is expected by management to have a material adverse effect on its financial condition and/or cash flows.

        On December 20, 2002,In November 2004, OneBeacon Insurance Group received a jury in Federal District Court in Arkansas returned a verdict against OneBeacon in a case involving a claim by an insurance agent that its agency agreement had been

36

---

improperly terminated in 1999. The award against OneBeacon consistedsubpoena from the Attorney General of $1.2 million in compensatory damagesthe State of New York requesting documents and $32.6 million in punitive damages. OneBeacon strongly believes there are meritorious grounds for setting aside the verdict and intends to vigorously pursue those matters with the District Court. If necessary, OneBeacon will appealseeking information relating to the U.S. Courtconduct of Appeals forbusiness between insurance brokers and OneBeacon. Subsidiaries of the Eighth Circuit.Company have also received information requests from various state insurance departments regarding producer compensation arrangements. White Mountains believes these requests are part of the ongoing, industry-wide investigation regarding industry sales practices.

        On May 15, 2002, The Robert Plan Corporation and several of its subsidiaries filed a lawsuit against the Company, certain of its subsidiaries and several individuals employed by the subsidiaries. The suit alleges that the defendants misappropriated confidential information of the plaintiffs and used such information to enter into the New York automobile assigned risk business in direct competition with the plaintiffs. The plaintiffs seekhave recently increased their damages demand from $66 million to approximately $120$185 million, in damages which they allege represents threetwo years of their lost profits in the subject business. White Mountains, its named subsidiaries and employees do not believe they engaged in any improper or actionable conduct. At present, White Mountains and its subsidiaries have no reason to believe they have any liability to The Robert Plan Corporation and intend to vigorously defend the lawsuit. In addition, OneBeacon has brought a counterclaim against the plaintiffs that it believes to be meritorious. OneBeacon is seeking compensatory damages of $8.8$9 million as a result of the breach by the plaintiffs of the LAD servicing contract that OneBeacon had entered into with them.

        In DecemberOn January 30, 2001, American Centennialan action was filed in Los Angeles on behalf of Sierra National Life Insurance Holdings, Inc. ("Sierra Holdings", which is not related to the Sierra Group, as previously defined), a dissolved corporation in which White Mountains held a 28.8% interest, against Credit Lyonnais, S.A. and other parties who were the successful bidders for arbitration against Gerling Global International Reinsurancethe assets of Executive Life Insurance Company ("Gerling"ELIC"), a reinsurer of American Centennial, based on Gerling's failure to pay American Centennial amounts due under a reinsurance contract. At December 31, 2002, American Centennial had recorded $22.6 million in recoverables from Gerling under this reinsurance contract, of which $10.2 million is currently due. Approximately $16.7 million of this obligation is collateralized. Gerling may owe American Centennial significantly greater amountsCalifornia insurer, in the future should additional losses which are covered1991 sale of those assets conducted by the reinsurance contract emerge. Gerling has requested the arbitration panelCalifornia Commissioner of Insurance. Sierra Holdings alleged that defendants' acquisition violated both federal and state law and that, but for defendants' wrongful acts, it would have been chosen to rescind the contract aspurchase ELIC's assets. Sierra Holdings settled its claims against Credit Lyonnais and certain other defendants for a total of December 31, 2000 based upon, among other things, White Mountains' acquisition of American Centennial in 1999.$87 million. After expenses, White Mountains American Centennial and their counsel believe that Gerling's claims are meritless and intendshare of the settlement proceeds was approximately $15 million. In addition, a default judgment regarding liability was entered at trial against another defendant, Maaf Assurances, SA, a French mutual insurer. Sierra Holdings is reviewing its options in pursuing damages against Maaf. Finally, in certain circumstances, Sierra Holdings may be entitled to pursue collectionadditional amounts from any settlements or judgments resulting from the ongoing lawsuit by the California Commissioner of any and all amounts due under the Gerling reinsurance contract.Insurance against another defendant, Artemis SA.

        In August 2000, Aramarine Brokerage, Inc. ("Aramarine"), a former insurance broker of OneBeacon's, filed a lawsuit alleging that OneBeacon had wrongfully terminated its business relationship with Aramarine. The suit claimsoriginally claimed $410 million in compensatory damages for lost commissions.commissions, although Aramarine has recently reduced its demand to $158 million. OneBeacon does not believe it has engaged in any actionable conduct, has filedconduct. During 2004, OneBeacon prevailed on a motion for summary judgment and intends to vigorously defenddismiss the lawsuit.plaintiff's claim. OneBeacon expects the plaintiff to appeal the summary judgment upon resolution of OneBeacon's counterclaim for return commission.

Item 4. Submission of Matters to Aa Vote of Security Holders

        There were no matters submitted to a voteAt the Company's 2004 Annual General Meeting of Members, which was held on October 21, 2004 in Hamilton, Bermuda, the Company's Members approved proposals (as further described in the Company's 2004 Proxy Statement) calling for the Election of five of the Company's shareholders duringdirectors to Class I ("Proposal I"), the fourth quarterElection of 2002.Directors of Sirius International Insurance Corporation ("Proposal II"), the Election of Directors of Fund American Reinsurance Company, Ltd. and Scandinavian Reinsurance Company Ltd. ("Proposal III"), the Election of Directors of any new non-United States operating subsidiary ("Proposal IV") and the Approval of Appointment of PricewaterhouseCoopers as the Company's Independent Registered Accounting Firm ("Proposal V"). As of August 27, 2004, the "Record Date" for the 2004 Annual Meeting, a total of 10,769,451 Common Shares were eligible to vote.

37        With respect to Proposals I, II, III and IV, 6,386,624 votes, 6,559,440 votes, 6,557,514 and 6,597,508 votes were cast in favor of the proposals, respectively, and 264,527 votes, 91,711 votes, 93,637 votes and 53,643 votes were withheld, respectively. With respect to Proposal V, 7,800,774 votes were cast in favor of the proposal, 5,971 votes were cast against the proposal and 5,952 votes abstained. These results represent the number of Common Shares voted after taking into consideration the voting cut-back of all holders with 10% or more voting control in accordance with Bye-law 47 of the Company's Bye-laws

---

        In connection with Proposal I, Bruce R. Berkowitz, Steven E. Fass, Edith E. Holiday, Joseph S. Steinberg and Lowndes A. Smith were elected to the Company's Board of Directors with terms ending in 2007. In connection with Proposal II, Messrs. Lars Ek, Fass, Gert Lindberg and Goran Thorstensson were elected to the Board of Directors of Sirius International Insurance Corporation. In connection with Proposal III, Messrs. Fass, Anders Henriksson, Mark Kaplen, Michael E. Maloney, Thorstensson and Michael E. Tyburski were elected to the Board of Directors of Fund American Reinsurance Company, Ltd. and Scandinavian Reinsurance Company Ltd. In connection with Proposal IV, Messrs. Barrette and Fass were elected to any new non-United States operating subsidiary that may be formed by the Company in the future.

Executive Officers of the Registrant and its Subsidiaries (As of March 1, 2005)

Name		Position		Age		Executive officer since
Raymond Barrette		President and CEO		54		1997
John P. Cavoores		Managing Director, President and CEO of OneBeacon		47		2002
Charles B. Chokel		Managing Director of White Mountains Capital, Inc.		51		2002
Steven E. Fass		President and CEO of White Mountains Re		59		2002
David T. Foy		Executive Vice President and Chief Financial Officer		38		2003
John D. Gillespie		President of WM Advisors		45		2001
Robert R. Lusardi		Executive Vice President and Managing Director of White Mountains Capital, Inc.		47		2005
J. Brian Palmer		Chief Accounting Officer		32		2001
Robert L. Seelig		Vice President and General Counsel		36		2002

        All executive officers of the Company and its subsidiaries are elected by the Board for a term of one-year or until their successors have been elected and have duly qualified. Information with respect to the principal occupation and relevant business experience of the Executive Officers follows:

Mr. Barrette was appointed President and CEO of the Company on January 1, 2003 and has been a director since 2000. Mr. Barrette was CEO of OneBeacon from June 2001 to December 2002 and remains its Chairman. Mr. Barrette joined White Mountains Insurance Group in November 1997 as Executive Vice President and Chief Financial Officer. He was President from January 2000 to June 2001. Prior to joining White Mountains, Mr. Barrette had 23 years of experience in the insurance

business, mostly at Fireman's Fund Insurance Company. He is also Chairman of Esurance, Lead Director of Montpelier and a director of several White Mountains subsidiaries.

Mr. Cavoores was appointed Managing Director and President of OneBeacon in December 2001 and was appointed CEO of OneBeacon in September 2003. Mr. Cavoores formerly served as a Managing Director of Fund American from 2000 to June 2001 and as a Managing Director of OneBeacon from June 2001 to December 2001. Prior to joining White Mountains in 2001, Mr. Cavoores served as Chief Operating Officer of Reliance Insurance Group from April 2000 to October 2000, and as President and CEO of National Union Fire Insurance Company (a wholly-owned subsidiary of American International Group) from May 1998 to April 2000. He was with Chubb Corporation from 1979 to 2000 in a variety of capacities, most recently as their Chief Underwriting Officer of worldwide specialty business.

Mr. Chokel has served as Managing Director of White Mountains Capital, Inc. since September 2003. Prior to that he served as Managing Director and Chief Administrative Officer of OneBeacon since January 2003 and as Managing Director since March 2002. Prior to joining OneBeacon, Mr. Chokel served as Executive Vice President and Chief Financial Officer of Conseco, Inc. from March 2001 to March 2002 and as Co-CEO of The Progressive Corporation from January 1999 to January 2001. Mr. Chokel was with Progressive since 1978. He is also a director of other White Mountains subsidiaries.

Mr. Fass has been a director of the Company since 2000. Mr. Fass has served as President and CEO of White Mountains Re since May 2004. Mr. Fass previously served as President and CEO of Folksamerica and its subsidiaries from 1984 to 2004. He joined Folksamerica as its Vice President, Treasurer and Chief Financial Officer in 1980. Mr. Fass also serves as Chairman of Folksamerica, a director of White Mountains Re and is a director of other White Mountains subsidiaries.

Mr. Foy was appointed Executive Vice President and Chief Financial Officer of the Company in April 2003. Prior to joining White Mountains in 2003, Mr. Foy served as Senior Vice President and Chief Financial Officer of Hartford Life Inc. and joined that company in 1993. Prior to joining Hartford Life, Mr. Foy was with Milliman and Robertson, an actuarial consulting firm. Mr. Foy also serves as the Chairman of Symetra.

Mr. Gillespie has served as a Deputy Chairman of the Company since January 2003 and serves as Chairman and President of WM Advisors. Mr. Gillespie served as Managing Director of OneBeacon from June 2001 to March 2003 and has been a director of the Company since 1999. He is also the founder and Managing Partner of his own investment firm, Prospector Partners, LLC ("Prospector"). Prior to forming Prospector, Mr. Gillespie was President of the T. Rowe Price Growth Stock Fund and the New Age Media Fund, Inc. Mr. Gillespie serves as a director of Montpelier, Symetra and certain White Mountains subsidiaries. Mr. Gillespie's father, George Gillespie, is Chairman of the Company.

Mr. Lusardi was appointed Executive Vice President and Managing Director of White Mountains Capital, Inc. in February 2005. Prior to joining White Mountains, Mr. Lusardi was an Executive Vice President of XL Capital Ltd, most recently as Chief Executive of Financial Products and Services. Prior to joining XL Capital Ltd, Mr. Lusardi was a Managing Director at Lehman Brothers, where he was employed from 1980 to 1998.

Mr. Palmer has served as Chief Accounting Officer since June 2001 and previously served as Controller of a subsidiary of White Mountains from 1999 to 2001. Prior to joining White Mountains in 1999, Mr. Palmer was with PricewaterhouseCoopers LLP.

Mr. Seelig is Vice President and General Counsel of the Company. Prior to joining White Mountains in September 2002, Mr. Seelig was with the law firm of Cravath, Swaine & Moore.

PART II

Item 5. Market for the Company's Common Equity, and Related Shareholder Matters and Issuer Purchase of Equity Securities

        As of March 21, 2003,February 15, 2005, there were 467394 registered holders of Common Shares, of the Company, par value $1.00 per share.

        During each of 20022004 and 20012003 the Company declared and paid cash dividends on Common Shares of $1.00 per Common Share. The Company's dividend payment policy provides for an annual dividend payable in the first quarter of each year, dependent on the Company's financial position and the regularity of its cash flows.

        Common Shares (symbol WTM) are listed on the New York Stock Exchange.Exchange (symbol WTM) and the Bermuda Stock Exchange (symbol WTM-BH). The quarterly range of the daily closing price for Common Shares during 20022004 and 20012003 is presented below:

			2002						2001
			High			Low			High			Low
Quarter ended:
	December 31		$	334.50		$	284.50		$	369.99		$	330.00
	September 30			340.00			285.00			376.00			315.50
	June 30			378.00			316.50			391.00			304.01
	March 31			352.98			326.50			328.50			290.00

			2004						2003
			High			Low			High			Low
Quarter ended:
	December 31		$	659.00		$	501.00		$	461.00		$	413.00
	September 30			526.00			467.00			416.75			362.00
	June 30			553.80			476.10			420.50			340.00
	March 31			524.50			453.50			340.00			311.70

38        As permitted by the agreement governing the Company's outstanding options to acquire Common Shares ("Options"), the Company accepted 97 common shares in partial satisfaction of the strike price relating to the exercise of 435 Options during the 2004 fourth quarter. The Common Shares received by the Company were valued at the applicable New York Stock Exchange closing price on the day of exercise ($629.75 per Common Share).

---

Item 6. Selected Financial Data

        Selected consolidated income statement data and ending balance sheet data for each of the five years ended December 31, 2002,2004, follows:

			Year Ended December 31,																	Year Ended December 31,
Millions, except share and per share amounts
			2002			2001(a)			2000(b)			1999(c)			1998(d)
$ in millions, except share and per share amounts																		$ in millions, except share and per share amounts		Year Ended December 31,
Income Statement Data:	Income Statement Data:																	Income Statement Data:
Revenues	Revenues		$	4,185		$	3,234		$	851		$	548		$	366		Revenues		$	4,553		$	3,794		$	4,208		$	3,234		$	851
Expenses	Expenses			4,066			3,662			493			418			311		Expenses			4,305			3,422			4,089			3,662			493
Pretax earnings (loss)	Pretax earnings (loss)			119			(428	)		358			130			55		Pretax earnings (loss)			248			372			119			(428	)		358
	Income tax (provision) benefit			(11	)		179			(43	)		(42	)		(20	)	Income tax (provision) benefit			(47	)		(127	)		(11	)		179			(43	)
	Accretion and dividends on preferred stock of subsidiaries			(41	)		(23	)		—			—			—		Accretion and dividends on preferred stock of subsidiaries			—			(21)	(j)		(41	)		(23	)		—
	Equity in earnings (loss) of unconsolidated affiliates			14			1			(2	)		20			16		Equity in earnings (loss) of unconsolidated affiliates			37			57			14			1			(2	)
Net income (loss) from continuing operations	Net income (loss) from continuing operations			81			(271	)		313			108			51		Net income (loss) from continuing operations			238			281			81			(271	)		313
	Net income from discontinued operations			—			—			95			13			28		Net income from discontinued operations			—			—			—			—			95	(b)
	Cumulative effect of changes in accounting principles			660	(l)		—			—			—			—		Cumulative effect of changes in accounting principles			—			—			660	(i)		—			—
	Extraordinary gains			7			12			—			—			—		Extraordinary gains			181	(k)		—			7			12			—
Net income (loss)	Net income (loss)		$	748		$	(259	)	$	408		$	108		$	59		Net income (loss)		$	419		$	281		$	748		$	(259	)	$	408
Net income (loss) from continuing operations per share:	Net income (loss) from continuing operations per share:																	Net income (loss) from continuing operations per share:
	Basic		$	7.47		$	(86.52	)	$	53.08		$	19.25		$	8.71		Basic		$	24.05		$	26.48		$	7.47		$	(86.52	)	$	53.08
	Diluted		$	6.80		$	(86.52	)	$	52.84		$	17.66		$	7.75		Diluted		$	22.67		$	23.63		$	6.80		$	(86.52	)	$	52.84
Balance Sheet Data:	Balance Sheet Data:																	Balance Sheet Data:
Total assets	Total assets		$	16,034		$	16,610		$	3,545		$	2,049		$	2,164		Total assets		$	19,015		$	15,882		$	17,267		$	18,410		$	3,545
Short-term debt	Short-term debt			33			358			—			4			52		Short-term debt			—			—			33			358			—
Long-term debt	Long-term debt			760			767			96	(e)		203			186		Long-term debt			783			743			760			767			96
Deferred credits	Deferred credits			—	(l)		683(f	)		92			101(g	)		37		Deferred credits			—			—			—	(i)		683	(c)		92
Convertible preference shares	Convertible preference shares			219			—			—			—			—		Convertible preference shares			—			—			219			—			—
Mandatorily redeemable preferred stock of subsidiaries	Mandatorily redeemable preferred stock of subsidiaries			181			170			—			—			—		Mandatorily redeemable preferred stock of subsidiaries			212			195	(j)		181			170			—
Common shareholders' equity(h)				2,408			1,445			1,046			614			703
Book value per share(i)			$	254.52		$	160.36		$	177.07		$	103.32		$	109.68
Common shareholders' equity(d)																		Common shareholders' equity(d)			3,884			2,979			2,408			1,445			1,046
Book value per share(e)																		Book value per share(e)		$	349.60		$	293.15		$	254.52		$	160.36		$	177.07
Fully converted tangible book value per share(j)(f)	Fully converted tangible book value per share(j)(f)		$	258.82		$	225.81		$	187.65		$	120.23		$	115.11		Fully converted tangible book value per share(j)(f)		$	342.52		$	291.27		$	258.82		$	225.81		$	187.65
Share Data:	Share Data:																	Share Data:
Cash dividends paid per Common Share	Cash dividends paid per Common Share		$	1.00		$	1.00		$	1.20		$	1.60		$	1.60		Cash dividends paid per Common Share		$	1.00		$	1.00		$	1.00		$	1.00		$	1.20
Ending Common Shares (000's)(g)	Ending Common Shares (000's)(g)			8,351			8,245			5,880			5,946			5,829		Ending Common Shares (000's)(g)			10,773			9,007			8,351			8,245			5,880
Ending equivalent Common Shares (000's)(k)(h)	Ending equivalent Common Shares (000's)(k)(h)			2,455			1,803			81			—			1,002		Ending equivalent Common Shares (000's)(k)(h)			47			1,775			2,455			1,803			81
Ending Common and equivalent Common Shares (000's)	Ending Common and equivalent Common Shares (000's)			10,806			10,048			5,961			5,946			6,831		Ending Common and equivalent Common Shares (000's)			10,819			10,782			10,806			10,048			5,961

---

(a)

Includes the acquisition of OneBeacon on June 1, 2001 and its results of operations from that date through December 31, 2001. In connection with the OneBeacon Acquisition, White Mountains issued $1,085 million in debt. White Mountains also issued preferred stock of subsidiaries, warrants to acquire Common Shares and Convertible Preference Shares for total proceeds of $758 million.

39

---

(b)

IncludesRelates to a tax reserve release associated with the acquisitions of PCA and Risk Capital as well as the gain on the1991 sale of White Mountains Holdings, Inc., which controlled a substantial portion of White Mountains' holdings in Financial Security Holdings, Ltd. ("FSA"), to Dexia S.A. (the "FSA Sale").Fireman's Fund Insurance Company.

(c)

Includes gains resulting from the sale of Valley Group, Inc. ("VGI") and the sale of substantially all the mortgage banking assets of White Mountains Services Corporation.

(d)

Includes the interim period income statement and ending balance sheet of Folksamerica which was initially consolidated by the Company during 1998.

(e)

Reflects a significant repayment of debt by Folksamerica during 2000.

(f)

Deferred credits added during 2001 resulted from the purchase of OneBeacon. See Note 2.

(g)(d)

Deferred credits added during 1999 resulted principally from the purchase of the International American Group.

(h)

Reflects reductions in common shareholders' equity resulting from significant repurchases of Common Shares from 1998 to 1999 and an increase in common shareholders' equityIncrease in 2001 resulting fromincluded effects of capital raising activities undertaken in connection with the OneBeacon Acquisition. See Note 2. Also reflects an increase in shareholders' equityIncrease in 2002 resulting fromincluded the recognition of $660 million in net deferred credits as a result of a change in accounting principles. See Note 1.

(i)(e)

Includes the dilutive effects of outstanding optionsOptions and, for years prior to 2004, warrants to acquire Common Shares.

(j)(f)

Book value per share plus unamortized deferred credits less goodwill and the equity in net unrealized gains from Symetra's fixed income portfolio per Common and equivalent Common Share. The 2002 fully converted tangible book value per share assumes outstanding convertible preference shares to be equivalent Common Shares.

(k)(g)

During 2003, 677,966 Common Shares were issued in satisfaction of Convertible Preference Shares. During 2004, 1,724,200 Common Shares were issued in satisfaction of warrants exercised.

(h)

Includes outstanding convertible preference shares, optionsConvertible Preference Shares, Options and warrants to acquire Common Shares.Shares, when applicable.

(l)(i)

In accordance with its adoption of Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" ("SFAS 141"), the Company recognized all of its outstanding deferred credits on January 1, 2002. See Note 1.

(j)

In accordance with its adoption of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"), on July 1, 2003, the Company reclassified its outstanding mandatorily redeemable preferred stock from mezzanine equity to liabilities on its balance sheet and, beginning in the third quarter of 2003, White Mountains began presenting all accretion and dividends on its mandatorily redeemable preferred stock as interest expense. See Note 1.

(k)

Extraordinary gains in 2004 resulted from the excess of the fair value over the cost of net assets acquired in the Sirius, Symetra, Tryg-Baltica and Sierra transactions.

(l)

For a description of the historical factors affecting OneBeacon's loss and LAE reserves prior to the OneBeacon Acquisition, see "Non-Asbestos and Environmental Reserves" under the caption "Loss and Loss Adjustment Expense Reserves" in the "OneBeacon" section of the business description contained within the Company's Amendment No. 6 to Form S-3 dated July 17, 2003 (the "Form S-3"). Such portion of the Form S-3 is incorporated by reference into this Form 10-K.

40

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Within the following discussion, "Investment results" represents comprehensive net income provided by after-tax investment income, realized and unrealized investment gains and losses. "Underwriting results" represents comprehensive net income (losses) provided by after-tax insurance and/or reinsurance results only (i.e., earned premiums and other revenues related to insurance and reinsurance operations less losses and LAE, insurance and reinsurance acquisition expenses and general and administrative expenses). References made to OneBeacon's operations relating to periods prior to the Acquisition have been made solely to illustrate significant trends and changes in OneBeacon's business that have occurred post-Acquisition. White Mountains' reported results for periods prior to June 1, 2001 did not include the financial results of OneBeacon.

        The following discussion contains "forward-looking statements". White Mountains intends statements which are not historical in nature, and are hereby identified as forward-looking statements, to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. White Mountains cannot promise that its expectations in such forward-looking statements will turn out to be correct. White Mountains' actual results could be materially different from and worse than its expectations. See "Forward-Looking Statements" "FORWARD-LOOKING STATEMENTS"for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.

The following discussion also includes two non-GAAP financial measures, adjusted comprehensive net income and fully converted tangible book value per share, that have been reconciled to their most comparable GAAP financial measures (see page 55). White Mountains believes these measures to be more relevant than comparable GAAP measures in evaluating White Mountains' financial performance.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002

Overview

        White Mountains ended 2004 with a fully converted tangible book value per Common Share of $343, which represents an increase of 18% (including dividends) over the fully converted tangible book value per Common Share of $291 as of December 31, 2003. During 2003, fully converted tangible book value per Common Share increased by 13% (including dividends) from $259 as of December 31, 2002.

        Adjusted comprehensive net income was $539 million for 2004, compared to $360 million in 2003. Net income for 2004 was $419 million, compared to $281 million in 2003.

        The growth in book value was driven by strong investment results, particularly equities which returned 20%, and $180 million in transaction gains. This more than offset the impact of higher than expected losses from catastrophes and prior year reserve development. The growth in earnings was primarily driven by the transaction gains as both 2004 and 2003 had strong investment results.

        All three business segments performed well. OneBeacon's combined ratio in 2004 was 99%, the second consecutive year it was below 100%, and Esurance earned a profit for the first time in 2004. White Mountains Re had a combined ratio of 104% due to 11 points from catastrophes. However, the segment contributed $140 million in transaction gains and therefore was a significant contributor to the Company's growth in book value for the year.

Fully Converted Tangible Book Value Per Share

        The following table presents the Company's tangible book value per share for the years ended December 31, 2004, 2003, and 2002 2001 AND 2000and reconciles this non-GAAP measure to the most comparable GAAP measure.

			December 31,
			2004			2003			2002
Book value per share numerators (in millions):
Common shareholders' equity			$	3,883.9		$	2,979.2		$	2,407.9
	Proceeds from assumed exercise of outstanding warrants			—			300.0			300.0
	Benefits to be received from share obligations under employee benefit plans			6.7			7.0			8.8
	Remaining accretion of subsidiary preferred stock to face value			(108.1	)		(125.5	)		(139.1	)
Book value per share numerator				3,782.5			3,160.7			2,577.6
	Equity in net unrealized gains from Symetra's fixed maturity portfolio			(56.6	)		—			—
	Assumed conversion of convertible preference shares to Common Shares			—			—			219.0
	Unamortized goodwill of consolidated limited partnerships			(20.0	)		(20.3	)		—
Fully converted tangible book value per common and equivalent share numerator			$	3,705.9		$	3,140.4		$	2,796.6
Book value per share denominators (in millions):
Common Shares outstanding				10,772.8			9,007.2			8,351.4
	Common Shares issuable upon exercise of outstanding warrants			—			1,724.2			1,714.3
	Share obligations under employee benefit plans			46.6			50.6			61.9
Book value per share denominator				10,819.4			10,782.0			10,127.6
	Assumed conversion of convertible preference shares to Common Shares			—			—			678.0
Fully converted tangible book value per common and equivalent share denominator				10,819.4			10,782.0			10,805.6
Book value per share			$	349.60		$	293.15		$	254.52
Fully converted tangible book value per common and equivalent share				342.52			291.27			258.82

Review of Consolidated Results

        A tabular summary of White Mountains' consolidated financial results for the years ended December 31, 2004, 2003 and 2002 2001 and 2000 follows:

			Year Ended December 31,
Millions, except per share amounts
			2002			2001(2)			2000
Total revenues			$	4,185.4		$	3,234.4		$	850.9
Total expenses				4,066.0			3,661.9			492.8
Net income (loss)				748.1			(259.3	)		407.9
Comprehensive net income (loss)				950.4			(301.8	)		447.6
Diluted net income (loss) per share:			$	80.75		$	(84.75	)	$	68.89
Book Value per Common and equivalent Common Share:
	Book value per share		$	254.52		$	160.36		$	177.07
	Fully converted tangible book value per share			258.82	(1)		225.81			187.65

---

(1)

Fully converted tangible book value per share assumes outstanding convertible preference shares to be equivalent Common Shares.

(2)

Includes OneBeacon's results from June 1, 2001, the date of the Acquisition.

				Year Ended December 31,
Millions
				2004			2003			2002
	Gross written premiums			$	4,792.1		$	3,823.4		$	4,421.6
	Net written premiums			$	3,904.8		$	3,007.7		$	3,293.5
Revenues
	Earned insurance and reinsurance premiums			$	3,820.5		$	3,137.7		$	3,576.4
	Net investment income				360.9			290.9			366.0
	Net realized investment gains				181.1			162.6			156.0
	Other revenue				190.5			202.6			109.5
		Total revenues			4,553.0			3,793.8			4,207.9
Expenses
	Losses and LAE				2,591.1			2,138.1			2,638.2
	Insurance and reinsurance acquisition expenses				743.5			615.0			804.3
	Other underwriting expenses				521.3			347.1			401.7
	General and administrative expenses				309.3			201.8			92.7
	Accretion of fair value adjustment to loss and LAE reserves				43.3			48.6			79.8
	Interest expense—debt				49.1			48.6			71.8
	Interest expense—dividends and accretion on preferred stock subject to mandatory redemption				47.6			22.3			—
		Total expenses			4,305.2			3,421.5			4,088.5
Pretax income				$	247.8		$	372.3		$	119.4
	Income tax expense				(47.0	)		(127.6	)		(11.7	)
	Accretion and dividends on mandatorily redeemable preferred stock of subsidiaries				—			(21.5	)		(40.9	)
	Equity in earnings of unconsolidated affiliates				37.4			57.4			14.0
Net income before accounting changes and extraordinary items				$	238.2		$	280.6		$	80.8
	Excess of fair value of acquired net assets over cost				180.5			—			7.1
	Cumulative effect of changes in accounting principles				—			—			660.2
Net income				$	418.7		$	280.6		$	748.1
	Other comprehensive income				176.5			79.0			202.3
Comprehensive net income				$	595.2		$	359.6		$	950.4
Less: Change in net unrealized gains from Symetra's fixed maturity portfolio					(56.6	)		—			—
Adjusted comprehensive net income				$	538.6		$	359.6		$	950.4

Consolidated Results—Year Ended December 31, 2004 versus Year Ended December 31, 2003

        White Mountains' total revenues increased by 20% in 2004 compared to 2003. Growth in revenues was driven by the 22% increase in earned premiums due to the Sirius Acquisition and Atlantic Specialty transactions. Net investment income grew 24% in 2004 primarily due to the income earned on the additional invested assets acquired in the Sirius Acquisition offset by decreased net invested assets at OneBeacon.

        White Mountains' total expenses grew 26% for 2004 as loss and LAE, insurance acquisition and underwriting expenses were all up due to the Sirius Acquisition and Atlantic Specialty transactions. General and administrative costs were up 53% in 2004, primarily due to an increase in incentive compensation accruals, which were driven by a 41% rise in White Mountains' stock price during the year. White Mountains ended 2002 with a fully converted tangible book value per Common Shareexpenses its full cost of $258.82, which represents a 15% increase over the fully converted tangible book value per Common Share of $225.81 as of December 31, 2001 (which includes the recognition of unamortized deferred creditall incentive compensation programs. This expense is spread among loss and goodwill balances at that time). Investment gainsLAE, other underwriting expense and improved underwriting results in itsgeneral and administrative expense for White Mountains' insurance and reinsurance operating subsidiaries, contributed todepending upon the function of the employees being compensated. For Other Operations, it is entirely included in general and administrative expenses.

        White Mountains' increasenet income in book value and2004 also benefitted from $181 million in fully converted tangible book value during 2002. White Mountains' return on equity in 2002 was 15.1% as measured bytransaction gains: $111 million from the Company's growth in its fully converted tangible book value per share plus dividends.

        OneBeacon's resultsSirius Acquisition, $41 million for the year endedSymetra investment, $20 million from the Tryg-Baltica acquisition and $9 million from the Sierra Group acquisition.

Consolidated Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002 reflected improvements over 2001 results. Steps taken since June 1, 2001

        White Mountains' total revenues decreased by 10% in 2003 compared to improve the business, favorable market conditions and good weather have all contributed to this improvement. OneBeacon's core trade ratio (as defined2002, as an increase in the

41

---

"Summary of Operationsearned reinsurance premiums at Folksamerica was more than offset by Segment,a decrease in earned insurance premiums at OneBeacon Underwriting Results" section below) improved to 98% for 2002, versus 116% for the year ended December 31, 2001 (which included approximately five points as a result of the terrorist attacks of September 11, 2001, "the Attacks"). OneBeacon's overall trade ratio (which includes business subjecttransferred to Liberty Mutual under the Liberty Agreement. Total revenues in 2003 were also impacted by decreased net investment income due to the Renewal Rights Agreementrun-off of loss reserves from OneBeacon's other businesses as well as the reduced interest rate environment. The decline in total revenues in 2003 was partially offset by an increase in other revenues, primarily as a result of $50 million in gains recorded during 2003 related to the sale of several real estate properties previously written-off under purchase accounting for OneBeacon and certaina $30 million increase in fees and commissions for business placed by WMU.

        Total expenses decreased by 16% in 2003 as compared to 2002, as loss and LAE, as well as insurance acquisition and other insurance products)underwriting expenses, decreased at OneBeacon as a result of improved to 109% for 2002, versus 120% forunderwriting performance on its on-going businesses and as the year ended December 31, 2001 (which included approximately three pointscontinued run-off of unprofitable business through the Liberty Agreement. In addition, interest expense on debt decreased 32% in 2003 as a result of the Attacks). White Mountains expects OneBeacon's operations, particularly its core operations,repayment of the $260 million of debt in November 2002 and the refinancing of $700 million of debt in May 2003. Also contributing to the decrease in expenses was a decrease in the accretion of the fair value adjustment to the reserves acquired as part of the OneBeacon Acquisition. This accretion will continue to improvedecrease as those acquired reserves are paid over time. Partially offsetting these expense decreases was an increase in general and administrative expense of $109 million in 2003 asover 2002, primarily due to an increase in incentive compensation accruals, which were driven by a 42% rise in White Mountains' stock price during 2003.

Income Taxes

        The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries. The majority of the effects of better pricing, underwriting and claims management continue to emerge and as businessCompany's worldwide operations are taxed in the United States. Income earned or losses incurred by non-U.S. companies will generally be subject to an overall effective tax rate lower than that imposed by the Renewal Rights Agreement continues to be reduced. In 2003, OneBeacon expects to generate an underwriting profit by taking advantage of its strong balance sheet and the hard market which exists in many sectors.United States.

        Folksamerica'sThe income tax provision related to pretax earnings for 2004, 2003 and 2002 represents an effective tax rate of 19.0%, 34.3% and 9.8%, respectively. White Mountains' effective tax rate for 2004 was lower than the U.S. statutory combined ratio, as adjusted to includerate of 35% primarily from income generated in jurisdictions other than the favorable effectsUnited States and from the recognition of retroactive reinsurance, improved to 99%foreign tax credits, offset by taxes incurred from an internal restructuring of the company. White Mountains' effective tax rate for 2002 was lower than the U.S. statutory rate of 35% primarily from 120% for 2001 (which included twelve points of catastrophe losses, including approximately six points as a result ofincome generated in jurisdictions other than the Attacks). The statutory combined ratio for 2002 included three points of catastrophe losses, mainly due to $9.7 million of additional losses related to the Attacks and $6.6 million of net incurred losses related to European floods during the third quarter of 2002. Aside from the lower level of incurred catastrophe losses, the improvement in Folksamerica's 2002 results is attributable to the continuing positive trends in reinsurance pricing, terms and conditions that began before, and became more dramatic after, the Attacks. White Mountains expects the favorable trends in Folksamerica's operations to continue in 2003 as the effects of better prices, terms and conditions are further reflected in its underwriting results. White Mountains also expects to experience favorable results in 2003 from its other reinsurance operations (consisting of Fund American Re, WMU and its investment in Montpelier) as they continue to develop under favorable market conditions.United States.

42

---

        A summary of White Mountains' after-tax comprehensive net income for the years ended December 31, 2002, 2001 and 2000 follows:

			Year Ended December 31,
Millions
			2002			2001			2000
Underwriting results by segment:
	OneBeacon		$	(137.3	)	$	(426.3	)	$	—
	Reinsurance			23.1			(87.3	)		(59.6	)
	Other operations			(29.8	)		(27.4	)		(1.1	)
Consolidated underwriting results				(144.0	)		(541.0	)		(60.7	)
Investment results by segment:
	OneBeacon			439.5			220.9			—
	Reinsurance			156.5			31.5			64.7
	Other operations			(15.1	)		19.8			32.0
Consolidated investment results				580.9			272.2			96.7
Holding company and financing activities—other operations				(153.8	)		(141.2	)		370.2
Recognition of net deferred credits by segment:
	Reinsurance			27.2			30.7			19.3
	Other operations			640.1			77.5			22.1
Consolidated recognition of net deferred credits				667.3			108.2			41.4
Comprehensive net income (loss) by segment:
	OneBeacon			302.2			(205.4	)		—
	Reinsurance			206.8			(25.1	)		24.4
	Other operations			441.4			(71.3	)		423.2
Consolidated comprehensive net income (loss)			$	950.4		$	(301.8	)	$	447.6

I. Summary of Operations By Segment

        White Mountains conducts its operations through three distinctfour segments: (i) "OneBeacon", (ii) "White Mountains Re" (consisting solelyprimarily of the operations of OneBeacon)Folksamerica, Sirius and WMU), (ii) "Reinsurance" (consisting of Folksamerica, Fund American Re, WMU(iii) "Esurance" and White Mountains' investment in Montpelier) and (iii)(iv) "Other Operations" (consisting of Peninsula, American Centennial, British Insurance Company, Esurance and the operations of the Company and its intermediate subsidiary holding companies).companies, White Mountains' segment information is presentedinvestments in Note 13 toits Montpelier and Symetra warrants and the Consolidated Financial Statements.International American Group). White Mountains manages all of its consolidated investments through its wholly owned subsidiary, White Mountains Advisors LLC ("WM Advisors"), therefore, a discussion of White Mountains' consolidated investment resultsoperations is provided belowincluded after the segmented operating results discussion.discussion of operations by segment. White Mountains' segment information is presented in Note 13 to the Consolidated Financial Statements.

OneBeacon

        Financial results for OneBeacon reported comprehensive net income of $302.2 million for the yearyears ended December 31, 2004, 2003 and 2002 consisting of $439.5 million of comprehensive net income from investment results, offset by a net underwriting loss of $137.3 million. OneBeacon's comprehensive net loss was $205.4 million for the seven months ended December 31, 2001, which consisted of a net underwriting loss of $426.3 million, offset by $220.9 million in comprehensive net income from investment results.follows:

43

---

				Year Ended December 31,
Millions
				2004			2003			2002
	Gross written premiums			$	2,657.5		$	2,250.9		$	3,351.6
	Net written premiums			$	2,459.1		$	1,972.5		$	2,522.8
	Earned insurance and reinsurance premiums			$	2,378.5		$	2,160.3		$	2,870.9
	Net investment income				221.4			223.7			314.0
	Net realized investment gains				129.6			127.0			113.0
	Other revenue				141.8			90.5			14.4
		Total revenues			2,871.3			2,601.5			3,312.3
	Losses and LAE				1,545.2			1,475.6			2,131.3
	Insurance and reinsurance acquisition expenses				442.3			394.2			629.6
	Other underwriting expenses				369.2			258.7			329.2
	General and administrative expenses				122.2			67.6			22.4
	Interest expense on debt				1.0			.3			—
		Total expenses			2,479.9			2,196.4			3,112.5
Pretax earnings				$	391.4		$	405.1		$	199.8

Underwriting Results

        The following tables provide the underwriting results of OneBeacon's four underwriting sub-segments for the twelve months ended December 31, 2002 and for the seven months ended December 31, 2001:

		OneBeacon
Twelve Months Ended December 31, 2002 Millions
		Personal			Commercial			Specialty			Total Core			Non-Core			Total
Net written premiums		$	1,092.1		$	454.6		$	284.1		$	1,830.8		$	692.0		$	2,522.8
Earned insurance premiums		$	1,015.5		$	527.4		$	253.4		$	1,796.3		$	1,074.6		$	2,870.9
Loss and LAE			(714.3	)		(351.9	)		(143.3	)		(1,209.5	)		(921.8	)		(2,131.3	)
Insurance acquisition expenses			(160.4	)		(75.2	)		(67.6	)		(303.2	)		(325.9	)		(629.1	)
Other underwriting expenses			(103.5	)		(72.2	)		(28.2	)		(203.9	)		(120.0	)		(323.9	)
Net pre-tax underwriting gain (loss)		$	37.3		$	28.1		$	14.3		$	79.7		$	(293.1	)	$	(213.4	)
Income tax benefit from underwriting results																		76.1
Comprehensive net loss from underwriting																	$	(137.3	)

		OneBeacon
Seven Months Ended December 31, 2001 Millions
		Personal			Commercial			Specialty			Total Core			Non-Core			Total
Net written premiums		$	513.2		$	358.0		$	139.8		$	1,011.0		$	867.2		$	1,878.2
Earned insurance premiums		$	521.5		$	427.5		$	127.0		$	1,076.0		$	1,132.2		$	2,208.2
Loss and LAE			(444.7	)		(449.6	)		(79.9	)		(974.2	)		(1,099.6	)		(2,073.8	)
Insurance acquisition expenses			(87.5	)		(77.8	)		(26.3	)		(191.6	)		(211.6	)		(403.2	)
Other underwriting expenses			(53.1	)		(100.6	)		(16.0	)		(169.7	)		(238.8	)		(408.5	)
Net pre-tax underwriting gain (loss)		$	(63.8	)	$	(200.5	)	$	4.8		$	(259.5	)	$	(417.8	)	$	(677.3	)
Income tax benefit from underwriting results																		251.0
Comprehensive net loss from underwriting																	$	(426.3	)

44

---

        The following tables provide OneBeacon's tradeGAAP ratios, for the twelve months ended December 31, 2002 and comparative trade ratios for the twelve months ended December 31, 2001.

		OneBeacon
Twelve Months Ended December 31, 2002		Personal		Commercial		Specialty		Total Core		Non-Core		Total
Trade Ratios(a),(b):
Loss and LAE		69	%	67	%	57	%	66	%	86	%	74	%
Expense		29	%	36	%	33	%	32	%	40	%	35	%
Total		98	%	103	%	90	%	98	%	126	%	109	%

		OneBeacon
Twelve Months Ended December 31, 2001		Personal		Commercial		Specialty		Total Core		Non-Core		Total
Trade Ratios (a),(b):
Loss and LAE		84	%	92	%	64	%	85	%	90	%	88	%
Expense		26	%	35	%	35	%	31	%	34	%	32	%
Total		110	%	127	%	99	%	116	%	124	%	120	%

---

(a)

The trade ratio is a modified statutory combined ratio. A statutory combined ratio is calculated by adding (i) the ratio of incurred loss and LAE to earned premiums (the "loss and LAE ratio") and (ii) the ratio of commissions, premium taxes and other underwriting expenses, including general and administrative expenses, to written premiums (the "expense ratio"). In calculating OneBeacon's trade ratio, the expense ratio is modified by dividing certain other underwriting expenses, including general and administrative expenses, by earned premiums rather than written premiums. OneBeacon believes that the trade ratio is the best measure of the underwriting performance of its business because it relates the elements of the expense ratio relating to the cost of producing the business tonet written premiums and the elements relating to the cost of operating the business to earned premiums. For purposes of the trade ratio, fees earned by AutoOne Insurance,insurance premiums for OneBeacon's limited assignment distribution businessongoing businesses and in New York, have been reflected as a reduction of net loss and LAE incurred. Statutory accounting principles reflect such fees as a reduction of general and administrative expenses.

(b)

A GAAP combined ratio is calculated by adding (i) the loss and LAE ratio and (ii) the ratio of acquisition and other expenses to earned premiums. The GAAP combined ratio differs from the trade ratio in the expense ratio calculation. The GAAP combined ratio measures all expenses to earned premiums whereas the trade ratio measures acquisition costs to written premiums. Additionally, GAAP results record fees earned by AutoOne Insurance as premiums as compared to reduction of net loss and LAE incurred for trade ratio purposes. The GAAP combined ratio also reflects differences between statutory accounting principles and GAAP, such as in accounting for deferred acquisition costs, pensions and post-retirement benefits and certain purchase accounting adjustments. Also, during 2002, GAAP curtailment gains on OneBeacon's pension and retiree health care plans are not included in the trade ratio. OneBeacon's total GAAP combined ratio for the years ended December 31, 20022004, 2003, and 2001 was 107%2002:

Twelve Months Ended December 31, 2004			Specialty			Personal			Commercial			Total(1)
GAAP Ratios:
Loss and LAE				59	%		62	%		56	%		65	%
Expense				31	%		32	%		41	%		34	%
	Total Combined			90	%		94	%		97	%		99	%
Dollars in millions
Net written premiums			$	848.5		$	724.7		$	807.1		$	2,459.1
Earned insurance premiums			$	812.0		$	723.8		$	703.3		$	2,378.5

Twelve Months Ended December 31, 2003			Specialty			Personal			Commercial			Total(1)
GAAP Ratios:
Loss and LAE				54	%		61	%		61	%		68	%
Expense				32	%		30	%		34	%		30	%
	Total Combined			86	%		91	%		95	%		98	%
Dollars in millions
Net written premiums			$	733.7		$	676.8		$	426.7		$	1,972.5
Earned insurance premiums			$	694.9		$	744.7		$	432.0		$	2,160.3

Twelve Months Ended December 31, 2002			Specialty			Personal			Commercial			Total(1)
GAAP Ratios:
Loss and LAE				64	%		71	%		67	%		74	%
Expense				28	%		26	%		33	%		33	%
	Total Combined			92	%		97	%		100	%		107	%
Dollars in millions
Net written premiums			$	696.6		$	845.2		$	454.6		$	2,522.8
Earned insurance premiums			$	564.3		$	871.3		$	527.4		$	2,870.9

---

(1)

Includes results from reciprocals (consolidated beginning April 1, 2004) and 123%, respectively.run-off operations. Results from reciprocals are net of business assumed by OneBeacon, which is contained in Personal Lines.

        OneBeacon's underwriting results for the year endedOneBeacon Results—Year Ended December 31, 2002 improved from those for the seven months after the date of the Acquisition. Improved pricing and other market conditions, mild weather and actions taken since the Acquisition have contributed to the improvements. Additionally, OneBeacon shifted its commercial lines business mix away from historically less profitable lines, such as workers compensation and its contractors book within commercial multiple peril. Workers compensation represented 14% of OneBeacon's total commercial lines net written premiums in 2002, down from 20% in 2001. OneBeacon's contractors book represented 17% of total commercial multiple peril lines net written premiums in 2002, down from 21% in 2001. Regional premium writings declined

45

---

further during 2002 as the book continued to be repositioned for improved profitability. Concentrations of value in New York City, other urban areas and the Atlantic seacoast were decreased to reduce OneBeacon's exposure to terrorism and coastal wind damage. Specialty and AutoOne Insurance premium writings grew and are expected to continue to grow in 2003. The trade ratio for core operations was 98% for the year ended2004 versus Year Ended December 31, 2002 compared to 116% for all of 2001. Net written premiums and earned premiums for core operations were both $1.8 billion for the year ended 2002 and $1.8 billion and $1.9 billion, respectively, for all of 2001, as price increases were offset by reductions in volume necessary to re-underwrite the book and reduce exposure to catastrophe claims.2003

Overview

        OneBeacon's total tradepretax income for 2004 was $391 million, compared to pre-tax income of $405 million for 2003 and its GAAP combined ratio including non-core business, was 109%99% for 2004, compared to 98% for 2003. The earnings and combined ratios for each period were relatively consistent as each period had solid performance for the current underwriting year, ended December 31, 2002 comparedpartially offset by some adverse development in prior year's reserves. In total, adverse development was $100 million in 2004 (relating primarily to 120% for all of 2001. Net written premiums and earned premiums on OneBeacon's total business were down to $2.5 billion and $2.9 billion, respectively, in 2002 from $3.5 billion and $3.9 billion, respectively, for all of 2001, as premiums from non-core operations continued to run-off.

        Loss and LAE totalled $2.1 billion for both the year ended December 31, 2002 and for the seven months ended December 31, 2001. A full year over year comparison showed a decrease of $1.4 billion from $3.5 billionprior accident years) and $147 million in 2001, which is2003 (relating primarily due to the drop in business volume resulting from the Renewal Rights Agreement. Loss and LAE for 2002 included $57.4 million of reserve strengthening recorded during the fourth quarter of 2002 after OneBeacon completed a detailed study on its non-asbestos and environmental reserves. As previously described, OneBeacon has A&E coverage under the NICO Cover. Management believes the NICO Cover will be adequate to cover all of its A&E obligations. Reserves for accident years 2000 and prior were increased by $97.4 million, while reserves for accident year 2001 were reduced by $40.0 million. Reserve increases for 2000 and prior accident years primarily relate to increases in reserves for workers compensation coverages reduced by decreases in reserves for unallocated LAE. Workers compensation reserves for accident years 2000 and prior (primarily 2000, 1999 and 1998) increased $155.3 million (on reserves of $1.2 billion as of December 31, 2001)years).

The 2002 reserve increases2004 development related primarily to a continuing unfavorable trend of increasespersonal auto liability, general liability and multiple peril reserves due in workers compensation medicalpart to emerging trends in claims experienced in OneBeacon's run-off operations, as

well as national account and indemnity costs. Based on a study providedprogram claims administered by the National Council on Compensation Insurance ("NCCI"), a not-for-profit rating, statisticalthird parties. These claim trends principally included higher defense costs and data management services organization and a significant source for workers compensation data, medical claims costs rose an average of 14% during 2002, compared with an average of 12% during 2001. Increases of this magnitude were not expected when setting 2001 reserves. Average workers compensation indemnity costs rose 11% during 2002 compared with an increase of 9% during 2001. Decreases in reserves for unallocated LAE resultedhigher damages from completion of an activity-based-cost study which indicated future claim servicing costs were less than originally projected. This decreaseliability assessments. The 2003 development was primarily related to multiple perilconstruction defect claims. Adverse development in 2004 and general2003, respectively, was partially offset by the release of approximately $20 million and $30 million of the New York assigned risk liability coverages. The reductiondue to the shrinking New York assigned risk pool.

        OneBeacon's total revenues for 2004 increased by 10% compared to 2003, due principally to an increase in reserves for accident year 2001 was due in large part to favorable development on property lossesearned premiums resulting primarily from the Attacks.Atlantic Specialty Transaction. Total revenues for 2004 were also impacted by an increase in other revenues due mainly to the commencement of two new private equity funds managed by Tuckerman Capital, a group of private equity funds that are consolidated as a result of White Mountains' significant investment in the funds.

        OneBeacon's total expenses for 2004 increased 13% compared to 2003, primarily as a result of increased incentive compensation accruals driven by the 41% rise in White Mountains' share price in 2004, partially offset by the release of $20 million of the New York assigned risk liability. The release of this liability resulted from the continued effects of favorable revisions to the structure of credit programs. General and administrative expenses were higher in 2004 due mainly to the commencement of two new private equity funds managed by Tuckerman Capital, a group of private equity funds that are consolidated as a result of White Mountains' significant investment in the funds.

        During the fourth quarter of 2001,2004, OneBeacon increased net reserves for prior accident years by $64.6 million ($426.0 million before recoveriessold two of approximately $361.4 million under the General Reinsurance Cover). These increases in net reserves related to long-tail linesits subsidiaries, Potomac Insurance Company of business, primarily for accident years 1998 through 2000. Reserve increases before recoveries under the General Reinsurance Cover were primarily from $205.4 million for workers compensation (on reserves as of December 31, 2000 of $998.2 million), $34.0 million for general liability (on reserves as of December 31, 2000 of $1.2 billion), $152.2 million for multiple peril (on reserves as of December 31, 2000 of $1.3 billion)Illinois ("Potomac") and $58.9 million for commercial automobile liability (on reserves as of December 31, 2000 of $676.1 million). As further described in Amendment No. 3 to Form S-3 (filed March 14, 2003)Western States Insurance Company ("Western States"), these increases in reserves reflected the impact of external factors as well as OneBeacon-specific factors. External factors includedits boiler inspection service business, and recognized gains on the emergencesales of construction defect$22 million through other revenues.

        Specialty Lines.    The specialty lines combined ratio was 90% for 2004, compared to the 2003 combined ratio of 86%. The 2004 combined ratio was higher than 2003 primarily due to losses medical inflation, a general deterioration in market pricing, terms and conditions, adverse judicial rulings and higher-than-anticipated legal costs.

46

---

These external factors were also experienced throughoutrelating to the property and casualty insurance industry as evidenced by adverse development reported since 2000 by other property and casualty insurers. A significant portion of the 2001 reserve increases is attributable OneBeacon-specific factors including changesfour storms in the mixsoutheastern United States that impacted IMU and better than expected weather losses in 2003. Written premiums for specialty lines were up 16% in 2004, driven by growth in writings at OBPP and AutoOne Insurance, as well as the introduction of business written by General AccidentOBSP in 2004, a new division offering coverages to the excess and surplus property market.

        Personal Lines.    The combined ratio for personal lines for 2004 was 94%, compared to a lesser extent, Commercial Union during the mid-1990s that along with being2003 combined ratio of 91%. The 2004 personal lines combined ratio was adversely impacted by external factors, in hindsight, was poorly written and priced. White Mountains has taken significant actions with respect to OneBeacon since it completed the Acquisition including (1) shedding non-core businesses through the Renewal Rights Agreement, (2) increasing prices, (3) reevaluating the risks, terms and conditions associated with renewing certain policies (and in appropriate cases declining to issueseven points as a renewal policy), (4) eliminating unprofitable products, accounts and agents, (5) improving the claims adjudication, settlement administration and processing functions and (6) improving management information systems and deploying new technology to contribute to process improvement and overall results. See "Loss and Loss Adjustment Expense Reserves" within the "ONEBEACON" sectionresult of Item 1 of this report.

        Insurance acquisition expenses, which consist primarily of commission expenses, totalled $629.1 million for the year ended December 31, 2002. For the seven months ended December 31, 2001, insurance acquisition expenses totalled $403.2 million. A full year over year comparison showed a decrease of $124.9 million from $754.0 million in 2001, which is principallyincreased incentive compensation accruals, partially offset by three points due to the reduction of the New York assigned risk liability. The 2003 combined ratio benefitted by four points due to a reduction of the New York assigned risk liability. Premiums in this line grew 7% due in part to improved production of new business and increased retention levels and also $47 million in premiums assumed from New Jersey Skylands Insurance Association through a quota-share reinsurance agreement.

        Commercial Lines.    The combined ratio for commercial lines for 2004 was 97%, compared to the 2003 combined ratio of 95%. The 2004 combined ratio was a bit higher as a result of transition and integration costs related to the Atlantic Specialty Transaction and adverse results from its non-Atlantic Mutual New York commercial lines book. The 2004 loss ratio includes two points relating to the four storms in the southeastern United States, which primarily related to Atlantic Specialty business in that area. Excluding these losses, the commercial lines loss ratio significantly improved. Premiums in this line grew by 89% primarily due to the Atlantic Specialty Transaction.

        During the third quarter of 2004, OneBeacon entered into an agreement to sell the renewal rights to most of its non-Atlantic Mutual New York commercial lines business to Tower Insurance Group. The transaction, effective with December 1, 2004 renewals, will remove approximately $110 million of premiums over the next year.

OneBeacon Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002

Overview

        OneBeacon's pretax income for 2003 was $405 million, compared to pre-tax income of $200 million for 2002, and its GAAP combined ratio was 98% for 2003 compared to 107% for 2002. All of OneBeacon's ongoing businesses—specialty, personal and commercial lines—delivered combined ratios below 100% in 2003 and, in the second half of 2003, its premiums from its ongoing businesses grew for the first time since the OneBeacon Acquisition.

        OneBeacon's total revenues for 2003 declined by 21% compared to 2002, due principally to a 25% decline in earned premiums, resulting primarily from a reduction in premiums assumed under the Liberty Agreement. Total revenues for 2003 were also impacted by a 29% decrease in business volume resulting fromnet investment income due to the Renewal Rights Agreement.runoff of loss reserves as well as the reduced interest rate environment. Other revenues increased significantly in 2003 due mainly to fee revenue generated by New Jersey Skylands Management LLC and certain consolidated limited partnerships.

        OneBeacon's total expenses for 2003 declined by 29% compared to 2002, primarily as a result of reduced premium writings and improved underwriting performance. Total expenses in 2003 included a net $147 million reserve increase in OneBeacon's runoff operations, primarily related to prior year construction defect claims, that was partially offset by an approximate $30 million release of the New York assigned risk liability due to the shrinking New York assigned risk pool. General and administrative expenses totalled $323.9increased significantly in 2003 due mainly to expenses generated by New Jersey Skylands Management LLC and certain consolidated limited partnerships.

        During the fourth quarter of 2003, OneBeacon sold one of its subsidiaries, National Farmers Union Standard Insurance Company ("NFU Standard"), for $22 million forand recognized a $9 million gain on the sale through other revenue.

        Specialty Lines.    The combined ratio in 2003 was 86%, a six point improvement over the 92% reported in 2002. This was driven by good underwriting results across OneBeacon's various specialty businesses, as well as favorable development in AutoOne Insurance's prior year ended December 31, 2002. Forreserves, which positively impacted the seven months ended December 31, 2001, general and administrative expenses totalled $408.5 million. A full year over year comparison showed a decreasecombined ratio by two points. OneBeacon wrote specialty lines premiums of $282.2 million from $606.1$734 million in 2001.2003, up 5% over 2002, mostly due to an increase in business written by OBPP and IMU.

        Recurring general        Personal Lines.    The combined ratio in 2003 was 91%, a six point improvement over the 97% reported in 2002 as price increases achieved in 2002 and administrative expenses did not decrease proportionately to2003 flowed through into underwriting results. In addition, the 2003 period reflected the reduction in OneBeacon's premiums in 2002, as the costs related to overhead and other administrative functions which previously supported the book of business transferred to Liberty Mutual are being reduced more slowly than the corresponding premium volume. General and administrative expenses for 2003 will eventually reflect the elimination of overhead functions that will no longer be needed to support the business transferred to Liberty Mutual. Management expects that its general and administrative expenses will continue to decrease in 2003 as it takes further cost reduction initiatives. During 2002, OneBeacon's cost-reduction initiatives included the curtailment of its pension and retiree medical plan and a reduction in costs related to headcount, excluding costs relating to new operations such as AutoOne Insurance and OBPP. As a result of the curtailment of OneBeacon's pension plan and retiree health benefits, general and administrative expenses in 2002 include a pre-tax gain of $35.1 million. Effective January 1, 2003, OneBeacon adopted an employee stock ownership plan, which is a OneBeacon-funded, qualified retirement plan. Management believes that its employee benefits plans are now aligned with the interests of White Mountains' shareholders, as its plans are now performance oriented, not entitlement oriented.

Core Underwriting Results

        Core operations consist of personal and commercial lines sold through agents in the Northeast, and specialty businesses underwritten in various geographic areas. Core operations do not include business transferred to Liberty Mutual through the Renewal Rights Agreement and certain other insurance operations.

Personal Lines.

        OneBeacon writes the majority of its personal business in New York Massachusetts, New Jersey and Maine. New York, Massachusetts and New Jersey are all states with difficult automobile regulatory environments and significant involuntary market loads. A dedicated staff with expertise inassigned risk liability, discussed above, which lowered the unique regulatory aspects of each state manages each business.

47

---

        Throughout its personal lines business, OneBeacon has focused on improving its underwriting results. OneBeacon improved premium adequacy in 2002 through rate increases approvedcombined ratio by regulators, re-underwriting efforts, aggressive rate pursuit actions and continued improvement in insurance-to-value programs in its homeowners line. As a result, OneBeacon achieved price increases of 19% and 22% in automobile and homeowners, respectively, during 2002, compared with increases of 4% and 7% in 2001. OneBeacon's mix of personal lines products for automobile, homeowners and Custom-Pac products was 62%, 18% and 15%, respectively, of personal lines net written premium for 2002, compared with 61%, 16% and 15% for all of 2001.three points. OneBeacon's personal lines written premium volume for 2003 decreased 20% from core operations for 2002, increased 27% as compared to all of 2001 due primarily to new business produced by AutoOne Insurance. Excluding AutoOne Insurance written premium and LAD servicing fees, written premium volume decreased 9% from written premium for all of 2001. This decrease is due to re-underwriting efforts such as actions to reduce exposure to windstorms on property located in coastal areas, a decision to reduce exposureareas. Also contributing to the private passenger automobile businessdecrease were declines in Massachusetts due to unfavorable market conditions and the formation of a reciprocal insurance carrier in New Jersey. In 2003, personal lines written premiumpremiums relating to the transfer of OneBeacon's private passenger automobile business in New Jersey will continue to decline due to the transfer of OneBeacon's business to a newly formed reciprocal carrier, New Jersey Skylands Insurance Association (see "New Jersey Skylands" within the "ONEBEACON" section of Item 1 of this report).in 2002.

        AutoOne Insurance, a division of OneBeacon, became a limited assignment distribution carrier in late 2001 in order to capitalize on significant market opportunities created by the growth of the NYAIP. During 2002, AutoOne Insurance wrote premiums and billed LAD fees of approximately $203 million for policies written for third parties. AutoOne Insurance has completed its LAD contracting for 2003, with 21 third parties committed for approximately $162 million of NYAIP quota premium and LAD fees. The Automobile Insurance Plans Service Office ("AIPSO"), a management organization and service provider for various insurance industry groups, has projected that total NYAIP quota premiums for 2003 will be relatively flat compared to 2002 at between $1.1 billion and $1.2 billion. Rate increases implemented in the NYAIP program during 2002, along with overall improved loss ratios due to changes in plan mix (a higher percentage of standard risks flowing into the assigned risk pool) associated with growth in NYAIP volume, have led to better pricing and resulted in a decrease in the average LAD fee for contracts covering the 2003 year. Such decreases in LAD fees were expected and management believes that the margins in the program remain adequate for the coming year and that underwriting results will remain acceptable.

Commercial Lines.

        Commercial    The combined ratio in 2003 was 95%, a five point improvement over the 100% reported in 2002 as the Company's efforts to re-underwrite its book took hold, partially offset by prior year reserve development of three points. OneBeacon's commercial lines underwriting results significantly improved inwritten premium volume for 2003 decreased 6% from 2002, primarily due to the positive impact of underwriting and pricing initiatives as well as good weather. However, they fell short of OneBeacon's target due to thecontinued effects of large losses and a significant decrease in OneBeacon's premium base. Premium written for 2002 decreased 33% from all of 2001 primarily due to actions taken to reduce the concentration of risks subject to terrorism, exposure,such as well as continued efforts to re-underwrite the commercial book, terminate underperforming accountsreducing total insured values in 11 major cities, and agencies and tighten credit terms toward market standards. 2001's trade ratio includes approximately 13 points of losses attributable to the Attacks. OneBeacon's mix of commercial lines products for multiple peril, commercial automobile andreductions in workers compensation was 52%, 29% and 14% of OneBeacon's commercial lines net written premium for 2002, compared with 46%, 22% and 20% during all of 2001. Price increases of 21% were achieved for business written during 2002 as compared to 16% for all of 2001.writings.

Specialty Lines.        Run-off Operations.

        Overall underwriting results for specialty businesses were excellent with written premiums growing due to rate increases, favorable weather conditions, high renewal retentions and new business. During

48

---

2002, OneBeacon wrote Specialty lines premiums of $284.1 million, a 28% increase as compared to $221.6 million written during all of 2001. The 2002 written premium includes $109.0 million from IMU and $103.0 million from Agri, representing 18% and 11% increases in written premium, respectively, as compared to all of 2001. Specialty lines written premium also includes $28.7 million of new written premiums during 2002 from D&O, professional liability and medical provider excess markets coverages written by OBPP, which commenced operations in February 2002.

Non-core Underwriting Results

        Results for OneBeacon's non-core businesses during 2002 were worse than expected. Written premiums decreased to $692.0 million in 2002, from $1.7 billion for all of 2001, generating a pre-tax underwriting loss of $293.1 million for 2002. For the seven months ended December 31, 2001, non-core business generated a pre-tax underwriting loss of $417.8 million.

        Non-core operations include the results of business subject to the reinsurance provisions of the Renewal Rights Agreement. For 2002, written premiums on business subject to the Renewal Rights Agreement decreased to $496.7 million from $1.4 billion for all of 2001. In 2002, OneBeacon also recognized a $22.8 million pretax write-off of deferred acquisition costs associated with its business subject to the Renewal Rights Agreement.

        In accordance with the Renewal Rights Agreement, a reinsurance agreement pro-rates results so that OneBeacon assumed approximately two-thirds of the operating results and cash flows from renewals through October 31, 2002 and assumes approximately one-third of the operating results and cash flows from renewals from November 1, 2002 to October 31, 2003. Beyond November 1, 2003, net written premiums from business subject to the Renewal Rights Agreement will be nil, although OneBeacon has an option to assume 10% of all of Liberty Mutual's regional agency markets business for the years 2004 to 2006 on a pari passu basis with Liberty Mutual. In addition, OneBeacon will receive commissions of 3% of written premiums on policies transferred to Liberty Mutual that are renewed in the year after the Renewal Rights Agreement expires.

        The Renewal Rights Agreement was undertaken so that OneBeacon could exit a substantial portion of its non-core businesses and further strengthen and focus on its core commercial and personal lines located in the Northeast and its core specialty operations where it historically had better operating results. The underwriting performance of the business subject to the Renewal Rights Agreement historically had, and for the remainder of the Renewal Rights Agreement is expected to continue to have, a higher relative underwriting loss than that of OneBeacon's core businesses. Therefore, although OneBeacon's premium levels have declined, and are expected to continue to decline, as a result of the Renewal Rights Agreement, OneBeacon's future results of operations and financial position are expected to improve from what OneBeacon would have expected had the agreement not been executed.

        Liberty Mutual has control over a variety of factors which could impact the underwriting performance of Renewal Rights Agreement business, such as pricing adequacy, actual renewal premium volume, claims management, catastrophe exposures and other considerations. Management believes Liberty Mutual has done an acceptable job in each of these areas except for the handling of pre-November 1, 2001 claims.    Pursuant to the Renewal RightsLiberty Agreement, Liberty Mutual assumed control of OneBeacon's claims offices in the regions subject to the Renewal RightsLiberty Agreement and iswas responsible for servicing claims from the OneBeacon policies written prior to November 1, 2001, as well as policies

which have renewed in those regions since that date. Service agreements were put in place in connectionEffective July 11, 2003, the servicing agreement with the Renewal Rights Agreement, through which Liberty Mutual became a TPA for those claims. Upon review of claims information during the thirdwas amended and fourth quarters of 2002, OneBeacon's management determined that average paid claims in offices where Liberty was acting as a TPA were higher than expected. As a result, management has begun a process to directly handle more

49

---

of thoseOneBeacon took back substantially all remaining outstanding claims related to policies written prior to the Renewal Rights AgreementLiberty Agreement.

        During the second quarter of 2003, OneBeacon claims and expectsactuarial personnel noticed an unusual spike in case reserves related to the policies taken back from Liberty Mutual. The spike was isolated primarily to incurred losses on construction defect claims which were approximately $38 million higher than expected. There were 924 new claims, 32% higher than expected. The four states with the largest number of new construction defect claims were California, Nevada, Colorado and Arizona (345 of the total 924 new claims). As a result, OneBeacon claims and actuarial personnel undertook a study to determine the cause of the increase. This study, which was completed in the third quarter of 2003, indicated that substantially allmost of the increase in activity was due to differences in case reserving philosophies between OneBeacon's and Liberty's claims adjusters, such as the identification and coding of construction defect claims. However, the study also indicated that some of the increase in activity related to an increase in the severity of construction defect claims will be handled directly bystemming from increased litigation and resulting adverse court decisions. As a result, OneBeacon byrecorded an increase for construction defect claim reserves of $98 million in the endthird quarter of 2003.

SeeReinsuranceConstruction Defect Claims in CRITICAL ACCOUNTING ESTIMATES below for further background on construction defect claims.

Folksamerica.White Mountains Re

        Folksamerica reported comprehensive net income of $106.3 million for 2002, consisting of $75.2 million of comprehensive net income from investment results, a net underwriting gain of $3.9 million and $27.2 million from the recognition of net deferred credits. Folksamerica reported a comprehensive net loss of $25.5 million for 2001, which consisted of a net underwriting loss of $86.4 million, offset by $33.2 million in comprehensive net income from investmentFinancial results and $27.7 million from the recognition of net deferred credits. Folksamerica reported comprehensive net income of $24.4 millionGAAP combined ratios for 2000, which consisted of $64.7 million in comprehensive net income from investment results and $19.3 million from the recognition of net deferred credits, offset by a net underwriting loss of $59.6 million.

Underwriting Results

        A summary of Folksamerica's underwriting resultsWhite Mountains Re for the years ended December 31, 2004, 2003 and 2002 2001 and 2000 follows:

					Year Ended December 31,
Dollars in millions
					2002			2001			2000
Net written premiums by line of business:
	Liability				$	381.6		$	310.6		$	208.4
	Property					205.3			93.5			91.6
	Accident and Health					68.1			25.1			26.4
	Other					23.7			29.7			6.2
Net written premiums					$	678.7		$	458.9		$	332.6
Earned premiums						620.5			421.5			312.5
Other revenues						11.7			3.2			.9
Losses and LAE						(431.9	)		(385.0	)		(271.2	)
Reinsurance acquisition expenses(1)						(147.5	)		(124.6	)		(98.0	)
General and administrative expenses						(52.2	)		(44.0	)		(30.0	)
Interest expense						(2.0	)		(.4	)		(8.2	)
	Pre-tax net underwriting loss					(1.4	)	$	(129.3	)	$	(94.0	)
Income tax benefit on underwriting results						5.3			42.9			34.4
	Comprehensive net income (loss) from underwriting results				$	3.9		$	(86.4	)	$	(59.6	)
Statutory combined ratios(2):
	Loss and LAE ratio					74%			91%			88%
	Expense ratio					29			34			38
			Statutory combined ratio			103%			125%			126%
	Effects of retroactive reinsurance and acquisition protection(3)					(4	)		(5	)		(9	)
			Adjusted statutory combined ratio			99%			120%			117%

---

(1)

The 2002 reinsurance acquisition expenses exclude $7.9

				Year Ended December 31,
Millions
				2004			2003			2002
	Gross written premiums			$	1,933.3		$	1,414.9		$	982.0
	Net written premiums			$	1,246.3		$	885.7		$	688.2
	Earned insurance and reinsurance premiums			$	1,265.5		$	845.8		$	635.0
	Net investment income				98.5			50.4			51.5
	Net realized investment gains				29.6			7.7			30.3
	Other revenue				36.1			75.5			53.6
		Total revenues			1,429.7			979.4			770.4
	Losses and LAE				918.9			557.6			442.2
	Insurance and reinsurance acquisition expenses				271.8			198.0			161.2
	Other underwriting expenses				122.9			57.8			41.0
	General and administrative expenses				15.1			19.6			20.6
	Accretion of fair value adjustment to loss and LAE reserves				10.1			—			—
	Interest expense on debt				3.8			2.0			2.0
		Total expenses			1,342.6			835.0			667.0
Pretax earnings				$	87.1		$	144.4		$	103.4

				Years Ended December 31,
				2004		2003		2002
GAAP ratios:
	Loss and LAE			73	%	66	%	70	%
	Expense			31	%	30	%	32	%
		Total Combined		104	%	96	%	102	%

White Mountains Re Results—Year Ended December 31, 2004 versus Year Ended December 31, 2003

        White Mountains Re's GAAP combined ratio increased from 96% in 2003 to 104% in 2004, due primarily to $135 million of claims incurred related to significant property catastrophe events in intra-segment commissions paid to WMU and $4.6 million in inter- segment commissions paid to Esurance, allthe second half of 2004. These catastrophes, which are eliminated in White Mountains' consolidated results.

(2)

A statutorydiscussed further below, increased the combined ratio is calculatedin 2004 by adding (i)11 points. In general, White Mountains Re has experienced favorable underwriting conditions for the ratiopast three underwriting years. Earnings from business segments not impacted by the property catastrophe events, and earnings from the recently completed Sirius Acquisition, have partially offset the impact of incurred loss and LAE to earned premiums (the "loss and LAE ratio") and (ii) the ratio of commissions, premium taxes and other

50

---

underwriting expenses, including general and administrative expenses, tothese natural disasters. Net written premiums, (the "expense ratio").

(3)

Folksamerica's statutory combined ratios do not take into accounttotal revenues, and total expenses were all up substantially in 2004 due to the full favorable impact of the retroactive coverage provided by the Imagine CoverSirius Acquisition.

        Gross written premiums increased $518 million, or the indemnification of losses associated with certain of Folksamerica's acquisitions in recent years. The reinsurance benefit recorded in its statutory financial statements on recoverables for adverse development on prior years' reserves is not included in Folksamerica's statutory combined ratio under statutory accounting principles; however, adverse development on reserves covered under this contract is required37% from 2003 to be included in its statutory combined ratio. Folksamerica believes that the adjusted statutory combined ratio is a better measure of the full economic impact of its reinsurance results.

        Folksamerica's comprehensive net income from underwriting results of $3.9 million for 2002 was an improvement of $90.3 million over the comprehensive net loss from underwriting results of $86.4 million for 2001. Folksamerica's financial results improved during 2002 and are expected to continue to improve in 2003 as the effects of favorable reinsurance conditions are recognized in underwriting results. In 2002, Folksamerica experienced significant rate increases and improved terms across virtually all lines of business written.

        Folksamerica's gross2004, and net written premiums increased $361 million, or 41% for the same period. This increase is due primarily to the Sirius Acquisition, which contributed $612 million of gross written premiums and $418 million of net written premiums during 2004. Included in these amounts is the U.S. program business written by Sirius America totaling $216 million of gross written premiums and $85 million of net written premiums. Additionally, in late 2003, White Mountains Re, through Folksamerica, entered into the CNA Re agreement and established a Chicago underwriting office. Annual gross written premiums for the 2004 underwriting year resulting from this transaction and the related opening of the Chicago underwriting office were $965.3approximately $177 million, of which $129 million was recorded as gross written premium and $678.7$91 million as net written premium for the year ended December 31, 2004. Partially offsetting the increases resulting from these transactions was the cancellation of several large casualty treaties at Folksamerica whose pricing or terms did not meet White Mountains Re's underwriting guidelines.

        There were significant levels of property catastrophe activity during the last half of 2004, including the four hurricanes which affected the Southeast United States and the Caribbean, where White Mountains Re has historically been a significant participant in the property reinsurance market. Additionally, Sirius International was exposed to losses from the devastating tsunami that impacted South Asia in December 2004. White Mountains Re believes its underwriting discipline and risk management approach helped to contain these losses to manageable levels. This significant property catastrophe activity during the last half of 2004 resulted in $135 million of pre-tax losses, including $16 million related to the tsunami. There was no significant property catastrophe activity in 2003.

        During 2004, White Mountains Re recorded $11 million of net unfavorable loss reserve development, which contributed 1 point to the loss ratio in 2004, as compared to $46 million, or 5 points in 2003. The 2003 unfavorable development is described in further detail in the section titled White Mountains Re Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002, below. The majority of the unfavorable development recorded in 2004 resulted from certain discontinued lines at Folksamerica as well as run-off operations acquired as part of the Sirius Acquisition. This unfavorable development was partially offset by favorable development in the Sirius International reserve portfolio, stemming mainly from the three most recent underwriting years, and is indicative of the favorable terms and conditions that have existed in the global reinsurance marketplace during that time. Additionally, White Mountains Re recorded $10 million of unfavorable loss development on its workers compensation reserves acquired as part of the Sierra acquisition in 2004. This adverse development was offset dollar-for-dollar by the adjustable note discussed in Note 2—Significant Transactions.

        White Mountains Re receives fee income on reinsurance placements referred to Olympus and is entitled to a profit commission based on net underwriting profits on referred business. The additional capacity provided by the reinsurance relationship with Olympus supports White Mountains Re's ability to offer significant reinsurance protection. White Mountains Re recognized net fee income of $69 million from Olympus in 2004 as compared to $98 in 2003. The decline in the fee income earned is

due primarily to the negative impact of the four hurricanes on the profit commission arrangement between White Mountains Re and Olympus.

White Mountains Re Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002

        White Mountains' Re's pretax income was $144 million for 2003, an increase of 40% over the $103 million recorded in 2002. White Mountains Re's GAAP combined ratio improved to 96% for 2003, from 102% for 2002. The improvement in White Mountains Re's combined ratio resulted primarily from more favorable terms and conditions in the reinsurance marketplace, and fewer catastrophe losses affecting White Mountains Re in 2003 as compared to 2002.

        White Mountains Re's gross written premiums increased 44% from 2002 respectively, representing an approximately 50%to 2003, while net written premiums increased 29% and 48% increase over 2001.earned premiums increased 33%. The increase wasincreases in net written and earned premiums were due to increased pricing on Folksamerica'sWhite Mountains Re's expiring and renewed contracts, increased shares on renewed contactscontracts and new contracts resulting from the increased demand of reinsurance buyers for placing reinsurance with responsible, well-capitalized reinsurers.

        White Mountains expects this trendRe's total revenues were up 27% in 2003 over 2002, primarily driven by a 33% increase in earned premiums. The increase in earned (and net written) premiums was due to continue for the foreseeable future, particularly considering the announced withdrawalincreased pricing on White Mountains Re's expiring and renewed contracts, increased shares on renewed contracts and new contracts resulting from the marketincreased demand of several reinsurers and the potential effect of negative rating agency actions in regard to certain other reinsurers in the last several months.reinsurance buyers for placing reinsurance with responsible, well-capitalized reinsurers. Also contributing to the increase in net written premiumsrevenues in 2003 was Folksamerica's new relationship with WMU, which has resulted in referrals of international reinsurance placements to Folksamerica. Additionally, under a new quota share agreement, Folksamerica cedes up to 75% of substantially all underwritten business referred to it by WMU and 75% of substantially all its short-tailed, non-casualty excess of loss business to Olympus. Folksamerica also receives an override commission on all premiums ceded to Olympus. The additional capacity provided by the quota share relationship with Olympus and the $400$49 million cash contribution it received from OneBeacon in December 2001 enhanced Folksamerica's ability to provide significant reinsurance capacity in 2002, a period of strengthening prices. Folksamerica's significant increase in premiums for 2001 versus 2000 was primarily attributable to additional writings across most lines in response to improved terms and conditions in the overall reinsurance market.

        Folksamerica's 2002 losses and LAE include $6.6 million, net of reinstatement premiums, related to European Floods during the third quarter of 2002 as well as $9.7 million of additional losses related to the Attacks. These catastrophe losses accounted for 3 points of Folksamerica's adjusted statutory combined ratio of 99% for 2002. Folksamerica's 2002 comprehensive net income from underwriting also includes $11.7 million of other revenues, of which $7.3 million related to the take down of certain accruals established in connection with its acquisition of PCA. Folksamerica's losses and LAE for 2002 included $17.0 million related to prior accident years. This prior year development consisted primarily of (i) additional losses of $9.7 million relating to the Attacks, (ii) additional losses of $7.3 million from aviation insurance coverage, in relation to the Risk Capital business, (iii) reserve additions relating to asbestos and environmental losses of $11.4 million, (iv) $3.5 million of adverse development relating to the remaining business from the USF Re acquisition, offset by (v) $17.0 million of net income recorded during the first quarter from the reversal of an allowance for doubtful reinsurance recoveries related to PCA. These losses, with exception of the those relating to the Attacks, are covered under the Imagine Cover, and were partially offset by amortization of the deferred gain related to retroactive reinsurance (see below).

51

---

        During 2001, Folksamerica recorded gross losses from the Attacks of approximately $104.0 million, or approximately $25.0 million net of reinsurance recoverables and reinstatement costs. This loss represented approximately six points of its 2001 statutory combined ratio. Folksamerica also established a reserve of $5.0 million for Enron-related surety exposures in 2001.

        Folksamerica's 2001 losses and LAE included $25.0($98 million in losses related to prior accident years representing (i) higher than expected reported losses2003 vs $49 million in Folksamerica's property excess line2002) in advisory fees and (ii) an increase in reserves related to losses arising from the portfolios acquired from the USF Re and Risk Capital. Folksamerica's losses and LAE for 2000 included $22.9 million related principally to prior accident years representing losses arising from the portfolios acquired with USF Re and Risk Capital, nearly all of which was covered under the Imagine Cover described below.

        Folksamerica's underwriting results do not take into account the full favorable impact of the retroactive coverage provided by the Imagine Cover or the indemnification of losses associated with certain of Folksamerica's acquisitions in recent years. The reinsurance benefit recorded on recoverables for adverse development on prior years' reserves are deferred and recognized into income over the expected settlement period of the underlying claims. The reinsurance benefits obtained from this contract totaled $21.7 million and $22.2 million for 2002 and 2001, respectively. The adverse loss development ceded under the retroactive reinsurance agreement in 2002 included A&E losses of $11.4 million and losses relating to the business acquired with Risk Capital of $7.3 million. There is approximately $9.9 million of coverage remaining under this contract.

Montpelier.

        As of December 31, 2002, White Mountains' investment in Montpelier consists of common shares, which are accounted for under the equity method, and warrants to acquire additional common shares at a fixed price, which are accounted for in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). Through its holdings of common shares and warrants, White Mountains owned approximately 21% of Montpelier on a fully-converted basis as of December 31, 2002. Pre-tax amounts recordedprofit commissions received by White Mountains relating to its investment in Montpelier as of and for the periods ended December 31, 2002 and 2001 follow:

Millions		Common Shares			Warrants			Total
Original cost of White Mountains' investment in Montpelier as of December 6, 2001		$	180.0		$	—		$	180.0
Equity in loss from Montpelier common shares			(3.0	)		—			(3.0	)
Equity in net unrealized investment gains from Montpelier's investment portfolio			.4			—			.4
White Mountains' investment in Montpelier as of December 31, 2001		$	177.4		$	—		$	177.4
Realized gains from Montpelier warrants		$	—		$	58.0		$	58.0
Equity in earnings from Montpelier common shares			30.7			—			30.7
Equity in net unrealized investment gains from Montpelier's investment portfolio			5.7			—			5.7
White Mountains' investment in Montpelier as of December 31, 2002		$	213.8		$	58.0		$	271.8
Fair Value of White Mountains' investment in Montpelier as of December 31, 2002		$	311.0		$	58.0		$	369.0

        As of December 31, 2002, Montpelier's shareholders' equity totalled approximately $1.3 billion versus $860.7 million as of December 31, 2001. Montpelier wrote net premiums of $565.9 million for 2002. Earned premiums totalled $329.9 million for 2002.

52

---

        During 2002, Montpelier reported net income of $152.0 million, with comprehensive net income of $185.7 million. Montpelier's 2002 reported return on equity on a diluted basis was 18% and its GAAP combined ratio was 67%.

        A large portion of Montpelier's business is global specialty property reinsurance which has large aggregate exposures to natural and man-made disasters. As such, management expects that Montpelier's claim experience from this business will be the result of relatively few claims of high magnitude. The occurrence of claims from catastrophic events is likely to result in substantial volatility in, and could have a material adverse effect on, Montpelier's financial condition and results and their ability to write new business.

WMU.

        WMU generated comprehensive net income of $24.7 million for 2002. WMU receives management feesRe on reinsurance placements referred to Olympus, and is entitleddue principally to a profit commission on net profits on referred business. During 2002, WMU placed $120.2 millionan increase in written premiums withthe volume of business ceded to Olympus and recorded $14.4 million and $21.3in 2003.

        White Mountains Re experienced approximately $46 million of management feesunfavorable loss reserve development during 2003, primarily due to strengthening of A&E reserves and profit commissions from Olympus. WMU generatedreserves on Risk Capital casualty lines. White Mountains Re's 2003 loss development for A&E exposures was due to the completion of a net lossdetailed A&E market share study. This study compared Folksamerica's share of $.3 million for 2001, representing start-up costsindustry paid losses to estimated industry carried reserves and resulted in Folksamerica increasing its first month of operations.IBNR by approximately $25 million.

Fund American Re.Esurance

        Fund American Re reported a comprehensive net loss of $5.8 million for 2002, consisting of a net underwriting loss of $6.1 million, offset by a net investment return of $.3 million. Fund American Re's 2002 underwritingEsurance's financial results were primarily comprised of $55.3 million of earned premiums ($62.5 million written) offset by loss and LAE of $46.9 million (includes $3.7 million of incurred losses related to European floods during the third quarter of 2002), acquisition expenses of $13.6 million and general and administrative expenses of $6.8 million. Fund American Re's underwriting results also includes $4.6 million in service fee revenues and $1.6 million in adverse development losses related to contracts acquired as part of Fund American Re's purchase of the international reinsurance operations of Folksam International in December 2001. Under terms of a note issued to Folksam in connection with the purchase, Fund American Re was able to reduce the face value of that note during 2002 by the $1.6 million in adverse loss development, with a corresponding amount recorded as other revenues. At December 31, 2002, the remaining balance on the note was $1.7 million.

        Fund American Re reported comprehensive net income of $2.4 million for 2001, consisting of a net underwriting loss of $.6 million and a $3.0 million extraordinary gain on the purchase of the net assets of Folksam in December 2001.

Other Operations

        White Mountains' other operations are comprised of the Company, the International American Group, Esurance and the Company's intermediate holding companies. A summary of White Mountains'

53

---

after-tax comprehensive net income from its other operationsGAAP combined ratios for the years ended December 31, 2004, 2003 and 2002 2001 and 2000 follows:

		Year Ended December 31,
Millions
		2002			2001			2000
Underwriting results		$	(29.8	)	$	(27.4	)	$	(1.1	)
Investment results			(15.1	)		19.8			32.0
Holding company and financing activities			(153.8	)		(141.2	)		370.2
Recognition of net deferred credits			640.1			77.5			22.1
Comprehensive net income (loss) from other operations		$	441.4		$	(71.3	)	$	423.2

				Year Ended December 31,
Millions
				2004			2003			2002
	Gross written premiums			$	201.3		$	116.4		$	53.0
	Net written premiums			$	199.4		$	116.4		$	53.0
	Earned insurance and reinsurance premiums			$	176.5		$	99.9		$	40.8
	Net investment income				3.5			1.3			1.2
	Net realized investment gains				1.1			.2			—
	Other revenue				2.2			.3			1.6
		Total revenues			183.3			101.7			43.6
	Losses and LAE				122.4			81.0			36.6
	Insurance and reinsurance acquisition expenses				29.4			18.8			9.7
	Other underwriting expenses				27.7			20.4			22.4
		Total expenses			179.5			120.2			68.7
Pretax earnings (loss)				$	3.8		$	(18.5	)	$	(25.1	)

				Years Ended December 31,
				2004		2003		2002
GAAP ratios:
	Loss and LAE			69	%	81	%	89	%
	Expense			33	%	39	%	80	%
		Total Combined		102	%	120	%	169	%

Underwriting Results.Esurance Results—Year Ended December 31, 2004 versus Year Ended December 31, 2003

        Comprehensive net lossesEsurance's pretax income of $4 million for 2004 represented an improvement over the pretax loss of $19 million in 2003. Esurance's 2004 combined ratio improved to 102% from underwriting results for 2002120% in 2003 due to improvements in both loss and 2001 primarily consistexpense ratios. Esurance's loss ratio improvement resulted from the continued rollout and refinement of Esurance's after-tax underwriting losses during its start upproprietary auto insurance program. Loss ratio improvement also resulted from better claims performance, driven by the transition from a third party administrator to an in-house claims operation in 2003, as well as 3 points of favorable development on loss reserves.

        The auto program, combined with Esurance's self-service, web-enabled operating platform, allowed Esurance to increase premium volume and development stagein-force policy count while reducing the expense ratio from 39% to 33%. As of $19.5December 31, 2004, Esurance's in-force count was 118,513 policies, a 60% increase over December 31, 2003. Increased advertising, particularly in radio and TV, drove policy count growth.

Esurance Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002

        The trends described above that drove Esurance's favorable results in 2004 relative to 2003 also benefitted the 2003 results in relation to 2002. Thus, the pretax loss for Esurance decreased by $7 million in 2003 and $15.2 million, respectively,the combined ratio fell 49 points, while net written premiums more than doubled.

Other Operations

        Other Operations consists of the operations of the Company and after-tax underwriting losses atthe Company's intermediate subsidiary holding companies and the International American Group, of $10.3 millionas well as White Mountains' investments in Montpelier and $12.2 million, respectively.

        During 2002, substantially all of the business generated by Esurance was directly written or assumed by subsidiariesSymetra warrants. A summary of White Mountains. The underwritingMountains' financial results of this business are included infrom its Other Operations segment for the underwriting unit that ultimately retains the risk under the policies written through Esurance. The following table summarizes Esurance's results on an enterprise-wide basis (i.e., including the underwriting results of business written within the OneBeaconyears ended December 31, 2004, 2003 and Reinsurance segments):2002 follows:

			Year Ended December 31,
Millions
			2002			2001
Net written premiums			$	52.6		$	17.4
Earned premiums				40.8			13.3
Other revenues				1.6			.3
Losses and LAE				(36.7	)		(13.7	)
Acquisition expenses				(13.8	)		(8.7	)
General and administrative expenses				(18.2	)		(13.8	)
	Pre-tax net underwriting loss			(26.3	)	$	(22.6	)
Income tax benefit from underwriting results				9.2			7.9
	Comprehensive net loss from underwriting results of Esurance		$	(17.1	)	$	(14.7	)

Holding Company and Financing Activities.

				Year Ended December 31,
Millions
				2004			2003			2002
	Gross written premiums			$	—		$	41.2		$	35.0
	Net written premiums			$	—		$	33.1		$	29.5
	Earned insurance and reinsurance premiums			$	—		$	31.7		$	29.7
	Net investment income				37.5			15.5			(.7	)
	Net realized investment gains				20.8			27.7			12.7
	Other revenue				10.4			36.3			39.9
		Total revenues			68.7			111.2			81.6
	Losses and LAE				4.6			23.9			28.1
	Insurance and reinsurance acquisition expenses				—			4.0			3.8
	Other underwriting expenses				1.5			10.2			9.1
	General and administrative expenses				172.0			114.6			49.7
	Accretion of fair value adjustment to loss and LAE reserves				33.2			48.6			79.8
	Interest expense on debt				44.3			46.3			69.8
	Interest expense—dividends and accretion on preferred stock subject to mandatory redemption				47.6			22.3			—
		Total expenses			303.2			269.9			240.3
Pretax loss				$	(234.5	)	$	(158.7	)	$	(158.7	)

        White Mountains' capital raising and capital allocation activities are principally conducted through the Company and its intermediate holding companies. In this regard, the results of its holding company and financing activitiesOther Operations segment primarily relate to financing activities, and purchase accounting adjustments relating to the OneBeacon Acquisition, gains and losses recognized from the purchase and sale of certain of the Company's subsidiaries and other assets and general and administrative expenses incurred at the holding company level.

Other Operations Results—Year Ended December 31, 2004 versus Year Ended December 31, 2003

        White Mountains' holding companies recorded $39.2Other Operations segment reported a pre-tax loss of $235 million of other revenuesfor 2004, compared to $159 million for 2003. The increased loss for the year was primarily due to a $20 million increase in incentive compensation accruals, which were driven by a 41% rise in White Mountains' stock price during 2002, which consisted primarily of (i)2004, and higher gains from salesthe sale of certain real estate assets that had previously been written-off as part of purchase accounting for the Acquisitionin 2003 ($13 million in 2004 and (ii) interest income recorded on amounts due resulting from Internal Revenue Service examinations which were finalized during the period. White Mountains' holding companies recorded other revenues of $25.6$43 million during 2001, which

54

---

consisted primarily of net gains on the sales of certain insurance subsidiaries and net gains on sales of certain real estate assets that had previously been written-off as part of purchase accounting for the Acquisition. White Mountains holding companies recorded other revenue during 2000 of $386.3 million, which consisted almost entirely of the gain resulting from the FSA Sale.

        Interest expense at White Mountains' holding companies totalled $69.8 million for 2002 versus $45.3 million for 2001 and $7.9 million for 2000. The increase in 2003). In addition, interest expense from 2001on preferred stock was up $25 million in 2004 due to 2002 resulted from the effectinclusion of a full twelve monthsyear of borrowings outstanding under the Bank Facilityexpense in pre-tax income in 2004 as opposed to six months included in 2003 as a result of the Company's adoption of SFAS 150, effective July 1, 2003. Prior to the adoption of SFAS 150, the interest expense on preferred stock was classified below the pretax loss line on the income statement as preferred stock dividends.

        During the periods presented, Peninsula was the only seven monthsoperating company in 2001. Interest expense from the Seller Notesegment, and therefore it accounts for all of the premiums reported in the tables above. During January 2004, White Mountains sold Peninsula for $23 million. The operations of American Centennial and British Insurance Company are not significant to White Mountains, as those companies have been in run-off since they were acquired in 1999.

Other Operations Results—Year Ended December 31, 2003 versus Year Ended December 31, 2002

        White Mountains' Other Operations segment reported pre-tax losses of $159 million for both 2003 and 2002. Incentive compensation accruals increased from $10.3by $72 million in 2001 to $12.32003, but this increase was offset by, among other items, a $43 million decrease in 2002 as declining interest rates partially offset the effect of four additional months of interest in 2002. The increase in interest expense from 2000 to 2001 resulted from borrowings under the Bank Facility and the Seller Note which were undertakenlosses on June 1, 2001, offset slightly by reduced interest expense resulting from the Debt Tender and the Debt Escrow transactions (described below). White Mountains has entered into various interest rate swap agreements which were undertaken to achieveand a fixed interest rate on a portion$31 million decrease in the accretion of the Bank Facility. The swap program resultedfair value adjustment on loss reserves acquired in the OneBeacon Acquisition. Interest expense on debt decreased by $24 million in 2003, due to the pay-off of a weighted average fixed rate$260 million loan and the refinancing of 7.1% on $700.0$700 million of its total borrowings undersenior debt and amortization of the Bank Facility.

        In connection with purchase accounting forprevious credit facility. This decrease was offset by the Acquisition, White Mountains was required to discount OneBeacon's loss and LAE reserves and the related reinsurance recoverables by $646.9inclusion of $22 million and $346.9 million, respectively,of interest expense on OneBeacon's balance sheet at June 1, 2001. This net reduction to loss and LAE reserves of $300.0 million is being accreted through an income statement charge ratably with and over the period that the claims are expected to be settled. Aspreferred stock as a result White Mountains recognized $79.8 million and $56.0 million of accretion to loss and LAE reserves during 2002 and 2001, respectively. White Mountains will accrete the remaining $164.2 million over the future periods in which the claims are settled, which is expected to be seven or eight years from the Acquisition.SFAS 150.

        Other holding company expenses consisted primarilyII.    Summary of share-based compensation expenses of holding company employees, including performance shares, options to acquire Common Shares ("Options") and restricted Common Shares ("Restricted Shares"). See "Share-Based Compensation" on page 59.Investment Results

        On June 1, 2001, Berkshire purchased from the Company, for $75.0 million in cash, warrants (the "Warrants") to acquire 1,714,285 Common Shares at an exercise price of $175.00 per Common Share. Of the total Warrants purchased by Berkshire, Warrants to purchase 1,170,000 Common Shares (the "Series A Warrants") were immediately exercisable and Warrants to purchase 544,285 Common Shares (the "Series B Warrants") became exercisable upon shareholder approval at the 2001 Annual Meeting. Share appreciation expense for Series B Warrants of $58.8 million was recorded during 2001 representing an increase in the value of Common Shares during the period in which the Series B Warrants were not exercisable by Berkshire. Upon shareholder approval at the August 23, 2001 Annual Meeting, the Series B Warrants were reclassified to common shareholders' equity.

        In April 2001, the Company completed a tender offer and consent solicitation for $96.3 million in outstanding medium-term notes (the "Debt Tender"), which facilitated the Acquisition by amending the indenture governing its medium-term notes ("the "Notes"). Pursuant to the Debt Tender, the Company repurchased and retired $90.9 million of its Notes and subsequently prepaid, through a fully-funded irrevocable escrow arrangement (the "Debt Escrow"), the balance of the Notes. The Company recorded a $4.8 million extraordinary loss on extinguishment of debt in connection with the Debt Tender and the Debt Escrow during 2001.

        Net income of $95.0 million from discontinued operations was recorded during 2000 related to a tax reserve release associated with the sale of Fireman's Fund Insurance Company ("Fireman's Fund") in 1991.

55

---

II. Investment Results.Philosophy

        White Mountains manages all of its consolidated investments through its wholly-owned subsidiary, WM Advisors. A breakdown of White Mountains' consolidated investment results for the years ended December 31, 2002, 2001 and 2000 follows:

		Year Ended December 31,
Millions
		2002			2001			2000
Net investment income		$	352.7		$	284.5		$	85.9
Net realized investment gains (losses)			156.0			173.1			(8.8	)
Pre-tax investment income and realized gains (losses)			508.7			457.6			77.1
Income taxes on investment income and realized gains (losses)			(144.1	)		(143.3	)		(18.0	)
After-tax unrealized investment gains (losses)			202.3			(42.5	)		39.7
After-tax equity in earnings (loss) of unconsolidated affiliates			14.0			.4			(2.1	)
Comprehensive net income from investments		$	580.9		$	272.2		$	96.7

Overview

White Mountains' investment philosophy is to invest allits assets with a view towards maximizing its after-tax total return over extended periods of time. Under this approach, each dollar of after-tax investment income and realized and unrealized gains and losses is valued equally. White Mountains' overall fixed maturity investment strategy is to purchase securities that are attractively priced in relation to perceived credit risks. White Mountains generally manages the interest rate risk associated with holding fixed maturity investments by actively monitoring and maintaining the average duration of the portfolio with the goal of achieving an adequate after-tax total return without subjecting the portfolio to an unreasonable level of interest rate risk. White Mountains' investment portfolio mix as of December 31, 2002 was focused on capital preservation and2004 consisted in large part of high-quality, fixed maturity investments and short-term investments.

        A breakdown ofinvestments, as well as some equity investments and limited partnerships. White Mountains' investment portfolio asmanagement believes that prudent levels of December 31, 2002 and 2001 follows:

		December 31,
Millions
		2002					2001
Fixed maturity investments		$	6,669.1		75	%	$	6,128.3		68	%
Short-term investments			1,790.6		20			2,545.8		28
Common equity securities			275.0		3			173.6		2
Other investments			164.7		2			158.0		2
Total investments		$	8,899.4		100	%	$	9,005.7		100	%

        White Mountains' fixed maturity portfolio avoided the significant credit problems experienced throughout the public markets during 2002. As of December 31, 2002, the duration of the fixed maturity portfolio, including short-term investments was approximately 3.4 years. During 2002, OneBeacon began to purchase a modest amount ofin common equity securities and convertible securities, primarily in the electric utility industry.

        Under current market conditions, WM Advisors has been gradually accumulating value equities in response to a fairly valued stock market, and gradually shortening White Mountains' fixed maturity portfolio in response to historically low rates.

56

---

Results

        White Mountains was pleased withother investments within its overall investment results during 2002. White Mountains' fixed maturity portfolios achieved returns while avoiding credit problems and its investments in common equities generated gains for the year despite large losses generally experienced in the U.S. markets. White Mountains' total portfolio provided a pre-tax return of 11.4% during 2002 (valuing White Mountains' equity investment in Montpelier's common shares at quoted market value and excluding interest rate swap contracts) compared to 6.5% in 2001 and 8.9% in 2000.

        White Mountains' net investment income is comprised primarily of interest income associated with its substantial portfolio of fixed maturity investments and dividend income from its equity investments. The significant increase in investment income from 2001 to 2002 was due primarily to the inclusion of a full year of investment income generated by OneBeacon's assets in the 2002 results as compared to the seven months of OneBeacon's post-Acquisition investment activity included in the 2001 results.

        White Mountains recorded $156.0 million of realized investment gains during 2002, compared to $173.1 million during 2001, principally from sales of fixed maturity investments during both periods. During 2002, the Company recognized a $58.0 million gain on its Montpelier warrants in its GAAP financial statements. It recognized a $47.4 million loss related to its interest rate swap agreements due to the decrease in market interest rates during the year. During 2001, White Mountains sold a large portion of its fixed maturity investment portfolio including its portfolio of mortgage-backed securities, and subsequently reinvestedare likely to enhance after-tax total returns without significantly increasing the proceeds in fixed maturity and short-term investments.

        During 2002, White Mountains' net increase in after-tax unrealized investment gains was principally the result of significant decreases in market interest rates. During 2001, the net decrease in after-tax net unrealized gains for investments resulted principally from the realization of gains as a result of White Mountains's sale of a large portion of its fixed maturity investment portfolio.

57

---

Other-than-temporary Impairment

        The following table presents an analysisrisk profile of the continuous periods during which White Mountains has held investment positions which were carried at an unrealized loss as of December 31, 2002 (excluding short-term investments):

			December 31, 2002
Dollars in Millions			0–6 Months			6–12 Months			Greater Than 12 Months			Total
Fixed Maturity Investments:
	Number of positions			77			11			25			113
	Market value		$	423.1		$	22.5		$	13.5		$	459.1
	Amortized cost		$	442.5		$	22.7		$	15.2		$	480.4
	Unrealized loss		$	(19.4	)	$	(.2	)	$	(1.7	)	$	(21.3	)
Common Equity Securities:
	Number of positions			48			2			1			51
	Market value		$	119.0		$	.6		$	.3		$	119.9
	Amortized cost		$	139.8		$	.7		$	.4		$	140.9
	Unrealized loss		$	(20.8	)	$	(.1	)	$	(.1	)	$	(21.0	)
Other Investments:
	Number of positions			4			2			6			12
	Market value		$	5.5		$	5.8		$	6.8		$	18.1
	Amortized cost		$	6.5		$	6.9		$	10.6		$	24.0
	Unrealized loss		$	(1.0	)	$	(1.1	)	$	(3.8	)	$	(5.9	)
Total:
	Number of positions			129			15			32			176
	Market value		$	547.6		$	28.9		$	20.6		$	597.1
	Amortized cost		$	588.8		$	30.3		$	26.2		$	645.3
	Unrealized loss		$	(41.2	)	$	(1.4	)	$	(5.6	)	$	(48.2	)
% of total gross unrealized losses				85%			3%			12%			100%

        Management believes that the gross unrealized losses recorded on White Mountains' fixed maturity investment portfolio at December 31, 2002 resulted primarily from increases in market interest rates from the dates that certain investments within that portfolio were acquired as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, these decreases in values are viewed as being temporary as White Mountains has the intent and ability to retain such investments for a period of time sufficient to allow for any anticipated recovery in market value. Management also believes that the gross unrealized losses recorded on White Mountains' portfolio of common equity and other investments at December 31, 2002 resulted primarily from decreases in quoted market values from the dates that certain investments securities within that portfolio were acquired as opposed to fundamental changes in the issuer's financial performance and near-term financial prospects. Therefore, these decreases are also viewed as being temporary. As of December 31, 2002, no single investment security within White Mountains' investment portfolio had an after-tax unrealized loss of more than $5.0 million.

        White Mountains assesses other-than-temporary impairments based on security-specific facts, circumstances and intentions as of the balance sheet date. During 2002, White Mountains experienced $9.6 million in pretax other-than-temporary impairment charges. Of the charge recorded in 2002, $4.9 million related to White Mountains' investment in Insurance Partners and $3.5 million was related to its investment in the Conning Connecticut Insurance Fund. Both of these investments are limited partnerships that are carried in other investments in White Mountains' consolidated balance sheet.

58

---

White Mountains did not experience any material impairment charges relating to any other individual investment security during any of the three years ended December 31, 2002.

        Temporary losses on investment securities are recorded as unrealized losses. Temporary losses do not impact net income and earnings per common share but do reduce comprehensive net income, shareholders' equity and tangible book value. Unrealized losses subsequently identified as other-than-temporary impairments are recorded as realized losses. Other-than-temporary impairments previously recorded as unrealized losses do not impact comprehensive net income, shareholders' equity and tangible book value but do reduce net income and earnings per common share.

III. Discussion of Other Consolidated Items

Share-based Compensation

        White Mountains' share-based compensation plans, consisting primarily of performance shares, are designed to maximize shareholder valuewhen considered over long periods of time by aligningwhen balanced with leverage and insurance risk considerations. White Mountains seeks to maximize after-tax risk-adjusted returns over the financial interestslong term.

Investment Returns

        White Mountains generated strong investment returns in 2004. The GAAP total return on invested assets was 7%, while the equity portfolio returned 20% for the year. The equity return was significantly better than the S&P 500, which returned 11% for the year, while the bond portfolio performed in line with its duration and credit characteristics. Management is continuing to keep its fixed maturity portfolio duration relatively short at about 3 years to reflect its concern that interest rates may rise in the next few years. Net investment income was up 24% from last year mainly due to the Sirius Acquisition, after declining 21% in 2003 primarily due to the decline in reserves at OneBeacon as its premium volume was reduced.

        White Mountains sold a portion of its management with thoseinvestment in Montpelier common shares during the first quarter of its owners. The Board2004 resulting in a $35 million pre-tax realized gain and, as a result, changed the method of Directors (the "Board") believes that share-based compensationaccounting for its key employees shouldremaining Montpelier common shares to the fair value method, resulting in a $33 million increase in after-tax unrealized gains in the first quarter.

Impairment

        SeeNote 5—Investments of the accompanying consolidated financial statements for White Mountains' analysis of impairment losses on investment securities.

NON-GAAP FINANCIAL MEASURES

        This report includes two non-GAAP financial measures that have been reconciled to their most comparable GAAP financial measures. White Mountains believes these measures to be payablemore relevant than comparable GAAP measures in full only ifevaluating White Mountains' financial performance.

        Adjusted comprehensive net income is a non-GAAP measure that excludes the Company achieves superior returns for its owners. Performance shareschange in net unrealized gains from Symetra's fixed maturity portfolio from comprehensive net income. GAAP requires these assets to be marked-to-market, which results in gains during periods when interest rates fall and losses in periods when interest rates rise. Because the liabilities related to the life insurance and structured settlement products that these assets support are payable upon achievementnot marked-to-market, it is likely that the economic impact on Symetra would be the opposite of pre-defined business goalsthat shown under GAAP (i.e., in general, Symetra's intrinsic value increases when interest rates rise and are valued baseddecreases when interest rates fall). The reconciliation of adjusted comprehensive net income to comprehensive net income is included on page 43.

        Book value per share is derived by dividing the market valueCompany's total GAAP shareholders' equity as of a given date by the number of Common Shares atoutstanding as of that date, including the time awards are earned. Performance shares are typically paid in cash, though they may be paid indilutive effects of outstanding Options and warrants to acquire Common Shares, atas well as the electionunamortized accretion of preferred stock. Fully converted tangible book value per share is a non-GAAP measure which is derived by expanding the Board. The target of White Mountains' performanceGAAP book value per share programs is linkedcalculation to achievement of an overall annualized return of at least equal to the market yield available from a ten-year U.S. Treasury note plus 700 basis points at the time of grant (11% for the 2003 grant). White Mountains' policy is to expense all its share-based compensation, including its outstanding Options. As a result, the Company's calculation of return includes the full expense of all outstanding share-based compensation awards.

        During 2002, 2001 and 2000, White Mountains recorded compensation charges of $63.5 million, $31.6 million and $25.8 million, respectively, for outstanding performance shares. In addition, White Mountains issued 94,500 Restricted Shares in 2001 and issued a one-time award of 81,000 Options during 2000. During 2002 and 2001, White Mountains recorded compensation charges relating to Options of $.7 million and $9.5 million, respectively, and recorded compensation expense charges relating to Restricted Shares of $16.2 million and $10.4 million, respectively.

Deferred Credits

        In June 2001, the FASB issued SFAS No. 141 and SFAS No. 142, which affected the way the Company had previously recognized deferred credits and goodwill. Unamortized deferred credits arising from business combinations prior to July 1, 2001 were recognized through the income statement as a change in accounting principle on January 1, 2002. Deferred credits arising from business combinations on or after July 1, 2001 have been recognized immediately upon completion of the combination through the income statement as an extraordinary gain. Finally, goodwill is no longer systematically amortized over a perceived benefit period and a write down to goodwill is now recognized when it is considered to be impaired.

        On January 1, 2002, in accordance with SFAS No. 141, White Mountains recognized all its unamortized deferred credits, which amounted to $641.4 million at its holding companies, entirely related to its acquisition of

        OneBeacon, and $41.1 million at its reinsurance segment, primarily from Folksamerica's acquisition of PCA. White Mountains also recognized a $22.3 million transitional impairment loss in accordance with SFAS No. 142, primarily related to goodwill associated with Folksamerica's acquisition of Risk

59

---

Capital. All of these items were recognized through the income statement as a cumulative effect of a change in accounting principle.

        In accordance with SFAS No. 141, for the years ended December 31, 2002 and 2001, White Mountains recognized extraordinary gains of $7.1 million and $16.6 million, respectively, at its reinsurance segment representing the excess of fair value of net assets acquired over their costs for acquisitions made after June 30, 2001. Folksamerica recognized $7.1 million during the second quarter of 2002 in connection with its acquisition of Imperial in April 2002 and $13.6 million during the third quarter of 2001 in connection with its acquisition of C-F. Fund American Re recognized $3.0 million during the fourth quarter of 2001 in connection with its acquisition of the net assets of the international reinsurance operations of Folksam in December 2001.

        Prior to its adoption of SFAS Nos. 141 and 142, White Mountains recognized $91.6 million and $41.4 million during 2001 and 2000, respectively, in income from the amortization of deferred credits.

Income Taxes

        The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries. The majority of the Company's worldwide operations are taxed in the United States. Income earned or losses incurred by non-U.S. companies will generally be subject to an overall effective tax rate lower than that imposed by the United States.

        The income tax provision related to pretax earnings for 2002, 2001 and 2000 represents an effective tax rate of 9.8%, 41.9% and 12.0%, respectively. White Mountains' effective tax rate for 2002 and 2000 was lower than the U.S. statuory rate of 35% primarily from income generated in jurisdictions other than the United States. White Mountains' effective tax rate for 2001 (resulting from a net loss reported during the period) was greater than the U.S. statutory rate of 35% primarily as a result ofinclude the effects of deferred credit amortization.assumed conversion of all convertible securities and to exclude any unamortized goodwill and net unrealized gains from Symetra's fixed maturity portfolio. The reconciliation of fully converted tangible book value per share to book value per share is included on page 42.

LIQUIDITY AND CAPITAL RESOURCES

Operating cash and short-term investments

Operating Cash and Short Term Investments        Holding company level.

    The primary sources of cash inflows for the Company and certain of its intermediate holding companies are investment income, sales of investment securities, dividends and tax sharing payments received from its insurance and reinsurance operating subsidiaries, financing activities and net investment income and proceeds from sales and maturities of holding company investments. The primary uses of cash are interest payments on the Senior Notes, dividend payments on the Berkshire and Zenith Preferred Stock as well as on Common Shares, purchases of investments and holding company operating subsidiaries.expenses.

        Operating subsidiary level.    The primary sources of cash for White Mountains' insurance and reinsurance operating subsidiaries are premium collections, net investment income and proceeds from sales and maturities of investments. The primary uses of cash are claim payments, policy acquisition costs, operating expenses, the purchase of investments and dividend and tax sharing payments made to parent holding companies.

        Both internal and external forces influence White Mountains' financial condition, results of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to White Mountains and the settlement of the liability for that loss. The exact timing of the payment of claims and benefits cannot be predicted with certainty. White Mountains' insurance and reinsurance operating subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of short-term investments to provide adequate cash for the payment of claims.

        Management believes that White Mountains' cash balances, cash flows from operations, routine sales of investments and the liquidity provided by its Bank Facility are adequate to meet expected cash requirements for the foreseeable future on both a holding company and insurance and reinsurance operating subsidiary level.

Dividend Capacity

        Under the insurance laws of the states and jurisdictions under which the holding companies of White Mountains' insurance and reinsurance operating subsidiaries are domiciled, an insurer is restricted with respect to the timing or the amount of dividends it may pay without prior approval by regulatory authorities. Accordingly, there can be no assurance regarding the amount of such dividends that may be paid by such subsidiaries in the future. In 2003,Following is a description of the Company's first tierability of White Mountains' insurance and reinsurance operating subsidiaries to pay dividends to the Company and certain of its intermediate holding companies:

OneBeacon:

        Generally, OneBeacon's regulated insurance operating subsidiaries have the ability to pay dividends of approximately $261.5 million to FACduring any 12 month period without the prior approval of regulatory authorities.authorities in an amount equal to the greater of prior year statutory net income or 10% of prior year end statutory surplus, subject to the availability of unassigned funds. As a result, based on 2004 statutory net income, OneBeacon's top tier regulated insurance operating subsidiaries have the ability to pay $325 million of dividends during 2005 without prior approval of regulatory authorities, subject to the availability of unassigned funds. As of December 31, 2004, OneBeacon's top tier regulated insurance operating subsidiaries had $1.3 billion of unassigned funds available for dividend distribution.

        White Mountains' consolidated sourcesIn addition, as of December 31, 2004, OneBeacon had $195 million of cash consist primarilyand investments outside of premium collections,its regulated insurance operating subsidiaries available for distribution during 2005. During 2004, OneBeacon paid $305 million of cash dividends to Fund American.

White Mountains Re:

        Folksamerica's principal regulated reinsurance operating subsidiary has the ability to pay dividends during any 12 month period without the prior approval of regulatory authorities in an amount equal to the lesser of net investment income, financing activities and proceeds from sales and maturitiesas defined by statute, or 10% of investments. White Mountains' consolidated usesstatutory surplus, in both cases as most recently reported to regulatory authorities, subject to the availability of earned surplus. As a result, based upon December 31, 2004 statutory surplus of $917 million, Folksamerica's principal regulated reinsurance operating subsidiary would have the ability to pay approximately $92 million of dividends during 2005 without prior approval of regulatory authorities, subject to the availability of earned surplus. As of December 31, 2004, Folksamerica's principal regulated reinsurance operating subsidiary had $17 million of earned surplus, therefore it can pay dividends of $17 million plus additional earned surplus reported during 2005, subject to the $92 million limitation discussed above.

        As of December 31, 2004, WMU had $3 million of cash are primarily claim payments,and investments available for distribution during 2005. In addition, WMU has the ability to distribute its 2005 earnings without restriction. During 2004, WMU paid $60 million of cash dividends to its immediate parent.

        In addition, as of December 31, 2004, White Mountains Re had approximately $97 million of cash and investments outside of its regulated insurance and reinsurance operating expenses, financing costs andsubsidiaries available for distribution during 2005.

Safety Reserve

        In accordance with provisions of Swedish law, Sirius International can voluntarily transfer its pretax earnings, or a portion thereof, subject to certain limitations, into an untaxed reserve referred to as a safety reserve. The safety reserve is a Swedish regulatory concept that has no equivalent under GAAP. Accordingly, under GAAP, an amount equal to Sirius International's safety reserve of $1.1 billion at December 31, 2004, net of the purchaserelated deferred tax liability established at the statutory Swedish tax rate of investments.28%, is classified as equity. Generally, this deferred tax liability is only required to be paid by Sirius

International if it fails to maintain predetermined levels of premium writings in future years. As a result of the Renewal Rights Agreement, OneBeacon will run-off the claims on business transferred to Liberty Mutual. Therefore, OneBeacon will need to periodically liquidate invested assets to fund the paymentindefinite deferral of these claims and will manage its short-term liquidity needs accordingly.taxes, Swedish regulatory authorities do not apply any taxes to the safety reserve when calculating solvency capital under Swedish insurance regulations.

Keep-Well

        Both internal and external forces influence the Company's financial condition, resultsOn November 30, 2004, White Mountains completed a significant corporate reorganization, through which ownership of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up

60

---

to several years or more, may lapse between the occurrence of an insured loss, the reporting of the lossFolksamerica was transferred to White Mountains Re from Fund American. In order to effect the reorganization, White Mountains and Fund American entered into or amended certain agreements with respect to the settlementBerkshire Preferred Stock. Under the terms of a Keep-Well Agreement dated November 30, 2004 between White Mountains and Fund American (the "Keep-Well"), White Mountains has agreed to return to Fund American up to approximately $1.1 billion, which equals the amount of net assets transferred out of Fund American as a result of the liabilityreorganization, if some or all of that amount is required by Fund American to meet its obligations to Berkshire under the Berkshire Preferred Stock. Additionally, the Keep-Well limits the aggregate amount of distributions that White Mountains may make to its shareholders to approximately $1.3 billion plus White Mountains' aggregate consolidated net income after September 30, 2004. The Keep-Well will expire when all obligations of the Berkshire Preferred Stock, which is redeemable in May 2008, have been satisfied, or when approximately $1.1 billion has been returned to Fund American.

Insurance Float

        Insurance float is an important dynamic of White Mountains' operations that must be managed effectively. Float is money that an insurance company holds for a limited time. In an insurance operation, float arises because premiums are collected before losses are paid. This interval can extend over many years. During that loss. Management believestime, the insurer invests the money. When the premiums that an insurer collects do not cover the Company'slosses and expenses it eventually must pay, the result is an underwriting loss, which is considered to be the cost of float. The amount and cost of float for White Mountains is affected by underlying market conditions, as well as acquisitions or dispositions of insurance and reinsurance businesses. Although insurance float can be calculated using numbers determined under GAAP, insurance float is not a GAAP concept and therefore there is no comparable GAAP measure.

        One of the means by which White Mountains calculates its insurance float is by taking its net investment assets and subtracting its total tangible capital. The following table illustrates White Mountains' consolidated insurance float position as of the past five year-ends:

				December 31,
($ in millions)
				2004			2003			2002			2001			2000
Total investments				$	10,529.5		$	8,547.5		$	8,899.4		$	9,005.7		$	2,102.2
Cash					243.1			89.9			121.5			67.4			4.4
Investment in unconsolidated insurance affiliate(s)					466.6			515.9			399.9			311.1			130.6
Equity in net unrealized gains from Symetra's fixed maturity portfolio					(56.6	)		—			—			—			—
Accounts receivable on unsettled investment sales					19.9			9.1			160.8			75.2			—
Accounts payable on unsettled investment purchases					(30.9	)		(371.6	)		(495.2	)		(311.2	)		(.2	)
Interest-bearing funds held by ceding companies(1)					516.9			70.4			50.1			42.9			23.4
Interest-bearing funds held under reinsurance treaties(1)					(105.1	)		(152.5	)		(236.2	)		(311.0	)		(400.6	)
	Net investment assets			$	11,583.4		$	8,708.7		$	8,900.3		$	8,880.1		$	1,859.8
Total common shareholders' equity				$	3,883.9		$	2,979.2		$	2,407.9		$	1,444.6		$	1,046.5
Debt					783.3			743.0			793.2			1,125.4			96.0
Preferred stock subject to mandatory redemption					211.9			194.5			180.9			170.3			—
Convertible preference shares					—			—			219.0			—			—
Less:
		Unamortized deferred credits and goodwill			(20.0	)		(20.3	)		—			660.2			66.8
		Equity in net unrealized gains from Symetra's fixed maturity portfolio			(56.6	)		—			—			—			—
	Total tangible capital			$	4,802.5		$	3,896.4		$	3,601.0		$	3,400.5		$	1,209.3
	Insurance float			$	6,780.9		$	4,812.3		$	5,299.3		$	5,479.6		$	650.5
Insurance float as a multiple of total tangible capital					1.4	x		1.2	x		1.5	x		1.6	x		0.5	x
Net investment assets as a multiple of total tangible capital					2.4	x		2.2	x		2.5	x		2.6	x		1.5	x
Insurance float as a multiple of common shareholders' equity					1.7	x		1.6	x		2.2	x		3.8	x		0.6	x
Net investment assets as a multiple of common shareholders' equity					3.0	x		2.9	x		3.7	x		6.1	x		1.8	x

---

(1)

Excludes funds held by ceding companies from which White Mountains does not receive interest credits and excludes funds held by White Mountains under reinsurance treaties for which White Mountains does not provide interest credits.

        White Mountains has historically obtained its float primarily through acquisitions, as opposed to organic growth. For each of the years in the three-year period ending December 31, 2004, White Mountains has had negative cash balances,flows from operations but has generated significant float from its insurance and reinsurance operations. This is due to the fact that White Mountains' cash flow from operations routine salesdoes not reflect cash and investments generated by the acquisition of insurance and

reinsurance businesses in recent years. Post-acquisition, such companies are often placed into partial or complete run-off, thereby resulting in negative cash flows from operations as the investments acquired are liquidated over time to pay claims.

        In the case of OneBeacon, the substantial amount of float initially acquired with the OneBeacon Acquisition has shrunk as a result of OneBeacon's re-underwriting efforts and the liquidity providedeffects of the Liberty Agreement. OneBeacon's float is expected to continue to shrink during 2005 as older, long-tailed loss reserves are paid and are not replaced with the same level of current writings as those written in the past. In the case of White Mountains Re, its float increased substantially in 2004 as a result of the Sirius and Sierra acquisitions. White Mountains Re's float is expected to increase during 2005 as a result of higher premium writings from its increased capital base and acquisitions over the past few years.

        It is White Mountains' intention to generate low-cost float over time through a combination of acquisitions and/or by the Bank Facility are adequateorganic growth in its existing insurance and reinsurance operations. However, White Mountains will seek to meet expected cash requirementsincrease its float organically only when market conditions allow for the foreseeable future.an expectation of generating underwriting profits.

Financing

        The following table summarizes White Mountains' capital structure as of December 31, 20022004 and 2001:2003:

Millions			December 31, 2002			December 31, 2001
Bank Facility			$	746.4		$	825.0
Seller Note				—			260.0
Other debt				46.8			40.4
	Total debt		$	793.2		$	1,125.4
Common shareholders' equity				2,407.9			1,444.6
Convertible preference shares				219.0			—
Mandatorily redeemable preferred stock of subsidiaries				180.9			170.3
	Total capitalization		$	3,601.0		$	2,740.3

        On October 31, 2002, FAC completed an amendment

			December 31,
$ in millions
			2004			2003
Senior Notes, carrying value			$	698.3		$	698.1
Bank Facility				—			—
Other debt of operating subsidiaries(1)				85.0			44.9
	Total debt			783.3			743.0
Preferred stock subject to mandatory redemption				211.9			194.5
Total common shareholders' equity				3,883.9			2,979.2
Unamortized goodwill of consolidated limited partnerships				(20.0	)		(20.3	)
Equity in net unrealized gains from Symetra's fixed maturity portfolio				(56.6	)		—
	Total tangible capital		$	4,802.5		$	3,896.4
Senior Notes to total tangible capital				15	%		18	%
Total debt to total tangible capital				16	%		19	%
Total debt and preferred stock to total tangible capital				21	%		24	%

---

(1)

SeeNote 6—Debt of the Bank Facility, which included the issuanceaccompanying Consolidated Financial Statements for a discussion of a new $143.8 million Tranche C term loan that was utilized to refinance a portion of the existing $228.8 million Tranche A term loan. The new Tranche C term loan has nominal amortization until its final maturity in March 2007. The refinancing reduces the amount of quarterly amortization payments FAC must make over the next four years. The applicable eurodollar rate margin on the new Tranche C term loan is 87.5 basis points higher than the margin on the existing Tranche A term loan, and the applicable eurodollar rate margin on the existing and otherwise unchanged Tranche B term loan was increased by 12.5 basis points. In connection with the amendment, certain financial and other covenants that governed the Bank Facility were relaxed or eliminated, thereby increasing the Company's operational and financial flexibility.

        On October 24, 2002, White Mountains sold $225.0 million of its equity securities in private transactions. Investment funds managed by Franklin Mutual Advisers, LLC, already large shareholders of White Mountains, purchased 677,966 convertible preference shares of the Company at a price of $200.0 million ($295.00 per share), which had the effect of increasing the Franklin Mutual-managed investment funds' ownership in White Mountains from 12% to 17% on a fully converted basis. The convertible preference shares bear an annual dividend of $2.95 per share, payable in installments on June 30 and December 31, and will be automatically converted into 677,966 Common Shares of the Company upon approval by shareholders. White Mountains intends to seek shareholder approval at its 2003 Annual Meeting. If shareholder approval has not been obtained prior to March 31, 2005, each holder of convertible preference shares will thereafter have the right to require the Company to repurchase for cash the convertible preference shares on an "as converted" basis at the then-current market price of a Common Share. In addition, investment funds managed by Highfields Capital Management LP purchased 84,745 Common Shares for $25.0 million ($295.00 per Common Share). The proceeds from these private equity issuances, along with cash on hand, were used to repay the $260.0 million Seller Note on November 29, 2002.

operating subsidiary debt.

        Management believes that White Mountains' strong financial strengthposition provides it with the flexibility and capacity to obtain funds externally as needed through debt or equity financing on both a short-term and long-term basis. In May 2003, White Mountains has primarily accessedreduced its cost of capital and significantly reduced its near-term obligations by fully prepaying its previous $740 million amortizing bank facility, principally through the net proceeds from the issuance of the Senior Notes, which were issued by Fund American through a public offering. The Senior Notes bear a fixed annual interest rate of 5.9% and mature in May 2013. In July 2003, White Mountains enhanced its access to the capital markets by having a shelf registration declared effective by the SEC for offerings of up to $2.0 billion in debt andand/or equity markets in connection withsecurities.

61

---

acquisitions, most notably        In August 2004, Fund American restructured and re-syndicated its existing $300 million Bank Facility to increase the acquisition of OneBeacon in June 2001. To fundavailability under the Acquisition, White Mountains undertookrevolving credit facility to $400 million and to extend the following capital raising activities:

(a)

Issued convertible preference shares for $437.6 million (which were retired and convertedmaturity from September 2006 to Common Shares in August 2001) and issued to Berkshire, for $75.0 million in cash, Warrants to acquire 1,714,285 Common Shares at an exercise price of $175.00 per Common Share. The Warrants have a term of seven years from the date of issuance, although the Company has the right to call the Warrants for $60.0 million in cash commencing on the fourth anniversary of their issuance. As a result of White Mountains' private equity issuances in the fourth quarter of 2002, customary anti-dilution provisions applicable to the Warrants increased the number of Common Shares purchasable on exercise of the Warrants to 1,724,200 and decreased the exercise price per Common Share of the Warrants to $173.99.

(b)

Issued two separate classes of subsidiary preferred stock. For $225.0 million in cash, Berkshire purchased cumulative non-voting subsidiary preferred stock with a face value of $300.0 million, which is entitled to a dividend of 2.35% per quarter and is mandatorily redeemable seven years after issuance. Zenith purchased $20.0 million in cumulative non-voting subsidiary preferred stock, which is entitled to a dividend of 2.5% per quarter through June 30, 2007 and a dividend of 3.5% per quarter thereafter. This preferred stock is mandatorily redeemable ten years after issuance, and may be called by White Mountains at par commencing June 30, 2007.

(c)

Borrowed $825.0 million under2009. Under the Bank Facility, for which was comprisedboth Fund American and the Company are permitted borrowers, the Company guarantees all obligations of two term loan facilities (subsequently refinanced into three term loan facilities)Fund American, and a revolving credit facility. The original term loan facilities were comprisedFund American guarantees all borrowings of a $300.0 million amortizing Tranche A term loan with a five-year maturity and a $400.0 million amortizing Tranche B term loan with a six-year maturity. See the discussion above forCompany, subject to certain limitations imposed by the terms of the refinanced term loan facilities. The revolving credit facility provides for revolving credit loans of up to $175.0 million, including up to $25.0 million available for the issuance of letters of credit. The revolving credit facility matures on June 1, 2006.Berkshire Preferred Stock. As of December 31, 2002, $50.0 million was available under the revolving credit facility.

(d)

Issued the Seller Note to Aviva. The $260.0 million Seller Note was repaid on November 29, 2002 in cash, provided in part by the private equity issuances that White Mountains completed in October 2002.

62

---

Contractual Obligations and Covenants

        Below is a schedule of White Mountains' material contractual obligations and commitments as of December 31, 2002:

December 31, 2002		Due in One Year or Less			Due in Two Years			Due in Three Years			Due in Four Years			Due After Four Years			Total
		Millions
Debt		$	33.4		$	31.3		$	59.2		$	139.5		$	529.8		$	793.2
Mandatorily redeemable preferred stock			—			—			—			—			320.0			320.0
Operating leases			35.6			29.0			26.7			25.5			46.1			162.9
Total contractual obligations		$	69.0		$	60.3		$	85.9		$	165.0		$	895.9		$	1,276.1

        For comparative purposes, set forth below is a schedule of White Mountains' material contractual obligations and commitments as of December 31, 2001:

December 31, 2001		Due in One Year or Less			Due in Two Years			Due in Three Years			Due in Four Years			Due After Four Years			Total
		Millions
Debt		$	358.4		$	67.2		$	69.6		$	102.1		$	528.1		$	1,125.4
Mandatorily redeemable preferred stock			—			—			—			—			320.0			320.0
Operating leases			33.5			28.7			19.9			16.8			43.1			142.0
Total contractual obligations		$	391.9		$	95.9		$	89.5		$	118.9		$	891.2		$	1,587.4

        During 2002, through the refinancing of2004, the Bank Facility and the repaymentwas undrawn.

        In connection with its acquisition of the SellerSierra Group on March 31, 2004, Folksamerica entered into a $62 million purchase note (the "Sierra Note"), $58 million of which will be adjusted over its approximate six-year term to reflect favorable or adverse loss reserve development on the acquired reserve portfolio and run-off of remaining policies in force (mainly workers compensation business) as well as certain other balance sheet protections. During 2004, the Sierra Note was reduced by $12 million as a result of adverse development on the acquired reserves and run-off of unearned premiums.

        In connection with its acquisition of Atlantic Specialty on March 31, 2004, OneBeacon issued a $20 million ten-year note to the seller (the "Atlantic Specialty Note"). OneBeacon is required to repay $2 million of principal on the notes per year, commencing with the first payment due on January 1, 2007.

        Fund American's Senior Notes are currently rated "Baa2" (Adequate, the 9^th highest of 21 ratings) with a stable outlook by Moody's and "BBB-" (Adequate, the 10^th highest of 24 ratings) with a positive outlook by S&P and "BBB" (Good, the 9th highest of 24 ratings) with a stable outlook by Fitch Ratings. It is possible that, in the future, one or more of the rating agencies may lower White Mountains' existing ratings. If one or more of its ratings were downgraded, White Mountains significantly reducedcould incur higher borrowing costs and its near-term obligations.ability to access the capital markets could be impacted. In addition, White Mountains' debt dueinsurance and reinsurance operating subsidiaries could be adversely impacted by a downgrade in one-yeartheir financial strength ratings, including a possible reduction in demand for their products in certain markets.

        The Senior Notes were issued under an indenture which contains restrictive covenants that, among other things, limit the ability of the Company, Fund American and their respective subsidiaries to create liens and enter into sale and leaseback transactions and substantially limits the ability of Fund American and its respective subsidiaries to consolidate, merge or less astransfer their properties and assets. The indenture does not contain any financial ratios or specified levels of net worth or liquidity to which the Company or Fund American must adhere. At December 31, 2002 includes $5.1 million2004, White Mountains was in other indebtedness, which was subsequently repaid in February 2003, and scheduled principal amortizationcompliance with all of $28.3 millionthe covenants under the Bank Facility.Senior Notes, and anticipates it will continue to remain in compliance with these covenants for the foreseeable future.

        The Bank Facility contains various affirmative, negative and financial covenants which areWhite Mountains considers to be customary for such borrowings and include requirements to meetmaintaining certain minimum net worth and financial ratio standards.maximum debt to capitalization standards for White Mountains. Failure to meet one or more of these covenants could result in an event of default, which ultimately could accelerate requiredeliminate availability under the facility and result in acceleration of principal repayments.repayment on any amounts outstanding. At December 31, 2002,2004, White Mountains was in compliance with all of the covenants under the Bank Facility, and anticipates it will continue to meet the financialremain in compliance with these covenants under the Bank Facility for the foreseeable future.

Contractual Obligations and Commitments

        Below is a schedule of White Mountains' material contractual obligations and commitments as of December 31, 2004:

Millions			Due in One Year or Less			Due in Two to Three Years			Due in Four to Five Years			Due After Five Years			Total
Debt			$	—		$	17.0		$	4.0		$	764.0		$	785.0
Mandatorily redeemable preferred stock				—			—			300.0			20.0			320.0
Loss and LAE reserves(1)				2,967.9			3,026.4			1,485.0			2,588.2			10,067.5
Reserves for structured contracts				69.5			102.9			68.5			135.0			375.9
Interest on debt and dividends and accretion on preferred stock subject to mandatory redemption				98.0			216.0			119.6			149.5			583.1
Long-term incentive compensation				248.1			250.3			6.2			61.3			565.9
Operating leases				41.8			71.8			26.3			28.6			168.5
	Total contractual obligations		$	3,425.3		$	3,684.4		$	2,009.6		$	3,746.6		$	12,865.9

---

(1)

Represents expected future cash outflows resulting from loss and LAE payments. Accordingly, these balances exclude the discount on OneBeacon's workers compensation loss and LAE reserves of $259.4 million and the remaining purchase accounting fair value adjustment of $409.6 million related to the OneBeacon and Sirius acquisitions as they are non-cash items. Further, the amounts presented include reinsurance recoverables recorded of $3,797.4 million.

        White Mountains' loss reserves do not have contractual maturity dates. However, based on historical payment patterns, the preceding table includes an estimate of when management expects White Mountains' loss reserves to be paid. The timing of claim payments is subject to significant uncertainty. White Mountains maintains a portfolio of marketable investments with varying maturities and a substantial amount of short-term investments to provide adequate cash flows for the payment of claims.

        The balances included in the table above regarding White Mountains' long-term incentive compensation plans include amounts payable for performance shares and units, as well as deferred compensation balances. Exact amounts to be paid cannot be predicted, for performance shares, with certainty, as the ultimate amounts of these liabilities are based on future performance of the Company and the market price of Common Shares at the time the payments are made. The estimated payments reflected in the table are based on current accrual factors (Common Share price and pay-out percentage) and assume that all outstanding balances were 100% vested as of December 31, 2004.

        There are no provisions within White Mountains' leasing agreements that would trigger acceleration of future lease payments. White Mountains does not finance its operations through the securitization of its trade receivables, through special purpose entities or through synthetic leases. Further, White Mountains has not entered into any material arrangement requiring it to guarantee payment of third party debt, lease payments or to fund losses of an unconsolidated special purpose entity.entity, except as noted in the following paragraph.

        In June 1999, White Mountains sold VGI to Unitrin, Inc. ("Unitrin") (the "VGI Sale"). As part of the VGI Sale,Through Sirius International, White Mountains has provided Unitrin with adverse loss development protectiona long term investment as a stockholder in LUC Holdings, an entity that has entered into a head lease to rent the London Underwriting Center ("LUC") through 2016. LUC Holdings in turn subleases space in the LUC. In the LUC Holdings stockholders agreement, the stockholders have guaranteed any shortfall between the head lease and the sub-leases on a joint and several basis. As a consequence, in recent years the stockholders have funded an operating shortfall of upLUC. At December 31, 2004, White Mountains has recorded a liability of $10 million for its share of the expected future shortfall between LUC Holdings' head lease payments

and sub-lease receipts. White Mountains does not believe that future shortfalls, if any, will have a material impact on its results of operations.

        White Mountains also has future binding commitments to $50.0fund certain limited partnership investments. These commitments, which total approximately $25.9 million, on loss reserves sold to Unitrin. Unitrin has made a demand fordo not have fixed funding dates and are therefore excluded from the full $50.0 million.table above.

        Detailed information concerning White Mountains' liquidity and capital resource activities during 2002, 20012004, 2003 and 20002002 follows:

For the Year Endedyear ended December 31, 2004

Financing and Other Capital Activities

        On June 29, 2004, Berkshire exercised of all of its warrants to purchase 1,724,200 Common Shares of White Mountains for $294 million. Berkshire acquired the warrants in connection with the financing of White Mountains' acquisition of OneBeacon in 2001. The warrants were exercisable at any time until May 2008 and callable by the Company on or after May 31, 2005. In consideration for the early exercise of the warrants, Berkshire and the Company agreed to reduce the exercise price by approximately 2%.

        During 2004, White Mountains declared and paid dividends of $9 million, $28 million and $2 million to holders of Common Shares, the Berkshire Preferred Stock and the Zenith Preferred Stock, respectively.

        During 2004, Fund American restructured and re-syndicated the Bank Facility to extend its maturity and to increase the availability of the revolving credit facility to $400 million.

        During 2004, White Mountains paid a total of $41 million in interest under the Senior Notes.

        During 2004, OneBeacon declared and paid a total of $305 million in cash dividends to Fund American. Also during 2004, WMU paid a total of $60 million of cash dividends to its immediate parent. On March 31, 2004, OneBeacon distributed Folksamerica to Fund American.

        During 2004, the Company issued a net total of 3,938 Common Shares to its employees through the exercise of Options during the year and the Company received cash proceeds of $.5 million in connection with these Option exercises. In addition, during the first quarter of 2004, White Mountains issued 27,772 Common Shares to employees of OneBeacon in connection with OneBeacon's employee stock ownership plan. OneBeacon paid $13 million to the Company in consideration for these Common Shares.

        On August 27, 2004, White Mountains repaid the $25 million note that was issued as part of the financing of its 2001 acquisition of C-F Insurance Company.

Acquisitions and Dispositions

        During 2004, White Mountains acquired Sirius for $428 million, 19% of Symetra for $195 million, Tryg-Baltica for $58 million, the Sierra Group for $14 million in cash and a $62 million note and Atlantic Specialty for $30 million in cash and a $20 million note.

        During 2004, White Mountains sold Potomac for $22 million, Western States, as well as its boiler inspection service business, for $15 million (both subsidiaries of OneBeacon) and Peninsula for $23 million.

        SeeNote 2—Significant Transactions of the accompanying Consolidated Financial Statements for further discussion of these transactions.

Other Liquidity and Capital Resource Activities

        During the first quarter of 2004, White Mountains sold 4.5 million common shares of Montpelier to third parties for net proceeds of $155.3 million. Also during the first quarter of 2004, White Mountains purchased additional warrants to acquire 2.4 million common shares of Montpelier from an existing warrant holder for $54.1 million in cash.

        During the first quarter of 2004, White Mountains made payments amounting to $127 million, in cash or by deferral into certain non-qualified compensation plans of the Company or its subsidiaries, to participants in its long-term incentive compensation plans. These payments were made with respect to 167,782 performance shares at payout levels ranging from 93% to 200% of target.

For the year ended December 31, 2003

Financing and Other Capital Activities

        In May 2003, Fund American issued the Senior Notes for net proceeds of $693 million. Using proceeds from the Senior Notes, Fund American repaid the entire $615 million of term loans outstanding under its previous bank facility. In addition, on May 27, 2003, using the remaining $78 million in proceeds from the Senior Notes and cash on hand, Fund American repaid the entire $125 million of revolving loans outstanding under its previous bank facility. In connection with the repayment of its previous bank facility, Fund American paid an aggregate $56 million to unwind all of its existing interest rate swap agreements.

        In September 2003, Fund American established its $300 million revolving Bank Facility. As discussed earlier, this Bank Facility was restructured and re-syndicated in August 2004.

        During 2003, White Mountains paid a total of $20 million in interest under the Senior Notes.

        During 2003, White Mountains made scheduled principal amortization payments of $7 million and paid a total of $23 million in interest under its previous bank facility, including $11 million paid under the interest rate swap agreements, prior to its repayment.

        During 2003, White Mountains declared and paid dividends of $8 million, $28 million and $2 million to holders of Common Shares, the Berkshire Preferred Stock and the Zenith Preferred Stock, respectively.

        During 2003, White Mountains filed a shelf registration statement, which was declared effective by the SEC in July 2003, for offerings of up to $2.0 billion in debt and/or equity securities.

        During 2003, OneBeacon declared and paid a total of $235 million in cash dividends to Fund American. Also during 2003, WMU paid a total of $35 million in cash dividends to its immediate parent, White Mountains Re, and WM Advisors paid a total of $10 million in cash dividends to Fund American.

        During 2003, the Company issued a total of 11,116 Common Shares to its employees through the exercise of Options and, as a result, the Company received cash proceeds of $1.5 million in connection with these Option exercises.

Acquisitions and Dispositions

        During 2003, OneBeacon sold one of its subsidiaries, NFU Standard, for $22 million.

Other Liquidity and Capital Resource Activities

        During the first quarter of 2003, White Mountains paid a total of 45,000 performance shares (relating to the 2000-2002 performance period) at 200%, amounting to $29 million, to its participants in

cash, Common Shares or by deferral into certain non-qualified compensation plans of the Company or its subsidiaries. In the second quarter of 2003, White Mountains made performance share payments amounting to $13 million in cash or by deferral into certain non-qualified compensation plans of the Company. The payments on these additional performance shares in the second quarter represented accelerated payments to certain non-employee directors of the Company for performance periods originally scheduled to end on December 31, 2003, 2004 and 2005.

For the year ended December 31, 2002

        In December 2002, OBPP borrowed $8.0 million from a related third party.Financing and Other Capital Activities

63

---

        On November 29,        During 2002, White Mountains repaidsold $225 million of its equity securities in a private transaction and used the proceeds, along with cash on hand, to repay in full the $260.0$260 million Seller Note to Aviva, along with approximately $22.6$23 million of related accrued interest.

        In October 2002, White Mountains amended the Bank Facility and issued $225.0 million of equity securities. See "Financing" above for a detailed discussion of these transactions.

        On December 31, 2002, September 30, 2002, June 28, 2002 and March 29,        During 2002, White Mountains made scheduled principal amortization payments of $1.4 million, $14.2 million, $14.1$78 million and $49.0interest payments of $55 million respectively, on the Bank Facility. During 2002, White Mountains paid a total of $55.3 million in interest under the Bank Facility, including $18.0(including $18 million paid under related interest rate swap agreements.agreements) on its previous bank facility.

        During 2002, OneBeacon declared and paid a total of $172.6$173 million in cash dividends to FAC, its immediate parent company.Fund American.

        During 2002, White Mountains declared and paid a total of $30.7$31 million in dividends on the Berkshire Preferred Stock, the Zenith Preferred Stock and the Convertible Preference Shares.

        In July and August of 2002, White Mountains received federal tax refunds totalling $166.7 million representing accelerated recoveries of carryback losses from 2001 under the Job Creation and Worker Assistance Act of 2002 (the "Economic Stimulus Bill").

        On April 25, 2002, Folksamerica acquired Imperial for $4.2 million including related expenses ($.5 million net of cash acquired). Significant assets and liabilities acquired included investments of $22.8 million and loss and LAE reserves of $11.9 million.

        In March Also in 2002, the Company declared and paid an annual dividend of $8.3$8 million to its common shareholders.shareholders

        During 2002, the Company issued a total of 23,200 Common Shares to its employees in satisfaction of performance share and Option obligations under White Mountains' Long-Term Incentive Plan.Plan (the "Incentive Plan"). The Company received proceeds of $1.3 million as a result of exercises of Options to acquire 11,500 Common Shares during the period.

For the Year Ended December 31, 2001

        In December 2001, White Mountains filed a "shelf" registration statement with the SEC for offerings of up to $1.0 billion of various types of debt and preferred equity securities. To date, White Mountains has not offered any securities for sale pursuant to this shelf registration.

        In December 2001, OneBeacon invested $180.0 million in Montpelier consisting of 10,800,000 common shares of Montpelier valued at $16.67 per share and the Company received warrants to acquire an additional 4,781,572 common shares of Montpelier at $16.67 per share, which are exercisable until December 2011.

        In December 2001, White Mountains acquired the net assets of the international reinsurance operations of Folksam International, which were valued at approximately $66.9 million on the date of purchase. The purchase price including related expenses consisted of approximately $30.9 million in cash, $3.0 million in a note payable to the seller and 86,385 Common Shares (valued at approximately $30.0 million).

        In December 2001, OneBeacon contributed $400.0 million in cash to Folksamerica.

        In December 2001, Folksamerica2002, OBPP borrowed $7.0$8 million from a related third party.

        In October 2001, OneBeacon sold 2,025,680 shares of the common stock of United Fire & Casualty Company to a third party for $54.7 million.

64

---

        In September 2001, OneBeacon repaid all its outstanding long-term debt of $3.2 million.Acquisitions and Dispositions

        In September 2001,On April 25, 2002, Folksamerica acquired C-F, an inactive insurance company in run-off,Imperial for total consideration of $49.2 million plus related expenses. The purchase consideration included the issuance of a $25.0 million, four-year note by Folksamerica which may be reduced by adverse loss development experienced by C-F post-acquisition.

        In June 2001, White Mountains acquired OneBeacon for cash and the Seller Note. The total consideration paid for OneBeacon was $2,114.3$4 million including related expenses,expenses.

Other Liquidity and the net book value of the assets acquired was $2,796.3 billion. Significant assets and liabilities acquired through OneBeacon included $7,442.6 million of cash and investments, $2,448.9 million of reinsurance recoverable on paid and unpaid losses, $1,267.3 million of insurance balances receivable, $6,364.2 million of loss and LAE and $1,897.7 million of unearned insurance premiums.

        In connection with the Acquisition, the Company issued convertible preference shares for $437.6 million (which were retired and converted to Common Shares in August 2001) and issued the Warrants for $75.0 million. The Warrants have a term of seven years from the date of issuance although the Company has the right to call the Warrants for $60.0 million in cash commencing on the fourth anniversary of their issuance.

        In connection with the Acquisition, White Mountains issued two separate classes of subsidiary preferred stock. Berkshire purchased $300.0 million in face value of cumulative non-voting subsidiary preferred stock for $225.0 million in cash. The Berkshire Preferred Stock is entitled to a dividend of no less than 2.35% per quarter and is mandatorily redeemable after seven years. Zenith purchased $20.0 million in cumulative non-voting subsidiary preferred stock. The Zenith Preferred Stock is entitled to a dividend of no less than 2.5% per quarter through June 30, 2007 and a dividend of no less than 3.5% thereafter and is mandatorily redeemable after ten years.

        In connection with the Acquisition, White Mountains borrowed $825.0 million under the Bank Facility. The Bank Facility is comprised of two term loan facilities and a revolving credit facility. The term loan facilities are comprised of a $300.0 million Tranche A Loan with a five-year maturity and a $400.0 million Tranche B Loan with a six-year maturity. The revolving credit facility provides for revolving credit loans of up to $175.0 million, including up to $25.0 million available for the issuance of letters of credit. The revolving credit facility matures on June 1, 2006. The Bank Facility was refinanced during 2002—See "Financing" above for a detailed discussion.Capital Resource Activities

        In connection with the Acquisition,July and August of 2002, White Mountains issuedreceived federal tax refunds totaling $167 million representing accelerated recoveries of carryback losses from 2001 under the Seller Note to Aviva. The Seller Note had an eighteen-month termJob Creation and bore interest at a rate equal to 50 basis points over the rate on White Mountains' revolving loan facility described above. The Seller Note was repaid in full on November 29,Worker Assistance Act of 2002.

        In April 2001, the Company paid $100.8 million in cash to complete the Debt Tender and to establish the Debt Escrow. Completion of the Debt Tender permitted the Company to effect an amendment to the indenture governing the Notes which facilitated the Acquisition.

        In March 2001, the Company declared and paid an annual dividend of $5.9 million to its common shareholders.

        In January 2001, the Company completed the sale of Waterford Insurance Company ("Waterford") to a third party for consideration of $23.6 million in cash, net of transaction related expenses.

During 2001, the Company issued a total of 2,390,566 Common Shares which consisted of 2,184,583 Common Shares issued in connection with the retirement and conversion of convertible preference shares, 86,385 Common Shares issued in connection the purchase of the Folksam net assets, 94,500 Restricted Shares issued to key employees and 25,098 Common Shares issued to employees in connection with various White Mountains employee benefit plans.

65

---

        During 2001, OneBeacon declared and paid a total of $153.5 million in dividends to FAC, its immediate parent company.

        During 2001, the Company repurchased and retired 6,000 Common Shares for $1.9 million in cash.

        During 2001,2002, White Mountains paid a total of $18.431,300 performance shares (relating to the 1999-2001 performance period) at a 200% value, amounting to $21 million, in dividends to holders of the Convertible Preference Shares, the Berkshire Preferred Stock and the Zenith Preferred Stock. During 2001, White Mountains paid a total of $29.2 million in interest under the Bank Facility including $2.9 million paid under related interest rate swap agreements.

For the Year Ended December 31, 2000

        In December 2000, White Mountains provided $259.6 million of capital to Folksamerica through the contribution of American Centennial and British Insurance Company and through the issuance of a $195.0 million intercompany note which was forgiven during 2001. Folksamerica subsequently contributed American Centennial and $80.0 million of such cash to Folksamerica Reinsurance Company in order to provide the statutory capital needed to support its acquisitions of PCA and Risk Capital. The remaining $115.0 million was used by Folksamerica to repay its outstanding bank indebtedness.

        In July 2000, White Mountains concluded the FSA Sale for proceeds of $620.4 million.

        In May 2000, Folksamerica acquired Risk Capital for consideration of $20.3 millionparticipants in cash, plus related expenses. Significant assets and liabilities acquired with Risk Capital included $249.9 million of cash and investments, $108.6 million of premiums receivable, $312.5 million of net loss and LAE reserves and $82.0 million of unearned reinsurance premiums. In addition, Risk Capital provided Folksamerica with two specialty underwriting units (Accident & Health and Marine) and several significant new treaty clients.

        In March 2000, Folksamerica acquired PCA for consideration of $122.3 million in cash. Significant assets and liabilities acquired through PCA included $339.8 million of cash and investments, $160.0 million of reinsurance recoverables and $405.5 million of loss and LAE reserves.

        During 2000, the Company repurchased and retired 65,838 Common Shares for $8.3 million in cash.

        During 2000, the Company declared and paid quarterly cash dividends totalling $7.1 million.

        As part of the Folksamerica acquisition in 1998, White Mountains refinanced Folksamerica's existing long-term indebtednessor by utilizing a six-year revolving credit agreement whereby Folksamerica could borrow up to $120.0 million at market interest rates. This facility was repaid and terminated by Folksamerica during 2000 as described above.

RELATED PARTY TRANSACTIONS

Berkshire

        NICO and GRC, which have provided the NICO Cover and the GRC Cover to subsidiaries of White Mountains, are wholly-owned subsidiaries of Berkshire (see "Reinsurance Protection" within the "ONEBEACON" section of Item 1 of this report). Through the Warrants, at December 31, 2002, Berkshire has the right to acquire 1,724,200 Common Shares at an exercise price of $173.99 per Common Share, which represented approximately 16.1% of the total outstanding Common Shares on a fully-converted basis. Reinsurance recoverable from, and preferred stock of White Mountains' subsidiaries owned by, Berkshire are shown as separate line items in White Mountains' consolidated balance sheet.

66

---

Olympus

        In January 2002, Folksamerica entereddeferral into a quota share retrocessional arrangement with Olympus. Under the quota share treaty, Folksamerica cedes 75% of substantially all of its property and marine excess of loss business to Olympus. During 2002, Folksamerica ceded approximately $229.7 million in written premiums and approximately $54.4 million in losses and LAE to Olympus.

        White Mountains, through either Folksamerica or WMU, receives fee income on reinsurance placements referred to Olympus and is entitled to additional fees based on net underwriting profits on referred business. During 2002, White Mountains earned $48.9 million from management and service fee revenues on business referred to Olympus.

        In June 2002, OneBeacon supplemented its existing catastrophe reinsurance protection through a new contract with Folksamerica which was subsequently reinsured to Olympus through the 75% quota share retrocessional arrangement. Pursuant to the terms of this arrangement, Folksamerica and Olympus are responsible for 25% and 75%, respectively, of the first $25 million of any losses in excess of $100 million incurred by OneBeacon related to a catastrophic event. Under this arrangement, Olympus has received $2.6 million in premiums. All balances related to the Folksamerica portion of the reinsurance cover have been eliminated in consolidation.

        Certain directors, officers and affiliates of White Mountains own approximately 5% of the common shares of Olympus Holdings. Mr. Joseph S. Steinberg, a directorcertain non-qualified compensation plans of the Company is Chairman of Olympus Holdings. White Mountains does not have an ownership stake in Olympus Holdings.or its subsidiaries.

Montpelier
RELATED PARTY TRANSACTIONS

        In December 2001, White Mountains invested $180.0 million in Montpelier, which was formed to respond to the favorable underwriting and pricing environment        SeeNote 17—"Related Party Transactions" in the reinsurance industry with approximately $1.0 billion of capital. As of December 31, 2002, as adjusted for stock splits, White Mountains' investment in Montpelier consisted of 10,800,000 common shares and warrants to acquire 4,781,572 common shares at $16.67 per share that are exercisable until December 6, 2011. Through its holdings of common shares and warrants, White Mountains owns approximately 21% of Montpelier on a fully-converted basis, as adjusted for its initial public offering ("IPO").

        Four of White Mountains' directors serve on Montpelier's eleven member board of directors. John J. Byrne, Chairman of the Company, serves as Montpelier's non-executive Chairman, and Raymond Barrette, John D. Gillespie and K. Thomas Kemp serve as Directors of Montpelier. In addition, Mr. Kemp is the Chiefaccompanying Consolidated Financial Officer of Montpelier. Certain directors, officers and affiliates of White Mountains own approximately 3% of the common shares of Montpelier.Statements.

Other Relationships

        Mr. Howard Clark, a Director of the Company, is Vice Chairman of Lehman Brothers Inc. ("Lehman"). Lehman has, from time to time, provided various services to White Mountains including investment banking services, brokerage services, underwriting of debt and equity securities and financial consulting services. Lehman is the arranger, the administrative agent and a lender under the $875.0 million Bank Facility. In addition, Fund American paid Lehman approximately $1.5 million in fees related to the October 2002 refinancing of the Bank Facility. See Note 6.

        Mr. George Gillespie, a Director of the Company, is a Partner at Cravath, Swaine & Moore, which has been retained by White Mountains from time to time to perform legal services.

        Pursuant to an employment agreement with White Mountains, Mr. John Gillespie, a Director and Deputy Chairman of the Company and President of WM Advisors, may continue his active involvement with Prospector Partners, LLC ("Prospector"), so long as Mr. Gillespie devotes the requisite time

67

---

required to fulfill his responsibilities to WM Advisors. The agreement specifies procedures pursuant to which Prospector's funds have the ability to invest first in opportunities appropriate for both White Mountains and such funds. Pursuant to revenue sharing agreements, Mr. Gillespie has agreed to pay White Mountains a portion of the revenues and distributions allocable to him in connection with Prospector, in return for White Mountains agreeing to pay the operational expenses of his investment management companies. At December 31, 2002, White Mountains had $64.9 million invested in funds managed by Prospector.

        In September 2001, White Mountains entered into a five-year lease at a market-based rate for a building partially owned by Mr. John Gillespie and trusts for the benefit of members of his family (the "Gillespie Trusts"). For 2002, the rental payments attributable to Mr. Gillespie's ownership in the building totalled approximately $13,000 and the rental payments attributable to the Gillespie Trusts' ownership in the building totalled approximately $104,000.

        Mr. John Gillespie indirectly through general and limited partnership interests holds a 44% interest in Dowling & Partners Connecticut Fund III, LP ("Fund III"). OBPP and Folksamerica Specialty Underwriting, Inc. ("FSUI") have borrowed approximately $8 million and $7 million, respectively, from Fund III in connection with an incentive program sponsored by the State of Connecticut known as the Connecticut Insurance Reinvestment Act (the "Act"). The loans mature in April 2007 and bear interest at the option of OBPP and FSUI at either (1) the greater of (a) the prime rate minus 1% and (b) the federal funds rate minus 0.50% or (2) the eurodollar rate plus 0.325%. The Act provides for Connecticut income tax credits to be granted for qualifying investments made by approved fund managers. The loans made by Fund III to OBPP and FSUI are qualifying investments and, together, have the potential to generate up to $15 million of tax credits that would be shared equally between Fund III on the one hand and OBPP and FSUI on the other. As a result of his interest in Fund III, Mr. Gillespie could realize up to $3.3 million from the tax credits, although any such amount would be subject to the revenue sharing agreements with White Mountains described above.

        Mr. Zankel is Senior Managing Member of the General Partner of High Rise Capital Advisors LLC, which is the General Partner of High Rise Partners, L.P. At December 31, 2002, White Mountains had $8.8 million in limited partnership investment interests in High Rise Partners, L.P. and White Mountains owned $36.6 million in investments that are managed by High Rise Capital Advisors LLC.

        WM Advisors provides investment advisory and management services to Montpelier Re and Olympus. Montpelier Re and Olympus pay investment management fees based on month-end market values of investments held under custody to WM Advisors. The fees, which vary depending on the amount of assets under management, are between 0.15% and 0.30%. This agreement may be terminated by either party upon 30 days written notice. At December 31, 2002, WM Advisors had $1.4 billion and $653.9 million of assets under management from Montpelier Re and Olympus, respectively. During 2002, WM Advisors had received $2.1 million and $1.1 million in fees from Montpelier Re and Olympus, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with GAAP.

The financial statements presented herein include all adjustments considered necessary by management to fairly present the financial position, results of operations and cash flows of White Mountains. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

68

---

        In the current year presentation of financial information, certain amounts in the prior period financial statements have been reclassified to conform with the current presentation. White Mountains has completed numerous significant transactions during the periods presented that have affected the comparability of the financial statement information presented herein.

        On an ongoing basis, management evaluates its estimates, including those related to loss and LAE reserves, purchase accounting, and related deferred credits and goodwill, reinsurance transactionsestimates and its pension benefit obligations. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.

        Management believes that its critical accounting policies affect its more significant estimates used in the preparation of its consolidated financial statements. The descriptions below are summarized and have been simplified for clarity.

1.    Loss and Loss Adjustment Expenses

InsuranceOneBeacon

Non-Asbestos and Environmental Reserves

        White Mountains' insurance subsidiaries establishOneBeacon establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. ReinsuranceThe process of estimating reserves involves a considerable degree of judgment by management and, as of any given date, is an arrangement in which a reinsurance company (a "reinsurer") contractually agrees to indemnify an insurance company for all or a portioninherently uncertain.

        Reserves are typically comprised of the insurance risks underwritten by the insurance company. White Mountains establishes estimates of amounts recoverable from its reinsurers in a manner consistent with the claim liability covered by the reinsurance contracts, net of an allowance for uncollectible amounts. Net insurance loss reserves represent loss and LAE reserves reduced by reinsurance recoverable on unpaid losses.

        In a broad sense, loss and LAE reserves have two components: (i)(1) case reserves which are reserves established within the claims function for claims reported and (2) reserves for losses that have occurred but for which claims have not yet been reported, referred to White Mountains and (ii) IBNR.as incurred but not reported ("IBNR") reserves, which include a provision for expected future development on case reserves. Case reserves are estimated based on the experience and knowledge of claims staff regarding the nature and potential cost of each claim. White Mountains' claims staff periodically adjusts case reservesclaim and are adjusted as additional information becomes known or payments are made. GenerallyIBNR reserves are derived by subtracting paid loss and LAE and case reserves from estimates of ultimate loss and LAE. Actuaries estimate ultimate loss and LAE using various generally accepted actuarial methods applied to known losses and other relevant information. Like case reserves, IBNR reserves are usedadjusted as additional information becomes known or payments are made.

        Ultimate loss and LAE are generally determined by extrapolation of claim emergence and settlement patterns observed in the past that can reasonably be expected to project estimatespersist into the future. In forecasting ultimate loss and LAE with respect to any line of IBNR. Actuaries use a varietybusiness, past experience with respect to that line of statisticalbusiness is the primary resource, but cannot be relied upon in isolation. OneBeacon's own experience, particularly claims development experience, such as trends in case reserves, payments on and analytical methods to determine estimatesclosings of IBNR, which are based, in part, on historical claim reporting and payment patterns. In estimating IBNR, actuaries consider all available information, including historical experience,claims, as well as changes in business mix and coverage limits, changesis the most important information for estimating its reserves. External data, available from organizations such as statistical bureaus, consulting firms and reinsurance companies, is sometimes used to supplement or corroborate OneBeacon's own experience, and can be especially useful for estimating costs of new business. For some lines of business, such as "long-tail" coverages discussed below, claims data reported in claims handling practices, pricing, reinsurance protections, inflationthe most recent accident year is often too limited to provide a meaningful basis for analysis due to the typical delay in reporting of claims. For this type of business, OneBeacon uses a selected loss ratio method for the initial accident year or years. This is a standard and accepted actuarial reserve estimation method

in these circumstances in which the effects of legal, social and legislative trends on future claim payments. Management exercises judgmentloss ratio is selected based upon its knowledgeinformation used in pricing policies for that line of its business, review of the outcome of actuarial studies, historicalas well as any publicly available industry data, such as industry pricing, experience and other factors to record an estimate it believes reflects White Mountains' expectedtrends, for that line of business.

        Uncertainties in estimating ultimate unpaid loss and LAE and related reinsurance recoverables.

        Regardless of the techniques used, estimation is inherent in the process of establishing unpaid loss reserves and related reinsurance recoverables as of any given date. Uncertainties in projecting ultimate claim amounts are magnified by the time lag between when a claim actually occurs and when it becomesis reported and settled. This time lag is sometimes referred to as the "claim-tail". The claim-tail for most property coverages is typically short.short (usually a few days up to a few months). The claim-tail for liabilityliability/casualty coverages, such as automobile liability, general liability, products liability, multiple peril coverage, and product liability, directors and officers liability, medical malpractice and workers'workers compensation, can be especially long as claims are often reported and ultimately paid or settled years, even decades, after the related occurrences.loss events occur. During the long claims reporting and settlement period, additional facts regarding coverages written in prior accident years, as well as about actual claims and trends may become known whichand, as a result, OneBeacon may cause White Mountains to adjust its estimatereserves. If management determines that an adjustment is appropriate, the adjustment is booked in the accounting period in which such determination is made in accordance with GAAP. Accordingly, should reserves need to be increased or decreased in the future from amounts currently established, future results of itsoperations would be negatively or positively impacted, respectively.

        In determining ultimate net loss and LAE, liability.the cost to indemnify claimants, provide needed legal defense and other services for insureds and administer the investigation and adjustment of claims are considered. These claim costs are influenced by many factors that change over time, such as expanded coverage definitions as a result of new court decisions, inflation in costs to repair or replace damaged property, inflation in the cost of medical services and legislated changes in statutory benefits, as well as by the particular, unique facts that pertain to each claim. As a result, the rate at which claims arose in the past and the costs to settle them may not always be representative of what will occur in the future. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple and conflicting interpretations. Changes in coverage terms or claims handling practices may also cause future experience and/or development patterns to vary from the past. A key objective of actuaries in developing estimates of ultimate loss and LAE, and resulting IBNR reserves, is to identify aberrations and systemic changes occurring within historical experience and accurately adjust for them so that the future can be projected reliably. Because of the factors previously discussed, this process requires the use of informed judgment and is inherently uncertain.

69        OneBeacon's actuaries use several generally accepted actuarial methods to evaluate its loss reserves, each of which has its own strengths and weaknesses. OneBeacon places more or less reliance on a particular method based on the facts and circumstances at the time the reserve estimates are made. These methods generally fall into one of the following categories or are hybrids of one or more of the following categories:

---

•

Historical paid loss development methods: These methods use historical loss payments over discrete periods of time to estimate future losses. Historical paid loss development methods assume that the ratio of losses paid in one period to losses paid in an earlier period will remain constant. These methods necessarily assume that factors that have affected paid losses in the past, such as inflation or the effects of litigation, will remain constant in the future. Because historical paid loss development methods do not use case reserves to estimate ultimate losses, they can be more reliable than the other methods discussed below that look to case reserves (such as actuarial methods that use incurred losses) in situations where there are significant changes in how case reserves are established by a company's claims adjusters. However, historical paid loss development methods are more leveraged (meaning that small changes in payments have a larger impact on estimates of ultimate losses) than actuarial methods that use incurred losses because cumulative loss payments take much longer to equal the expected ultimate losses than cumulative incurred amounts. In addition, and for similar reasons, historical

paid loss development methods are often slow to react to situations when new or different factors arise than those that have affected paid losses in the past.

•

Historical incurred loss development methods: These methods, like historical paid loss development methods, assume that the ratio of losses in one period to losses in an earlier period will remain constant in the future. However, instead of using paid losses, these methods use incurred losses (i.e., the sum of cumulative historical loss payments plus outstanding case reserves) over discrete periods of time to estimate future losses. Historical incurred loss development methods can be preferable to historical paid loss development methods because they explicitly take into account open cases and the claims adjusters' evaluations of the cost to settle all known claims. However, historical incurred loss development methods necessarily assume that case reserving practices are consistently applied over time. Therefore, when there have been significant changes in how case reserves are established, using incurred loss data to project ultimate losses can be less reliable than other methods.



•

Expected loss ratio methods: These methods are based on the assumption that ultimate losses vary proportionately with premiums. Expected loss ratios are typically developed based upon the information used in pricing, and are multiplied by the total amount of premiums written to calculate ultimate losses. Expected loss ratio methods are useful for estimating ultimate losses in the early years of long-tailed lines of business, when little or no paid or incurred loss information is available.



•

Adjusted historical paid and incurred loss development methods: These methods take traditional historical paid and incurred loss development methods and adjust them for the estimated impact of changes from the past in factors such as inflation, the speed of claim payments or the adequacy of case reserves. Adjusted historical paid and incurred loss development methods are often more reliable methods of predicting ultimate losses in periods of significant change, provided the actuaries can develop methods to reasonably quantify the impact of changes.

Construction Defect Claims

        OneBeacon's general liability and multiple peril lines of business have been significantly impacted by an increasing number of construction defect claims. Construction defect is a liability allegation relating to defective work performed in the construction of structures such as apartments, condominiums, single family dwellings or other housing, as well as the sale of defective building materials. Such claims seek recovery due to damage caused by alleged deficient construction techniques or workmanship. Much of the increase in claims activity has been generated by plaintiffs' lawyers who approach new homeowners, and in many cases homeowner associations with large numbers of homeowners in multi-residential complexes, about defects or other flaws in their homes. The increasing number of claims for construction defects began with claims relating to exposures in California. Then, as plaintiffs' lawyers organized suits in other states with high levels of multi-residential construction, construction defect claims were reported in nearby western states, such as Colorado and Nevada, and eventually throughout the country. The reporting of such claims can be quite delayed as the statute of limitations can be up to ten years. Court decisions have expanded insurers' exposure to construction defect claims as well. For example, in 1995 California courts adopted a "continuous trigger" theory in which all companies that had ever insured a property that was alleged to have been damaged by defective construction must respond to the claimant, even if evidence of the alleged damage did not appear until after the insurance period had expired. As a result, claims may be reported more than ten years after a project has been completed as litigation can proceed for several years before an insurance company is identified as a potential contributor. Recently, claims have also emerged from parties claiming additional insured status on policies issued to other parties (e.g., such as contractors seeking coverage on a sub-contractor's policy).

        A large number of construction defect claims have been identified relating to coverages that OneBeacon had written in the past through Commercial Union and General Accident and their subsidiaries in California, Colorado, Nevada, Washington and Oregon. Management has sought to mitigate future construction defect risks in all states by no longer providing insurance to certain residential general contractors and sub-contractors involved in multi-habitational projects. Mitigating actions also included initiating the withdrawal from problematic sub-segments within OneBeacon's construction book of business, such as street and road construction, water, sewer and pipeline construction, and dam, waterway, railroad and subway construction. Management has undertaken actions to mitigate future risks related to construction defect claims and believes that the number of reported construction defect claims relating to coverages written in the past peaked in 2004 and will begin to decline. In addition, in reserving for these claims, there is additional uncertainty due to the potential for further unfavorable judicial rulings and regulatory actions.

Asbestos and Environmental ("A&E") Reserves

        OneBeacon's reserves include provisions made for claims that assert damages from A&E related exposures. Asbestos claims relate primarily to injuries asserted by those who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up cost obligations, particularly as mandated by federal and state environmental protection agencies. In addition to the factors described above under"Non-Asbestos and Environmental Reserves" regarding the reserving process, OneBeacon estimates its A&E reserves based upon, among other factors, facts surrounding reported cases and exposures to claims, such as policy limits and deductibles, current law, past and projected claim activity and past settlement values for similar claims, as well as analysis of industry studies and events, such as recent settlements and asbestos-related bankruptcies. The cost of administering A&E claims, which is an important factor in estimating loss reserves, tends to be higher than in the case of non-A&E claims due to the higher legal costs typically associated with A&E claims. Due to the inherent difficulties in estimating ultimate A&E exposures, OneBeacon does not estimate a range for A&E incurred losses.

        OneBeacon's A&E losses resulted primarily from the operations of the Employers Group, an entity acquired by one of the legacy companies in 1971. These operations, including business of Employers Surplus Lines Insurance Company and Employers Liability Assurance Corporation, provided primary and excess liability insurance for commercial insureds, including Fortune 500-sized accounts, some of whom subsequently experienced claims for A&E losses. OneBeacon stopped writing such coverage in 1984.

        OneBeacon's liabilities for A&E losses from business underwritten in the recent past are substantially limited by the application of exclusionary clauses in the policy language that eliminated coverage of such claims. After 1987 for pollution and 1992 for asbestos, most liability policies contained industry-standard absolute exclusions of such claims. In earlier years, various exclusions were also applied, but the wording of those exclusions was less strict and subsequent court rulings have reduced their effectiveness.

        OneBeacon also incurred A&E losses via its participation in industry pools and associations. The most significant of these pools was Excess Casualty Reinsurance Association ("ECRA"), which provided excess liability reinsurance to U.S. insurers from 1950 until the early 1980s. ECRA incurred significant liabilities for A&E, of which OneBeacon bears approximately a 4.7% share, or $65 million at December 31, 2004 (compared to $66 million at December 31, 2003), which is fully reflected in OneBeacon's loss and LAE reserves.

        More recently, since the 1990s, OneBeacon has experienced an influx of claims from commercial insureds, including many non-Fortune 500-sized accounts written during the 1970s and 1980s, who are named as defendants in asbestos lawsuits. As a number of large well-known manufacturers of asbestos

        Loss and LAE reserve estimates atasbestos-containing products have gone into bankruptcy, plaintiffs have sought recoveries from peripheral defendants, such as installers, transporters or sellers of such products, or from owners of premises on which the plaintiffs' exposure to asbestos allegedly occurred. At December 31, 2004, 664 policyholders had asbestos-related claims against OneBeacon. In 2004, 112 new insureds with such peripheral involvement presented asbestos claims under prior OneBeacon policies.

        Historically, most asbestos claims have been asserted as product liability claims. Recently, insureds who have exhausted the available products liability limits of their insurance policies have sought payment for asbestos claims under the premises and operations coverage of their liability policies. It is more difficult for plaintiffs to establish losses as stemming from premises and operations exposures, which requires proof of the defendant's negligence, rather than products liability under which strict legal liability applies. Hence, there are subject to additional uncertainty asfewer of such claims and there is a consequencegreat deal of numerous factorsvariation in damages awarded for the actual injuries. Additionally, several accounts that occurredseek such coverage find that previously paid losses exhausted the aggregate limits under their policies. In these situations there is no coverage for these claims. There are currently 148 active claims against OneBeacon without product liability coverage asserting operations or premises coverage.

        Immediately prior to White Mountains' acquisition of OneBeacon, on June 1, 2001. As previously discussed,OneBeacon purchased a reinsurance contract with NICO under which OneBeacon is entitled to recover from NICO up to $2.5 billion in the future for asbestos claims arising from business written by OneBeacon in 1992 and prior, environmental claims arising from business written by OneBeacon in 1987 and prior, and certain other exposures. Under the terms of the NICO Cover, NICO receives the economic benefit of reinsurance recoverables from certain of OneBeacon's third party reinsurers in existence at the time the NICO Cover was executed ("Third Party Recoverables"). As a result, the Third Party Recoverables serve to protect the $2.5 billion limit of NICO coverage for the benefit of OneBeacon. Any amounts uncollectible from third party reinsurers due to dispute or the reinsurers' financial inability to pay are covered by NICO under its agreement with OneBeacon. Third Party Recoverables are typically for the amount of loss in excess of a stated level each year. Of claim payments in the past 11 years, approximately 63% of asbestos losses and 39% of environmental losses have been recovered under the historical third party reinsurance.

        OneBeacon estimates that on an incurred basis it has exhausted approximately $1.7 billion of the coverage provided by NICO at December 31, 2004. At December 31, 2004, $14.3 million of the $1.7 billion of exhausted coverage from NICO related to uncollectible Third Party Recoverables. Net losses paid totaled approximately $682 million as of December 31, 2004, with $95 million paid in 2004. Asbestos payments during 2004 reflect payments resulting from intensified efforts by claimants to resolve asbestos claims prior to enactment of potential Federal asbestos legislation. To the extent that OneBeacon's estimate of ultimate A&E losses as well as the estimate and collectibility of Third Party Recoverables differs from actual experience, the remaining protection under the NICO Cover may be more or less than the approximate $757 million that OneBeacon estimates remained at December 31, 2004.

        For purposes of determining available reinsurance, product liability asbestos claims typically are aggregated as a single loss within each policy period. As a result, losses often exceed the retention level under the reinsurance agreement and reinsurance recoveries are obtained. However, for claims being asserted under premises and operations coverage, the losses are generally not aggregated for purposes of determining reinsurance recoveries, so OneBeacon expects that in the future a smaller percentage of these losses will be covered as Third Party Recoverables than has been true historically of products liability asbestos losses.

        OneBeacon's reserves for A&E losses, net of Third Party Recoverables but prior to NICO recoveries, are $1.0 billion at December 31, 2004. An industry benchmark of reserve adequacy is the "survival ratio", computed as a company's reserves divided by its historical average yearly loss

payments. This ratio indicates approximately how many more years of payments the reserves can support, assuming future yearly payments are equal to historical levels. OneBeacon's survival ratio was approximately 21.0 at December 31, 2004, which was computed as the ratio of A&E reserves, net of Third Party Recoverables, of $1.0 billion plus the remaining unused portion of the NICO Cover of $757 million, to the average loss payments in the past three years. The average loss payments used to calculate OneBeacon's survival ratio were net of a large commutation ($64 million) in 2003 with a Third Party Reinsurer. White Mountains believes that as a result of the 1998 mergerNICO Cover and its historical third party reinsurance programs, OneBeacon should not experience material financial loss from old A&E exposures under current coverage interpretations and that its survival ratio compares favorably to industry survival ratios.

        OneBeacon's reserves for A&E losses at December 31, 2004 represent management's best estimate of its ultimate liability based on information currently available. OneBeacon believes the U.S. operationsNICO Cover will be adequate to cover all of General Accidentits A&E obligations. However, as case law expands, medical and Commercial Union,clean-up costs increase and industry settlement practices change, OneBeacon may be subject to asbestos and environmental losses beyond currently estimated amounts. Therefore, OneBeacon cannot guarantee that its A&E loss reserves, plus the remaining coverage under the NICO Cover, will be sufficient to cover additional liability arising from any such unfavorable developments. See Note 3 to the financial statements for more information regarding White Mountains' A&E reserves.

OneBeacon A&E Claims Activity

        OneBeacon's A&E claim activity for the last two companies with different underwriting and claims management philosophies and practices. Beginningyears is illustrated in the mid-1990s,table below.

		Year Ended December 31,
A&E Claims Activity
		2004		2003
Asbestos
Accounts with asbestos claims at the beginning of the year		642		615
Accounts reporting asbestos claims during the year		112		178
Accounts on which asbestos claims were closed during the year		(90	)	(151	)
Accounts with asbestos claims at the end of the year		664		642
Environmental
Accounts with environmental claims at the beginning of the year		674		596
Accounts reporting environmental claims during the year		110		175
Accounts on which environmental claims were closed during the year		(140	)	(97	)
Accounts with environmental claims at the end of the year		644		674
Total
Total accounts with A&E claims at the beginning of the year		1,316		1,211
Accounts reporting A&E claims during the year		222		353
Accounts on which A&E claims were closed during the year		(230	)	(248	)
Total accounts with A&E claims at the end of the year		1,308		1,316

OneBeacon's Loss and continuing through the Merger, the subsequent operational integrationLAE Reserves by Line of General Accident plc and Commercial Union plc and the Acquisition, OneBeacon experienced an environment of significant change, both in its business and operations. Generally accepted actuarial techniques used to estimate reserves rely in large degree on projecting historical trends (such as patterns of claim development (i.e., reported claims and paid losses)) into the future. Accordingly, estimating reserves becomes more uncertain if business mix, case reserve adequacy, claims payment rates, coverage limits and other factors change over time. The breadth and depth of the business and operational changes that occurred at OneBeacon (1) led to a wider range in the reserve estimates produced by a variety of actuarial loss reserving techniques, especially those that rely upon consistent claim development patterns, and (2) introduced greater complexity to the judgments required to be made by management in determining the impact of the business and operational changes on the development patterns used to estimate reserves.Business

        OneBeacon's net loss and LAE reserves by line of business at December 31, 20022004 and 20012003 were as follows:

		December 31,						December 31, 2004									December 31, 2003
Net loss and LAE reserves by line of business
		2002			2001
Net loss and LAE reserves by class of business								December 31, 2004									December 31, 2003
		($ in millions)						($ in millions)
Workers compensation		$	977.3		$	958.7		$	362.1		$	135.5		$	497.6		$	600.8		$	176.6		$	777.4
Personal automobile liability			909.4			847.0			530.7			244.1			774.8			512.0			227.3			739.3
Multiple peril			802.7			1,037.1			359.3			264.3			623.6			398.5			296.1			694.6
Commercial automobile liability			567.9			762.0			203.8			82.8			286.6			290.2			132.1			422.3
General liability			493.8			713.8			121.6			151.1			272.7			154.9			176.6			331.5
Homeowners/Farmowners			191.4			207.2			82.2			41.8			124.0			102.1			68.0			170.1
Other			127.4			289.7			97.5			84.0			181.5			63.8			58.2			122.0
Total		$	4,069.9		$	4,815.5		$	1,757.2		$	1,003.6		$	2,760.8		$	2,122.3		$	1,134.9		$	3,257.2

        In establishing reserves, the Company's actuaries apply various generally accepted actuarial techniques to identify a reasonable range of reserve estimates.        For OneBeacon, the range of reserve estimates as ofat December 31, 20022004 was evaluated to consider the strengths and weaknesses of the actuarial methods applied against OneBeacon's historical claims'claims experience data. Reserves reflectedThe following table shows the recorded reserves and the high and low ends of OneBeacon's range of reasonable loss reserve estimates at December 31, 2004. The high and low ends of OneBeacon's range of reserve estimates in the accompanying consolidated financial statements represent management's best estimate of reservestable below are based on a composite of the results of the various actuarial methods as well as considerationdescribed above. The recorded reserve for each line is the result of the actuarial method that management believes to be most appropriate based on known facts and trends. Management

		December 31, 2004
OneBeacon net loss and LAE reserves by line of business Range and recorded reserves
		Low			Recorded			High
		($ in millions)
Workers compensation		$	475		$	498		$	555
Personal automobile liability			665			774			780
Multiple peril			590			624			835
Commercial automobile liability			265			286			310
General liability			240			273			295
Homeowners/Farmowners			105			124			125
Other			155			182			185
Total		$	2,495		$	2,761		$	3,085

        The probability that ultimate losses will fall outside of the ranges of estimates by line of business is higher for each line of business individually than it is for the sum of the estimates for all lines taken together due to the effects of diversification. Although management believes that OneBeacon's reserves are reasonably stated; however,stated, ultimate loss and LAE for past accident yearslosses may deviate, perhaps materially, from the recorded reserve amounts currently reflectedand could be above the high end of the range of actuarial projections.

        The recorded reserves represent management's best estimate of unpaid loss and LAE by line of business. In its selection of recorded reserves, management has generally given greater weight to adjusted paid loss development methods, which are not dependent on the consistency of case reserving practices, rather than methods that rely on incurred losses, because of the increased adequacy of case reserving by OneBeacon's claim staff in the reserve balance. Further adverserecent past. For multiple peril this resulted in OneBeacon recording reserves nearer the low end of the range. For some types of claims, such as workers compensation and construction defect, management also considered special purpose forecasting models that its claims and actuarial staff have created that consider the unique loss development if any, would impact OneBeacon's future resultscharacteristics of operations. See "these types of claims. For personal automobile liability, homeowners and "other" (principally shorter

tailed lines of business such as ocean and inland marine insurance) recorded reserves remain rather high in the respective ranges, as management's selections reflect a conservative approach to recognition of recent favorable development experienced in our ongoing businesses.

White Mountains Re

White Mountains Re A&E Reserves

        White Mountains Re has a specialized unit that handles claims emanating from A&E exposures. The issues presented by these types of claims require specialization, expertise and an awareness of the various trends and jurisdictional developments.

        White Mountains Re's A&E exposure is primarily from reinsurance contracts written between 1974 through 1985 by predecessor companies (MONY Reinsurance and Christiania General). The exposures are predominately higher layer excess of loss treaty and facultative coverages with relatively low limits exposed for each claim. Net incurred loss activity for asbestos and environmental in the last two years was as follows:

		December 31,
Net incurred loss and LAE activity
		2004			2003
		($ in millions)
Asbestos		$	2.6		$	32.0
Environmental			.1			3.7
Total		$	2.7		$	35.7

        In recent years, most of White Mountains Re's reported activity in the asbestos area has related to (1) higher layer excess policies that are being reached by larger target defendants, (2) new notices for smaller regional defendants that are now exposed because of the larger defendant bankruptcies, and (3) new notices on "premises" and "non-products" cases, where coverage is being sought by insureds against the non-aggregating portion of the underlying policy. WM Re expects to see a smaller percentage of these losses exceed the retention level under reinsurance agreements.

        Approximately $25.0 million of White Mountains Re's 2003 loss development for asbestos exposures was a bulk increase in IBNR resulting from the completion of a detailed A&E market share study. This study compared White Mountains Re's share of industry paid losses to estimated industry carried reserves.

        White Mountains Re sets up claim files for each reported claim by each cedent for each individual insured. In many instances, a single claim notification from a cedent could involve several years and layers of coverage resulting in a file being set up for each involvement. Precautionary claim notices are submitted by the ceding companies in order to preserve their right to pursue coverage under the reinsurance contract. Such notices do not contain an incurred loss amount to White Mountains Re, accordingly, an open claim file is not established. As of December 31, 2004, White Mountains Re had approximately 1,368 open claim files for asbestos and 786 open claim files for environmental exposures.

        The costs associated with administering the underlying A&E claims by White Mountains Re's clients tend to be higher than non-A&E claims due to generally higher legal costs incurred by ceding companies in connection with A&E claims ceded to White Mountains Re under the reinsurance contracts.

White Mountains Re A&E Claims Activity

        White Mountains Re's A&E claim activity for the last two years is illustrated in the table below.

		Year ended December 31,
A&E Claims Activity
		2004		2003
Asbestos
Total asbestos claims at the beginning of the year		1,185		1,069
Incoming asbestos claims due to Sirius Acquisition		199		—
Asbestos claims reported during the year		292		224
Asbestos claims closed during the year		(308	)	(108	)
Total asbestos claims at the end of the year		1,368		1,185
Environmental
Total environmental claims at the beginning of the year		743		768
Incoming environmental claims due to Sirius Acquisition		106		—
Environmental claims reported during the year		138		47
Environmental claims closed during the year		(201	)	(72	)
Total environmental claims at the end of the year		786		743
Total
Total A&E claims at the beginning of the year		1,928		1,837
Incoming A&E claims due to Sirius Acquisition		305		—
A&E claims reported during the year		430		271
A&E claims closed during the year		(509	)	(180	)
Total A&E claims at the end of the year		2,154		1,928

Loss and Loss Adjustment ExpenseLAE Reserves" within the "ONEBEACON" section by Class of Item 1 and "I. Summary of Operations By Segment" in Item 7 of this report.Business

Reinsurance

        White Mountains' reinsurance subsidiaries establishMountains Re establishes loss and LAE reserves that are estimates of amounts needed to pay claims and related expenses in the future for reinsured events that have already occurred. White Mountains'The estimation of net reinsurance subsidiaries also obtain reinsurance whereby another reinsurer contractually agrees to indemnify White Mountains for all or a portion of the reinsurance risks underwritten by White Mountains. Such arrangements, where one reinsurer provides reinsurance to

70

---

another reinsurer, are usually referred to as "retrocessional reinsurance" arrangements. White Mountains establishes estimates of amounts recoverable from retrocessional reinsurance in a manner consistent with the loss and LAE liability associated with reinsurance contracts offered to its customers (the "ceding companies"), net of an allowance for uncollectible amounts. Net reinsurance loss reserves represent loss and LAE reserves reduced by retrocessional reinsurance recoverable on unpaid losses.

        Reinsuranceis subject to the same risk as the estimation of insurance loss and LAE reserve estimates reflectreserves. In addition to those risk factors which give rise to inherent uncertainties in establishing insurance loss and LAE reserves, the judgementinherent uncertainties of bothestimating such reserves are even greater for the reinsurer, due primarily to: (1) the claim-tail for reinsurers being further extended because claims are first reported to the ceding company and then through one or more intermediary insurers or reinsurers, (2) the diversity of loss development patterns among different types of reinsurance treaties or facultative contracts, (3) the necessary reliance on the ceding companies for information regarding reported claims and (4) the differing reserving practices among ceding companies.

        As with insurance reserves, the process of estimating reinsurance reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. Based on the above, such uncertainty may be larger relative to the reserve for a reinsurer compared to an insurance company, and may take a longer time to emerge.

        In order to reduce the potential uncertainty of loss reserve estimation, White Mountains based onRe obtains information from numerous sources to assist in the experienceprocess. White Mountains Re's pricing actuaries devote considerable effort to understanding and knowledge of their respective claims personnel, regardinganalyzing a ceding company's operations and loss history during the nature and valueunderwriting of the claims. Thebusiness, using a combination of ceding companies may periodically adjustcompany and industry statistics. Such statistics normally include historical premium and loss data by class of business, individual claim information for larger claims, distributions of insurance limits provided, loss reporting

and payment patterns, and rate change history. This analysis is used to project expected loss ratios for each treaty during the amount ofupcoming contract period. These expected ultimate loss ratios are aggregated across all treaties and are input directly into the case reserves as additional information becomes known or partial paymentsloss reserving process to generate the expected loss ratios that are made.used to estimate IBNR.

        Upon notification of a loss from a ceding company, White Mountains Re establishes case reserves, including LAE reserves, based upon White Mountains'Mountains Re's share of the amount of reserves established by the ceding company and White Mountains'our independent evaluation of the loss. In cases where available information indicates that reserves established by the ceding company are inadequate, White Mountains Re establishes case reserves or IBNR in excess of its share of the reserves established by the ceding company. In addition, specific claim information reported by ceding companies or obtained through claim audits can alert us to emerging trends such as changing legal interpretations of coverage and liability, claims from unexpected sources or classes of business, and significant changes in the frequency or severity of individual claims. Such information is often used to supplement estimates of IBNR.

        As mentioned above, there can be a considerable time lag from the time a claim is reported to a ceding company to the time it is reported to the reinsurer. The lag can be several years in some cases. This lag can be due to a number of reasons, including the time it takes to investigate a claim, delays associated with the litigation process, the deterioration in a claimant's physical condition many years after an accident occurs, etc. In its loss reserving process, White Mountains Re assumes that such lags are predictable, on average, over time and therefore the lags are contemplated in the loss reporting patterns used in its actuarial methods. This means that, as a reinsurer, White Mountains Re must rely on such actuarial estimates for a longer period of time after reserves are first estimated than does a primary insurance company.

        Backlogs in the recording of assumed reinsurance can also complicate the accuracy of loss reserve estimation. As of December 31, 2004, there were no significant backlogs related to the processing of assumed reinsurance information at White Mountains Re.

        White Mountains uses a combination of actuarial methodsRe relies heavily on information reported by ceding companies, as discussed above. In order to determine its reinsurance IBNR reserves. These methods fall into two general categories: (1) methods by which ultimate claims are estimated based upon historical patternsthe accuracy and completeness of paid and reported claim development experienced bysuch information, White Mountains as supplemented by reported industry patterns,Re's U.S. underwriters, actuaries, and (2) methodsclaims personnel perform regular audits of Folksamerica's ceding companies. While regular ceding company audits are not customary outside the United States, Sirius International's staff regularly reviews information from ceding companies for unusual or unexpected results. Any material findings are discussed with the ceding companies. White Mountains Re sometimes encounters situations where we determine that a claim presentation from a ceding company is not in whichaccordance with contract terms. In these situations, White Mountains Re attempts to resolve the level ofdispute directly with the ceding company. Most situations are resolved amicably and without the need for litigation or arbitration. However, in the infrequent situations where a resolution is not possible, White Mountains' reinsurance IBNR claim reserves are established based upon the application of expected loss ratios relative to earned premium by accident year, line of business and type of reinsurance written.Mountains Re will vigorously defend our position in such disputes.

        The estimation of net reinsuranceAlthough loss and LAE reserves is subjectare initially determined based on underwriting and pricing analysis, White Mountains Re constantly tests the accuracy of reserves using a variety of generally accepted actuarial methods, including historical incurred and paid loss development methods. If actual loss activity differs substantially from expectations based on historical information, an adjustment to loss reserves may be warranted. As time passes, loss reserve estimates for a given accident year will rely more on actual loss activity and historical patterns than on initial assumptions based on pricing indications.

        White Mountains Re also obtain reinsurance whereby another reinsurer contractually agrees to indemnify White Mountains Re for all or a portion of the same factorsreinsurance risks underwritten by White Mountains Re. Such arrangements, where one reinsurer provides reinsurance to another reinsurer, are usually referred to as "retrocessional reinsurance" arrangements. White Mountains Re establishes estimates of amounts recoverable from retrocessional reinsurance in a manner consistent with the estimation of insurance loss

and LAE reserves. In additionliability associated with reinsurance contracts offered to those factors which give rise to inherent uncertainties in establishing insuranceits customers (the "ceding companies"), net of an allowance for uncollectible amounts, if any. Net reinsurance loss reserves represent loss and LAE reserves the claim-tail for reinsurers is further extended because claims are first reported through one or more intermediary insurers or reinsurers.reduced by retrocessional reinsurance recoverable on unpaid losses.

        Reserves reflected in the accompanying consolidated financial statements representWhite Mountains Re's net loss and LAE reserves by class of business at December 31, 2004 and 2003 were as follows:

		December 31, 2004									December 31, 2003
Net loss and LAE reserves by class of business ($ in millions)
		Case			IBNR			Total			Case			IBNR			Total
Liability (excluding A&E)		$	920.4		$	900.0		$	1,820.4		$	364.6		$	276.4		$	641.0
Property			143.3			318.0			461.3			68.5			149.0			217.5
Accident & Health and Other			279.5			187.5			467.0			25.9			66.4			92.3
A&E			50.2			24.8			75.0			35.0			44.2			79.2
Total		$	1,393.4		$	1,430.3		$	2,823.7		$	494.0		$	536.0		$	1,030.0

        White Mountains Re establishes loss reserves based on a single point estimate, which is management's best estimate of reserves based onultimate losses and loss expenses. This "best estimate" is derived from a compositecombination of methods as described above. Once a point estimate is established, White Mountains Re's actuaries estimate loss reserve ranges to measure the sensitivity of the resultsactuarial assumptions used to set the point estimates. These ranges are calculated using similar methods to the point estimate calculation, but with different expected loss ratio and loss reporting pattern assumptions. For the low estimate, more optimistic loss ratios and faster reporting patterns are assumed, while the high estimate uses more conservative loss ratios and slower reporting patterns. These variable assumptions are derived from historical variations in loss ratios and reporting patterns by class and type of various actuarial methods, as well as consideration of known facts and trends. As a result ofbusiness. Due to the uncertaintiesinherent difficulties in the determination of insurance and reinsuranceestimating ultimate A&E exposures, White Mountains Re does not estimate ranges for these reserves. The growth in reserves from 2003 to 2004 was driven by acquisitions made during 2004.

        The following table illustrates White Mountains Re's recorded net loss and LAE reserves and related reinsurance recoverables described above,high and low estimates for those classes of business for which a range is calculated, at December 31, 2004.

			December 31, 2004
Net loss and LAE reserves by class of business ($ in millions)
			Low			Recorded			High
Liability (excluding A&E)			$	1,670		$	1,821		$	1,990
Property				420			461			490
Accident & Health and Other				400			467			550
	Sub-total		$	2,490		$	2,749		$	3,030
A&E							75
Total						$	2,824

        The probability that ultimate losses will fall outside of the ranges of estimates by class of business is higher for each class of business individually than it is for the sum of the estimates for all classes taken together due to the effects of diversification. Although management believes reserves for White Mountains' actual net loss and LAE paidMountains Re are reasonably stated, ultimate losses may deviate, perhaps materially, from the recorded reserve amounts and could be above the high end of the range of actuarial projections.

2.    White Mountains Re Reinsurance Estimates

        There is a time lag from the point when premium and related commission and expense activity is recorded by a ceding company to the point when such information is reported by the ceding company, through its reinsurance intermediary, to White Mountains Re. This time lag can vary from one to

several contractual reporting periods (i.e. quarterly/monthly). This lag is common in the broker market reinsurance business.

        As a result of this time lag in reporting, White Mountains Re estimates a portion of its written premium and related commissions and expenses. Given the nature of White Mountains Re's business, estimated premium balances, net of related commissions and expenses, comprise a large portion of total premium balances receivable. The estimation process begins by identifying which major accounts have not reported activity at the most recent period end. In general, premium estimates for excess of loss business are based on minimum deposit information included in the contractual terms. For proportional business, White Mountains Re's estimates are derived based on a variety of factors and assumptions, including: prior reporting from the broker or ceding company, historical reporting patterns, expected premium volume based on contractual terms or ceding company reports and other correspondence and communication with underwriters, brokers, intermediaries and ceding companies. Once premium estimates are determined, related commission and expense estimates are derived using contractual terms.

        White Mountains Re closely monitors its estimation process on a quarterly basis and adjusts its estimates as more information and actual amounts become known. There is no assurance that the amounts estimated by White Mountains Re will not deviate from the amounts reported by the ceding company or reinsurance broker. Any such deviations are reflected in the consolidated financial statements. Changes to prior year net reserves are booked in the current accounting period in accordance with GAAP. Accordingly, if net loss and LAE reserves develop adversely from amounts currently established, future results of operations wouldwhen they become known.

        The following table summarizes White Mountains Re's premium estimates and related commissions and expenses:

		December 31, 2004
Millions		Liability			Property			Accident & Health			Other			Total
Gross premium estimates		$	150.7		$	234.8		$	41.9		$	72.9		$	500.3
Net premium estimates			148.5			129.1			33.6			65.5			376.7
Net commission and expense estimates			43.3			12.9			8.4			15.9			80.5
Net amount included in reinsurance balances receivable		$	105.2		$	116.2		$	25.2		$	49.6		$	296.2

		December 31, 2003
Millions		Liability			Property			Accident & Health			Other			Total
Gross premium estimates		$	126.6		$	159.1		$	22.5		$	21.0		$	329.2
Net premium estimates			126.6			75.5			22.5			10.4			235.0
Net commission and expense estimates			41.5			6.0			7.1			2.1			56.7
Net amount included in reinsurance balances receivable		$	85.1		$	69.5		$	15.4		$	8.3		$	178.3

        The net amounts recorded in reinsurance balances receivable may not yet be negatively impacted.due from the ceding company at the time of the estimate since actual reporting from the ceding company has not yet occurred. Therefore, based on the process described above, White Mountains Re believes all of its estimated balances are collectible, and as such no allowance has been recorded.

3.    Reinsurance Transactions

        White Mountains' insurance and reinsurance subsidiaries enter into cededpurchase reinsurance contracts from time to time to protect their businesses from losses due to poor risk diversification,exposure aggregation, to manage their operating leverage ratios and to limit ultimate losses arising from catastrophic events. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured

policies. Amounts related to reinsurance contracts are recorded in accordance with SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113").

        The collectibility of reinsurance recoverables is subject to the solvency and willingness to pay of the reinsurers.reinsurer. The Company is selective in regard tochoosing its reinsurers, placing reinsurance principally with those reinsurers with a strong financial condition, industry ratings and underwriting ability. Management monitors the financial condition and ratings of its reinsurers on an ongoing basis. See "Note 4—Third Party Reinsurance Protection" within in the "ONEBEACON" and "REINSURANCE" sections of Item 1 of this reportaccompanying Consolidated Financial Statements for additional information on White Mountains' reinsurance programs.

71

---

4.    Pension and Post-retirementPost-Retirement Medical Plans

        White Mountains accounts for its pension plans in accordance with SFAS No. 87, "Employers' Accounting for Pensions" ("SFAS 87") and accounts for its retiree medical plan in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS No. 87 and SFAS No. 106 require that the cost of pension/retiree medical benefits be accrued over the period during which an employee provides service.

        Through December 31, 2002, OneBeacon provided pension and retiree medical plans for the benefit of its employees. The majority of OneBeacon's pension and retiree medical plans were curtailed in the fourth quarter of 2002. The OneBeacon Pension Plan will no longer addadds new participants or increaseincreases benefits for existing participants. Non-vested participants already in the plan will continue to vest during their employment with OneBeacon, this effectively causes the projected benefit obligation to equal the accumulated benefit obligation.OneBeacon. Retirees are also eligible for medical benefits if they meet certain age and service requirements. However, due to the curtailment, the plan will no longer acceptaccepts new participants after a transition period ending May 31, 2003.participants. The majority of retiree medical costs are capped at defined dollar amounts, with retirees contributing the remainder.

        The projected benefit obligation as of a particular date represents the actuarial present value of all benefits attributed by the plan's benefit formula to employee service rendered prior to that date. Therefore, future cash payments from pension and retiree medical plans are discounted using a discount rate based on published investment grade, long-term corporate bond yields. Many of the factors which are used to determine a plan's projected benefit obligation as of a particular date and the cost of pension/retiree medical benefits for a particular period are dependent upon future events, such as how long the employee and any survivors live, how many years of service the employee is expected to render and the employee's compensation in the years immediately before retirement or termination. Accordingly, the effects of such future factors are estimated. Further, since the projected benefit obligation and the periodic cost of pension/retiree medical benefits are based on actuarial present values, they are also sensitive to changes in the discount rate used to determine such amounts.

        A hypothetical 1% increase in the discount rate would result in a decrease in pension and retiree medical projected benefit obligations of approximately $55 million and $4 million, respectively, and would result in an increase in OneBeacon's total pretax pension/post-retirement expense of approximately $.4$63 million. A hypothetical 1% decrease in the discount rate would result in an increase in pension and retiree medical projected benefit obligations of approximately $55 million and $4 million, respectively, and would result in$63 million. The impact of a decrease in OneBeacon's total pretaxhypothetical 1% change to the discount rate on periodic cost of pension/post-retirement expense of approximately $.5 million.retiree medical benefits is not significant.

        Additionally, the rate of return that is assumed on plan assets affects OneBeacon's pension expense during a particular period. Since the retiree medical plan is unfunded, it is not affected by changes in the rate of return assumption. OneBeacon performed an analysis of expected long-term rates of return based on the allocation of its pension plan assets as of both December 31, 20012004 and December 31, 20022003 to develop expected rates of return for each significant asset class or economic indicator. A range of returns was developed based both on forecasts and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class. Although the expected investment return assumption is long-term in nature, the range of reasonable returns has dropped over the past few years as a consequence of lower inflation and lower bond yields. As a result of the most

recent review, for 20032004 OneBeacon has reduced itselected to keep the expected return on its pension assets toat 7.0%, from 7.5%as was used in 2002.2003. At December 31, 2002, greater than half2004, 36% of the plan assets were invested in fixed maturity securities, one-third45% in equities and the remainder in cash, cash equivalents and convertible securities. A hypothetical 1% increase or decrease in the assumed rate of return would result in a pretax change in OneBeacon's pension expense (or income as the case may be) for 20032004 of approximately $5.0$4.7 million.

72        During 2004, OneBeacon recognized pension expense of $3.3 million, which was comprised of net periodic benefit cost of $.4 million and special termination benefits of $2.9 million. Included in the net periodic benefit cost is $32.2 million of expected return on pension plan assets. OneBeacon contributed $4.2 million to the pension plan in 2004. No unrecognized losses on pension assets were recorded since the Company uses the market value method to value plan assets.

---

5.    Purchase Accounting and Related Deferred Credits and Goodwill

        As of December 31, 2001,When White Mountains had unamortized deferred creditsacquires another company, management must estimate the fair values of the assets and goodwillliabilities acquired, as prescribed by SFAS No. 141, "Business Combinations" ("SFAS 141"). Certain assets and liabilities require little judgment to estimate their fair values, particularly those that are quoted on a market exchange, such as publicly-traded investment securities. Other assets and liabilities, however, require a substantial amount of $682.5 millionjudgment to estimate their fair values. The most significant of these is the estimation required to fair value loss and $22.3 million, respectively. Deferred credits representLAE reserves.

        White Mountains estimates the excessfair value of loss and LAE reserves obtained in an acquisition following the principles contained within FASB Statement of Financial Accounting Concepts No. 7: "Using Cash Flow Information and Present Value in Accounting Measurements" ("CON 7"). Under CON 7, the fair value of a particular asset or liability essentially contains five elements: (1) an estimate of the future cash flows, (2) expectations about possible variations in the amount or timing of those cash flows; (3) the time value of money, represented by the risk-free rate of interest; (4) the price for bearing the uncertainty inherent in the asset or liability; and (5) other, sometimes unidentifiable, factors including illiquidity and market imperfections.

        White Mountains' actuaries estimate the fair value of loss and LAE reserves obtained in an acquisition by taking the acquired company's recorded reserves and discounting them based on expected reserve payout patterns using the current risk-free rate of interest. Then, White Mountains' actuaries develop additional cash flow scenarios that use different payout and ultimate reserve assumptions deemed to be reasonably possible based upon the inherent uncertainties present in determining the amount and timing of payment of such reserves. In each scenario, the risk-free rate of interest is used to discount future cash flows. These scenarios are put in a statistical model that assigns a probability to each cash flow scenario. White Mountains' actuaries then choose the scenario that best represents the price for bearing the uncertainty inherent within the acquired company's recorded reserves. The "price" for bearing the uncertainty inherent within the acquired company's reserves is measured as the difference between the selected cash flow scenario and the expected cash flow scenario. The scenario selected has typically been between 1.5 and 2 standard deviations from the expected cash flow outcome. The fair value of the acquired company's loss and LAE reserves is determined to be the sum of the expected cash flow scenario (i.e., the acquired company's discounted loss and LAE reserves) and the uncertainty "price".

        The difference between an acquired company's loss and LAE reserves and White Mountains' best estimate of the fair value of such reserves at the net assetsacquisition date is amortized ratably over the purchase price paid. Goodwill represents the excesspayout period of the purchase price overacquired loss and LAE reserves. Historically, the fair value of an acquired company's loss and LAE reserves has been less than the net assets of companies acquired. These deferred creditsit's recorded reserves at acquisition. Accordingly, the amortization has been and goodwill resulted from White Mountains' pre-July 1, 2001 acquisition activities which were accounted for in accordance with the treatment of a purchase business combination under Accounting Principles Board ("APB") No. 16, "Business Combinations". APB No. 16 calls for the net assets of the operations acquiredwill continue to be recorded byas an expense on White Mountains at their fair values on the date of acquisition.

        All acquisitions occurring subsequent to July 1, 2001 were accounted for under the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations". Under this newly-issued accounting standard, White Mountains recognized a $16.6 million extraordinary gain during 2001 relating to two acquisitions andMountains' income statement until fully recognized its existing unamortized deferred credit balance of $682.5 million on January 1, 2002 as a change in accounting principle.amortized.

        In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", White Mountains will amortize its existing and prospective goodwill only when the asset acquired is deemed to have been impaired rather than systematically over a perceived period of benefit.

FORWARD-LOOKING STATEMENTS

        The information contained in this report release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act.Act of 1934. All statements, other than statements of historical facts, included or referenced in this report which address activities, events or developments which White Mountains expects or anticipates will or may occur in the future are forward-looking statements. The words "will", "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains':

•

future growth in tangible book value per share or return on equity;



•

business strategy;



•

financial and operating targets or plans;



•

incurred losses and the adequacy of its loss and LAE reserves;



•

projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;



•

expansion and growth of ourits business and operations; and



•

future capital expenditures.

        These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform with ourits expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including:

•

claims arising from catastrophic events, such as hurricanes, earthquakes, floods or terrorist attacks;



•

the continued availability of capital and financing;



•

general economic, market or business conditions;

73

---

•

business opportunities (or lack thereof) that may be presented to it and pursued;



•

competitive forces, including the conduct of other property and casualty insurers and reinsurersreinsurers;



•

changes in domestic or foreign laws or regulations applicable to White Mountains, its competitors or its clients;



•

an economic downturn or other economic conditions adversely affecting its financial position;



•

loss reserves established subsequently proving to have been inadequate; and



•

other factors, most of which are beyond White Mountains' control.

        Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, White Mountains or its business or operations. White Mountains assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A.    Quantitative and Qualitative Disclosures aboutAbout Market Risk

        White Mountains' consolidated balance sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risk. The term market risk refers to the risk of loss arising from adverse changes in interest rates and other relevant market rates and prices. Due to White Mountains' sizable balances of interest rate sensitive instruments, market risk can have a significant effect on White Mountains' consolidated financial position.

Interest Rate Risk

        Fixed Maturity Portfolio.    In connection with the Company's consolidated insurance and reinsurance subsidiaries, White Mountains invests in interest rate sensitive securities, primarily debt securities. White Mountains' strategy is to purchase fixed maturity investments that are attractively priced in relation to perceived credit risks. White Mountains' fixed maturity investments are held as available for sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), whereby these investments are carried at fair value on the balance sheet with net unrealized gains or losses reported net of tax in a separate component of common shareholders' equity. White Mountains generally manages its interest rate risk associated with its portfolio of fixed maturity investments by monitoring the average duration of the portfolio, which allows White Mountains to achieve an adequate yield without subjecting the portfolio to an unreasonable level of interest rate risk. White Mountains' fixed maturity portfolio is comprised of primarily investment grade corporate securities, U.S. government and agency securities, municipal obligations and mortgage-backed securities (e.g., those receiving aan investment grade rating from the National Association of Insurance Commissioners of 1S&P or 2)Moody's).

74

---

        Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of fixed maturity investments, respectively. Additionally, fair values of interest rate sensitive instruments may be affected by the credit worthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

        Indebtedness.    White Mountains utilized a significant amount of variable rate debt financing (the Bank Facility and the Seller Note) in connection with the Acquisition. Increases and decreases in prevailing interest rates will translate into increases and decreases in the future interest expense associated with this indebtedness although the carrying value of such liabilities will not be affected. At December 31, 2002, White Mountains also had $5.1 million in fixed rate indebtedness outstanding which was prepaid in connection with the Acquisition by the Debt Escrow transaction, therefore, its fair value is not subject to future changes in prevailing interest rates.

        During 2001 White Mountains entered into a ten-year, $200.0 million notional interest rate swap and three separate three-year interest rate swaps at an aggregate $500.0 million notional with two large financial institutions. The interest rate swaps were undertaken to achieve a fixed interest rate on a portion of the Bank Facility. Pursuant to SFAS No. 133, these contracts are carried at fair value in other investments on the balance sheet (which constituted an obligation by White Mountains of $52.2 million at December 31, 2002) with changes in their fair value reported directly through the income statement as they do not qualify for hedge accounting since their duration is dissimilar to that of the Bank Facility.

        The table below summarizes the estimated effects of hypothetical increases and decreases in market interest rates on White Mountains' fixed maturity portfolio and the interest rate swaps.pension plan.

		Fair Value at December 31, 2002			Assumed Change in Relevant Interest Rate		Estimated Fair Value After Change in Interest Rate			After-tax Increase (Decrease) in Carrying Value
		Dollars in Millions
Fixed maturity investments		$	6,669.1		100 bp decrease		$	6,962.1		$	190.5
					50 bp decrease			6,817.3			96.3
					50 bp increase			6,533.6			(88.1	)
					100 bp increase			6,392.2			(180.0	)
Pension fixed maturity investments		$	297.8		100 bp decrease		$	314.2		$	10.7
					50 bp decrease			305.7			5.1
					50 bp increase			288.7			(5.9	)
					100 bp increase			280.0			(11.6	)
Interest rate swaps(1)		$	(52.2	)	100 bp decrease		$	(77.5	)	$	(16.4	)
					50 bp decrease			(64.7	)		(8.3	)
					50 bp increase			(40.1	)		7.9
					100 bp increase			(28.4	)		15.5

---

(1)

The relevant interest rate for the assumed change in

$ in millions		Fair Value at December 31, 2004			Assumed Change in Relevant Interest Rate		Estimated Fair Value After Change in Interest Rate			After-Tax Increase (Decrease) in Carrying Value
Fixed maturity investments		$	7,900.0		100 bp decrease		$	8,110.6		$	142.8
					50 bp decrease			8,005.8			71.7
					50 bp increase			7,795.8			(70.7	)
					100 bp increase			7,706.0			(132.1	)
Pension fixed maturity investments		$	259.4		100 bp decrease		$	267.5		$	5.3
					50 bp decrease			263.5			2.7
					50 bp increase			255.3			(2.7	)
					100 bp increase			251.2			(5.3	)

        Long-term obligations.    As of December 31, 2004, White Mountains' interest rate swaps is predicated upon assumed changes in the three-year or the ten-year U.S. Treasury yield, depending on the durationand dividend bearing long-term obligations consisted primarily of the swap contract.

Senior Notes and the Berkshire and Zenith Preferred Stock obligations, which have fixed interest and dividend rates. As a result, White Mountains exposure to interest rate risk resulting from variable interest rate obligations is insignificant.

75        The Senior Notes were issued in 2003 and mature on May 15, 2013. At December 31, 2004, the fair value of White Mountains' Senior Notes was approximately $714 million, which compared to a carrying value of $698 million.

---

        The Berkshire and Zenith Preferred Stock obligations were issued in 2001 and mature on May 31, 2008 and May 31, 2011, respectively. At the Company's option, the Zenith Preferred Stock may be redeemed on June 30, 2007. At December 31, 2004, the fair values of the Berkshire and Zenith Preferred Stock were approximately $341 million and $23 million, respectively, which compared to carrying values of $192 million and $20 million, respectively.

        The fair values of these obligations were estimated by discounting future cash flows using current market rates for similar obligations or using quoted market prices.

Equity Price Risk

        The carrying values of White Mountains' common equity securities and its other investments are based on quoted market prices or management's estimates of fair value (which is based, in part, on quoted market prices) as of the balance sheet date. Market prices of common equity securities, in general, are subject to fluctuations which could cause the amount to be realized upon sale or exercise of the instruments to differ significantly from the current reported value. The fluctuations may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments, general market conditions and supply and demand imbalances for a particular security.

Foreign Currency Exchange Rates

        A small portion of White Mountains' foreign assets and liabilities are valued using period-end exchange rates and its foreign revenues and expenses are valued using average exchange rates. Foreign currency exchange rate risk is the risk that White Mountains will incur losses on a U.S. Dollar basis due to adverse changes in foreign currency exchange rates.

        At December 31, 2004, OneBeacon held approximately $384 million in bonds denominated in foreign currencies. Net unrealized foreign currency translation gains and losses are reported, after-tax, ascurrencies, mostly those denominated in British Pounds. Assuming a net amount in a separate component of common shareholders' equity. Changeshypothetical 10% increase or decrease in the valuesrate of theseexchange from the British Pound to the U.S. Dollar as of December 31, 2004, the carrying value of OneBeacon's foreign currency-denominated bond portfolio would have respectively decreased or increased by approximately $37 million.

        As a result of the Sirius Acquisition during 2004, White Mountains has a higher concentration of assets, liabilities, revenues and liabilities due to currency fluctuations, after-tax, are reported on the income statement as a component of other comprehensive income. White Mountains' assets and liabilitiesexpenses denominated in foreign currencies than in prior periods. The functional currency are not material.of Sirius International is the Swedish Krona. Assuming a hypothetical 10% increase or decrease in the rate of exchange from the Swedish Krona to the U.S. Dollar as of December 31, 2004, the carrying value of White Mountains' net assets denominated in Swedish Kronor would have respectively decreased or increased by approximately $40 million.

Item 8.    Financial Statements and Supplementary Data

        The financial statements and supplementary data have been filed as a part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 8588 of this report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

76

---

PART III

Item 9A.    Controls and Procedures

        The Principal Executive Officer ("PEO") and the Principal Financial Officer ("PFO") of White Mountains have evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2004. Based on that evaluation, the PEO and

PFO have concluded that White Mountains' disclosure controls and procedures are adequate and effective.

        The PEO and the PFO of White Mountains have evaluated the effectiveness of its internal control over financial reporting as of December 31, 2004. Based on that evaluation, the PEO and PFO have concluded that White Mountains' internal control over financial reporting is effective. Management's annual report on internal control over financial reporting is included on page F-71 of this report. The attestation report on management's assessment of its internal control over financial reporting by PricewaterhouseCoopers LLP is contained on page F-72 of this report.

        There have been no significant changes in White Mountains' internal controls, or in factors that could significantly affect internal controls, subsequent to their most recent evaluation of such controls.

Item 9B. Other Information

        None.

PART III

Item 10. Directors and Executive Officers

a.

DirectorsDirectors (as of March 21, 2003)

        Reported under the caption "Election of the Company's Directors" on pages 3 through 6 of the Company's 20032005 Proxy Statement, herein incorporated by reference.

b.

Executive Officers (as

        Reported in Part I pursuant to General Instruction G to Form 10-K.

c.

Audit Committee Financial Expert

        Reported under the caption "Committees of March 21, 2003)the Board—Audit Committee" of the Company's 2005 Proxy Statement, herein incorporated by reference.

Name		Position		Age		Executive officer since(a)
Raymond Barrette		President and CEO		52		1997
John D. Gillespie		Deputy Chairman and President of WM Advisors		44		2001
Dennis P. Beaulieu		Treasurer and Corporate Secretary		55		2001
John P. Cavoores		Managing Director, President and Chief Operating Officer of OneBeacon		45		2002
Charles B. Chokel		Managing Director and Chief Administrative Officer of OneBeacon		49		2002
Steven E. Fass		President and CEO of Folksamerica		57		2002
J. Brian Palmer		Chief Accounting Officer		30		2001
James J. Ritchie		Managing Director and Chief Financial Officer of OneBeacon		48		2001
Robert L. Seelig		General Counsel		34		2002

---

(a)d.

All executiveCode of Business Conduct and Ethics

        The Company's Code of Business Conduct, which applies to all directors, officers and employees in carrying out their responsibilities to and on behalf of the Company, and its subsidiaries, are elected by the Board for a term of one-year or until their successors havehas been elected and have duly qualified.

filed herein as Exhibit 14.

        Mr. Barrettee.

was appointed President and CEOCompliance with Section 16(a) of the Company on January 1, 2003 and has been a director since 2000. Mr. Barrette was CEO of OneBeacon from June 2001 to December 2002 and remains its Chairman. Mr. Barrette joined White Mountains Insurance Group in November 1997 as Executive Vice President and Chief Financial Officer. He was President from January 2000 to June 2001. Prior to joining White Mountains Mr. Barrette had 23 years of experience inExchange Act

        Reported under the insurance business, mostly at Fireman's Fund. He is also Chairman of Folksamerica Reinsurance and serves as a director of Montpelier and other White Mountains subsidiaries and affiliates.

        Mr. Gillespie has served as Deputy Chairmancaption "Compliance with Section 16(a) of the Company since January 2003, as Chairman and President of WM Advisors since March 2003 and has been a director of the Company since 1999. Previously, Mr. Gillespie was Managing Director of OneBeacon since June 2001. He is also the founder and Managing Partner of his own investment firm, Prospector Partners, LLC, in Hartford, Connecticut. Prior to forming Prospector, Mr. Gillespie was President of the T. Rowe Price Growth Stock Fund and the New Age Media Fund, Inc. Mr. Gillespie is a manager of OneBeacon and also serves as a director of Folksamerica and Montpelier.

        Mr. Beaulieu has served as Secretary and Treasurer of the Company since June 1, 2001. Mr. Beaulieu previously served as Vice President and Secretary of the Company from January 1995 to May 2001. He also served as secretary for a numberExchange Act" of the Company's subsidiaries from January 1995 to May 2001 and as Chief Financial Officer of White Mountains Insurance Company from March 1995 to June 1999. Prior to joining White Mountains, Mr. Beaulieu was Chief Financial Officer of New Dartmouth Bank from October 1991 to June 1994.2005 Proxy Statement, herein incorporated by reference.

77

---

        Mr. Cavoores was appointed Managing Director, President and Chief Operating Officer of OneBeacon in December 2001 and formerly served as a Managing Director of Fund American from 2000 to June 2001 and as a Managing Director of OneBeacon from June 2001 to December 2001. Prior to joining White Mountains in 2001, Mr. Cavoores served as Chief Underwriting Officer of worldwide specialty business at Chubb Corporation. Mr. Cavoores was with Chubb since 1981. Mr. Cavoores is a member of OneBeacon.

        Mr. Chokel has served as Managing Director and Chief Administrative Officer of OneBeacon since January 2003 and as Managing Director since March 2002. Prior to joining OneBeacon, Mr. Chokel served as Executive Vice President and Chief Financial Officer of Conseco, Inc. from March 2001 to March 2002 and as Co-CEO of The Progressive Corporation from January 1999 to January 2001. Mr. Chokel was with Progressive since 1978. Mr. Chokel is a member of OneBeacon.

        Mr. Fass has served as President and Chief Executive Officer of Folksamerica and its subsidiaries including Folksamerica Reinsurance Company since 1984 and has been a director of the Company since 2000. He joined Folksamerica as its Vice President, Treasurer and Chief Financial Officer in 1980. Mr. Fass also serves as Chairman of Fund American Re and WMU.

        Mr. Palmer has served as Chief Accounting Officer since June 2001 and previously served as Controller of a subsidiary of White Mountains from 1999 to 2001. Prior to joining White Mountains in 1999, Mr. Palmer was with PricewaterhouseCoopers LLP.

        Mr. Ritchie was appointed Chief Financial Officer of FAC in March 2001 and was named a Managing Director and Chief Financial Officer of OneBeacon in June 2001. Prior to joining White Mountains in 2001, Mr. Ritchie served as Senior Vice President and Chief Financial Officer of CIGNA Corporation's International Division. Mr. Ritchie was with CIGNA since 1986. Mr. Ritchie is a member of OneBeacon and serves as a director of Folksamerica.

        Mr. Seelig is the General Counsel of the Company. Prior to joining White Mountains in September 2002, Mr. Seelig was with the law firm of Cravath, Swaine & Moore.

Item 11.    Executive Compensation

        Reported under the captions "Compensation of Executive Officers" on pages 11 through 14,, "Reports of the Compensation CommitteesCommittee on Executive Compensation" on pages 16 through 20,, "Member Return Graph" on page 21, and "Compensation Plans" on page 15 of the Company's 20032005 Proxy Statement, herein incorporated by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

        Reported under the caption "Voting Securities and Principal Holders Thereof" on pages 7 through 9 of the Company's 20032005 Proxy Statement, herein incorporated by reference.

Item 13.    Certain Relationships and Related Transactions

        Reported under the captions "Other Compensation Arrangements" on page 15,, "Certain Relationships and Related Transactions" on pages 15 through 16 and "Compensation Committee Interlocks and Insider Participation in Compensation Decisions" on page 22 of the Company's 20032005 Proxy Statement, herein incorporated by reference.

Item 14.    Principal Accountant Fees and Services

        Reported under the caption "Independent Registered Public Accountant Fees and Services" of the Company's 2005 Proxy Statement, herein incorporated by reference.

PART IV

Item 14. Controls and Procedures

        The Principal Executive Officer ("PEO") and the Principal Financial Officer ("PFO") of White Mountains have evaluated the effectiveness of its disclosure controls and procedures (as defined in

78

---

Rule 13a-14 of the Exchange Act) within 90 days prior to the filing of this report. Based on that evaluation, the PEO and PFO have concluded that White Mountains' disclosure controls and procedures are adequate and effective. There have been no significant changes in White Mountains' internal controls, or in factors that could significantly affect internal controls, subsequent to their most recent evaluation of such controls.

Part IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K

a.

Documents filedFiled as partPart of the Report

        The financial statements and financial statement schedules and reports of independent auditors have been filed as part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 8588 of this report. A listing of exhibits filed as part of the report appear on pages 7983 through 8285 of this report.

b.

ExhibitsReports on Form 8-K

        On October 24, 2002, the Company filed a Form 8-K (Item 5) which announced that it had executed a definitive agreement to sell $225 million in equity securities in private transactions.

        On November 13, 2002, the Company filed a Form 8-K (Item 5) which announced that it had completed an amendment to the Bank Facility.

        On November 25, 2002, the Company filed a Form 8-K (Item 9) which served to furnish information regarding certain changes in its senior management, including the election of Raymond Barrette as its President and Chief Executive Officer.

        On December 30, 2002, the Company filed a Form 8-K (Item 9) which served to furnish information regarding a returned verdict against the Company in a case involving a claim by an insurance agent that its agency agreement had improperly terminated in 1999.

c.Exhibits

Exhibit Numbernumber		Name
2		Plan of Reorganization (incorporated by reference herein to the Company's Registration Statement on S-4 (No. 333-87649) dated September 23, 1999)
3(a)3.1		Memorandum of Continuance of the Company (incorporated by reference herein to the Company's Registration Statement on S-4 (No. 333-87649) dated September 23, 1999)
3(b)3.2		By-LawsBye-Laws of the Company (incorporated by reference herein to the Company's Registration Statement on S-4 (No. 333-87649) dated September 23, 1999)
10(a)4		Amended and Restated Certificate of Designation of Series A Preferred Stock Purchase Agreement among CGU International Holdings Luxembourg S.A., CGU Holdings LLC, CGNU PLC, the Company,of Fund American Enterprises Holdings, Inc. and Fund American Companies, Inc. dated as of September 24, 2000 (incorporated by reference herein to Exhibit 99(a)99.1 of the Company's Report on Form 8-K dated September 24, 2000)December 3, 2004)
10(b)10.1		Amendment No. 1 dated October 15, 2000 to the Stock Purchase Agreement among CGU International Holdings Luxembourg S.A., CGU Holdings LLC, CGNU PLC, the Company, Fund American Enterprises Holdings, Inc. and Fund American Companies,  Inc. dated as of September 24, 2000November 30, 2004, between General Reinsurance Corporation, a Delaware corporation, the Company and Fund American (incorporated by reference herein to Exhibit 99(c)99.2 of the Company's Report on Form 8-K dated October 19, 2000)December 3, 2004)
10.2

79

---

10(c)		Amendment No. 2 dated February 20, 2001 to the Stock PurchaseKeep-Well Agreement, among CGU International Holdings Luxembourg S.A., CGU Holdings LLC, CGNU PLC, the Company, Fund American Enterprises Holdings, Inc. and Fund American Companies,  Inc. dated as of September 24, 2000November 30, 2004, by and between the Company and Fund American (incorporated by reference herein to Exhibit 99(i)99.3 of the Company's Report on Form 8-K dated February 20, 2001)December 3, 2004)
10(d)10.3		Convertible Preferred Stock Term Sheet relating to the Company's acquisitionPurchase Agreement by and among Safeco Corporation, General America Corporation, The Company, Occum Acquisition Corp. dated as of OneBeaconMarch 31, 2004 (incorporated by reference herein to Exhibit 99(e)10 of the Company's Report on Form 8-K dated October 19, 2000)March 15, 2004)
10(e)10.4		Berkshire Preferred Stock$400,000,000 Credit Agreement, dated as of August 26, 2004, among the Company and Warrants Term Sheet relatingFund American, as the borrowers, the several lenders from time to the Company's acquisitiontime parties hereto, JP Morgan Chase Bank, as Syndication Agent, and Bank of OneBeaconAmerica, NA as Administrative Agent. (incorporated by reference herein to Exhibit 99(f)10 of the Company's Report on Form 8-K10-Q dated October 19, 2000)November 2, 2004)
10(f)		$875 million Credit Agreement among Fund American Enterprises Holdings, Inc., Fund American Companies, Inc. and the Company (as borrowers), Lehman Brothers, Inc. (as arranger) and the several lenders as parties thereto relating to the Company's acquisition of OneBeacon dated March 16, 2001 (incorporated by reference herein to Exhibit 10(f) of the Company's Report on Form 10-K dated March 26, 2001)

10(g)		Amended and Restated Credit Agreement dated as of October 20, 2002, among Fund American Enterprises Holdings, Inc. and Fund American Companies, Inc. (as borrowers), Lehman Brothers, Inc. (as arranger), Fleet National Bank (as syndication agent), Bank of America, N.A. and Bank One, N.A. (as co-documentation agent), Lehman Commercial Paper Inc. (as administration agent) and the several lenders as parties thereto (incorporated by reference herein to Exhibit 99(a) of the Company's Report on Form 8-K dated October 31, 2002)
10(h)10.5		Adverse Development Agreement of Reinsurance No. 8888 between Potomac Insurance Company and GRC dated April 13, 2001 (incorporated by reference herein to Exhibit 99(m) of the Company's Report on Form 8-K dated June 1, 2001)
10(i)10.6		Adverse Development Agreement of Reinsurance between NICO (and certain of its affiliates) and Potomac Insurance Company dated April 13, 2001 and related documents (incorporated by reference herein to Exhibits 99(n), 99(o), 99(p) and 99(q) of the Company's Report on Form 8-K dated June 1, 2001)
10(j)10.7		WarrantPurchase Agreement among the Registrantbetween ABB Holding AG, as Seller, and BerkshireFund American Holdings AB, as Purchaser, dated May 30, 2001December 8, 2003 (incorporated by reference herein to Exhibits 99(s)Exhibit 99(a) of the Company's Report on Form 8-K dated June 1, 2001)December 8, 2003)
10(k)10.8		Subscription Agreement among Berkshire, Fund American Companies, Inc. and the Registrant dated May 30, 2001 (incorporated by reference herein to Exhibits 99(t) of the Company's Report on Form 8-K dated June 1, 2001)
10(l)		Form of Subordinated Note Due 2002 issued to CGU International Holdings Luxembourg S.A. and CGU Holdings LLC dated June 1, 2001 (incorporated by reference herein to Exhibits 99(u) of the Company's Report on Form 8-K dated June 1, 2001)
10(m)		Note Purchase Option Agreement among CGU International Holdings Luxembourg S.A. and CGU Holdings LLC and the Registrant dated June 1, 2001 (incorporated by reference herein to Exhibits 99(v) of the Company's Report on Form 8-K dated June 1, 2001)

80

---

10(n)10.9		Master Agreement by and among the Company, OneBeacon and Liberty Mutual including the Renewal Rights AgreementLiberty RRA and related documents (incorporated by reference herein to Exhibits 99(d), 99(e), 99(f), 99(g) and 99(h) of the Company's Report on Form 8-K dated November 1, 2001)
10(o)		Asset Purchase Agreement dated as of December 4, 2001 between Folksam International Insurance Company, Ltd., Folksam Mutual General Insurance Company and Fund American Reinsurance Company, Ltd. and related documents (incorporated by reference herein to Exhibits 99(a), 99(b), 99(c) and 99(d) of the Company's Report on Form 8-K dated January 3, 2002)
10(p)		VGI Stock Acquisition Agreement dated February 10, 1999 between Unitrin, Inc. and the Company (incorporated by reference herein to Exhibit 10(n) of the Company's 1998 Annual Report on Form 10-K)
10(q)		Subscription Agreement for the purchase of Convertible Preference Shares of the Company and the related terms and conditions thereto, each dated as of October 23, 2002, among the investment funds managed by Franklin Mutual Advisors, LLC and the Company (incorporated by reference herein to Exhibits 99(a) and 99(b) of the Company's Report on Form 8-K dated October 24, 2002)
10(r)10.10		Folksamerica Holding Company, Inc. Long-Term Incentive PlanPlan—2003 and Prior (*)(**)
10(s)10.11		White Mountains Re Group, Ltd. Long-Term Incentive Unit Plan (*)
10.12		Folksamerica Holding Company, Inc. White Mountains Performance Share Plan (incorporated by reference herein to Exhibit 10(s) of the Company's 2002 Annual Report on Form 10-K)
10.13		White Mountains Re Group Ltd./Folksamerica 2004 Bonus Plan (*)(**)
10(t)10.14		Folksamerica Holding Company, Inc. Voluntary Deferred Compensation Plan (*)
10.15		Folksamerica Holding Company, Inc. Deferred Benefit Plan (*)
10.16		White Mountains Long-Term Incentive Plan, as amended, (incorporated by reference to Appendix I of the Company's Notice of 20012003 Annual General Meeting of Shareholders and Proxy Statement dated July 5, 2001)April 7, 2003)
10.17		White Mountains Bonus Plan (**)
10(u)10.18		The Company's Voluntary Deferred Compensation Plan (incorporated by reference herein to Exhibit 4(c) of the Company's Report on Form S-8 dated October 19, 1999)
10.19		White Mountains Insurance Group Executive SavingsDeferred Compensation Plan (incorporated by reference herein to Exhibit 10(v)10.14 of the Company's 20012003 Annual Report on Form 10-K)(**)
10(v)10.20		OneBeacon Insurance Executive SavingsFund American Deferred Compensation Plan (incorporated by reference herein to Exhibit 10(w)10.15 of the Company's 20012003 Annual Report on Form 10-K)(**)
10(w)10.21		OneBeacon Insurance Performance Unit Plan (incorporated by reference herein to Exhibit 10.16 of the Company's 2003 Annual Report on Form 10-K)
10.22		OneBeacon Insurance Supplemental Plan (incorporated by reference herein to Exhibit 4(c) of the Company's Report on Form S-8 dated August 27, 2001)
10.23		OneBeacon's 2004 Management Incentive Plan (**)

10(x)10.24		OneBeacon Insurance Deferred Compensation Plan (incorporated by reference herein to Exhibit 10.18 of the Company's 2003 Annual Report on Form 10-K)
10.25		Employment Agreement dated January 1, 2001 among John D. Gillespie and Fund American Companies, Inc. (incorporated by reference herein to Exhibit 10(y) of the Company's 2001 Annual Report on Form 10-K)(**)
10(y)10.26		Amended and Restated Revenue Sharing Agreement among John D. Gillespie, Fund American Companies, Inc. and Folksamerica Reinsurance Company (incorporated by reference herein to Exhibit 10(z) of the Company's 2001 Annual Report on Form 10-K)(**)
11		Statement Re Computation of Per Share Earnings (***)
12		Statement Re Computation of Ratio of Earnings to Fixed Charges (*)
14		The Company's Code of Business Conduct, which applies to all directors, officers and employees in carrying out their responsibilities to and on behalf of the Company (*)
21		Subsidiaries of the Registrant (*)
23		Consent of PricewaterhouseCoopers LLP dated March 27, 2003(*1, 2005 (*)
24		Powers of Attorney(*Attorney (*)
99(a)31.1		PEOPrincipal Executive Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934 (*)
31.2		Principal Financial Officer Certification Pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934 (*)
32.1		Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(*2002 (*)
32.2

81

---

99(b)		PFOPrincipal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(*2002 (*)
99(c)99		Text entitled "Non-Asbestos and Environmental Reserves" under the caption "Loss and Loss Adjustment Expense Reserves" (incorporated by reference herein to pages 31 through 43 of the Company's Form S-3 dated March 14, 2003)

---

(*)

Included herein.



(**)

Management contracts or compensation plans/arrangements required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.



(***)

Not included herein as the information is contained elsewhere within report. See Note 1 of the Notes to Consolidated Financial Statements.

d.c.

Financial Statement Schedules