Exhibit 99(a)
REPORT OF INDEPENDENT ACCOUNTANTS
--------
To the Trustee and Participants of the Folksamerica Holding Company
401(k) Savings & Investment Plan:
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Folksamerica Holding Company 401(k) Savings and Investment
Plan (the "Plan") at December 31, 2001 and 2000, and the changes in its net
assets available for plan benefits for the years ended December 31, 2001 and
2000 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets Held
at End of Year and the Schedule of Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ PricewaterhouseCoopers LLP
New York, New York
June 24, 2002
Folksamerica Holding Company
401 (k) Savings and Investment Plan
Statements of Net Assets Available for Plan Benefits
December 31, 2001 and 2000
2001 2000
---- ----
Investments
Funds on deposit with Merrill Lynch
Trust Company of New York $ 13,532,976 $ 12,434,413
Loans to participants 115,505 191,228
------------ ----------
Total investments 13,648,481 12,625,641
------------ ----------
Receivables:
Employer contributions 61,904 37,872
Participant contributions 77,506 52,894
------------ ------------
Net assets available for plan benefits $ 13,787,891 $ 12,716,407
============ ============
See accompanying notes to financial statements.
2
Folksamerica Holding Company
401 (k) Savings and Investment Plan
Statements of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 2001 and 2000
2001 2000
---- ----
Additions (deductions) to net assets attributed to:
Interest and dividend income $ 382,545 $ 769,966
Net appreciation (depreciation) in fair value of investments (294,927) 923,377
------------ ------------
Net investment income 87,618 1,693,343
Contributions:
Employer contributions 690,029 559,669
Participant contributions and rollovers 895,921 758,029
Plan conversion and other 371,371 14,980
------------ ------------
Total contributions 1,957,321 1,332,678
Deductions from net assets attributed to:
Benefits paid to participants 946,644 765,979
Other decreases 26,811 25,579
------------ ------------
Total deductions 973,455 791,558
Net increase in net assets available for plan benefits 1,071,484 2,234,463
Net assets available for plan benefits:
Beginning of year 12,716,407 10,481,944
------------ ------------
End of year $ 13,787,891 $ 12,716,407
============ ============
See accompanying notes to financial statements.
3
Folksamerica Holding Company
Notes to Financial Statements
-------------------
1. THE PLAN:
DESCRIPTION OF PLAN
The following brief description of the Folksamerica Holding Company 401(k)
Savings and Investment Plan (the "Plan") is provided for general information
purposes only. Participants should refer to the Plan agreement for more complete
information. Participants in the Plan include employees of Folksamerica Holding
Company ("Folksamerica") and White Mountains Insurance Group, Ltd. ("White
Mountains"), Folksamerica's ultimate parent company. Folksamerica and White
Mountains are collectively referred to as the "Company". During 2001, certain
participant's assets of a former White Mountains subsidiary's benefit plan
("Unitrin Plan") were transferred into the Plan.
The Plan was originally established on January 1, 1981 to provide retirement
benefits for eligible employees of Folksamerica. The Plan was amended on October
1, 1994 to reflect a change in asset managers.
The Plan is a defined contribution plan subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The Company contributes
to the Plan the total amount of salary reduction an employee elects to defer.
Employees may elect to defer from 1% to 12% of their monthly salary (limited to
an annual maximum of $10,500 in 2001 and in 2000). The Company provides matching
contributions equal to 100% of an employee's elective contribution up to six (6)
percent of an employee's contributed compensation. The Company may also make
additional discretionary contributions to the Plan, however no such
contributions were made in 2001 or 2000.
The Plan is sponsored and administered by the Company (the "Plan
Administrator"). The Company has appointed Merrill Lynch Trust Company of New
York ("Merrill Lynch") as trustee who is responsible for the management of the
Plan's assets. Expenses related to the administration of the Plan are paid by
the Company.
ELIGIBILITY AND PARTICIPATION
Employees of the Company must complete one (1) year of service and have attained
the age of 18 to become eligible for participation in the Plan. A year of
service is defined as a twelve consecutive month period, beginning on the
employee's date of hire, during which he or she completes 1,000 hours of
service. An hour of service is any hour the employee works for the Company and
is entitled to payment from the Company. An employee becomes a member of the
Plan on the entry date coincident with or next following the date that he or she
meets the eligibility requirements.
Rollover contributions represent vested account balances transferred by
participants of the Plan from other plans.
VESTING
Participants are always 100% vested in employee contributions and rollover
contributions plus net investment income earned on these amounts.
The Plan provides for full (100%) vesting of the Company's contributions.
Participants become vested in Company contributions based on years of services
as follows:
YEARS OF SERVICE PERCENTAGE
---------------- ----------
1 0%
2 25%
3 50%
4 75%
5 100%
4
Folksamerica Holding Company
Notes to Financial Statements
-------------------
TRANSFERS
Participants are permitted to change the investment of their interests in any of
the funds on a daily basis subject to certain limits.
FORFEITURES
Plan participants who terminate employment for reasons other than retirement,
death, or disability will receive the vested portion of their account only.
Amounts forfeited due to terminations of employment will be used to reduce the
Company's future contributions to the Plan.
PARTICIPANT LOANS
The Plan allows loans to participants up to a maximum amount of 50% of the
participant's vested balance not to exceed $50,000. Loan provisions provide for
a term generally not to exceed five years, with interest rates and repayment
schedules to be determined by the Plan Administrator. The interest rates on
participant loans outstanding at December 31, 2001 and 2000 range from 7.0% to
10.5%.
PAYMENT OF BENEFITS
Each participant's accrued benefits, including allocations of Plan earnings, may
be paid to the participant upon retirement, death, disability, resignation,
discharge, or proven hardship. The normal form of benefit payable under this
Plan is a lump sum. Benefits are recorded when paid.
ASSET MANAGEMENT
The trustee of the Plan is also the record keeper and custodian of the Plan's
assets.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right,
under the Plan, to suspend contributions, to discontinue contributions, or to
terminate the Plan at any time. In the event of termination, the accounts of the
members of the Plan are fully vested and nonforfeitable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying statements of net assets available for plan benefits and
changes in net assets available for plan benefits have been prepared on the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the changes in net assets available for plan
benefits during the reporting period. Actual results could differ from those
estimates.
RISKS AND UNCERTAINTIES
The Plan provides for investment options in mutual funds and other investment
securities. Investment securities are exposed to various risks, such as interest
rate risk, market risk and credit risk. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in
the value of investment securities, it is at least reasonably possible that
changes in risks in the near term would materially affect participant's account
balances and the amounts reported in the statement of net assets available for
plan benefits and the statement of changes in net assets available for plan
benefits.
INVESTMENTS
The Plan provides for participant directed investment programs with Merrill
Lynch. During 2000 the Company added several funds to the Plan as well as the
option for self-directed equity investments (the "Self-Direct RCMA option"), to
enhance options available to employees. Additionally, participants have the
option to invest in the publicly traded common shares of White Mountains
("WTM"). A description of the investment funds of the Plan are set forth in each
fund's prospectus.
5
Folksamerica Holding Company
Notes to Financial Statements
-------------------
The Plan's investments are stated at fair value, based on the quoted market
price on the last business day of the Plan year.
Pooled separate account balances are recorded at fair value and increase and
decrease with contributions, withdrawals, and realized and unrealized gains and
losses from the assets in the accounts. The value of each separate account is
determined at the close of each business day based on market values of the
underlying assets. Gain or loss on investments in pooled separate accounts sold
during the year is based on their inventory value (market value at the beginning
of the period or cost if purchased prior to the beginning of the period).
Increase or decrease in the value of investments held in pooled separate
accounts at year end is based on the difference between the market value of such
investments at the end of the year and their inventory value.
Contributions from the participants and the employer are recorded in the period
in which the payroll deductions are made from Plan participants' paychecks.
Funds are remitted to the Plan monthly.
Loans to participants are stated at cost less principal pay downs.
The Plan presents in the statements of changes in net assets available for plan
benefits the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains or losses and unrealized
appreciation (depreciation) on those investments.
INCOME TAXES
On January 1, 1981, and again on January 26, 1994, the Internal Revenue Service
approved qualification of the form of the Plan under the provisions of Section
401(k) and 401(a) of the Internal Revenue Code (the "Code"). The Plan has
subsequently been amended. The Plan administrator believes that the Plan, as
amended, is designed and is being operated in compliance with the applicable
requirements of the Code and, therefore, has not applied for a determination
letter.
3. INVESTMENTS
Investments, at fair value, that represent five percent or more of the Plan's
net assets at December 31, 2001 and 2000 are separately identified as follows:
2001 2000
---- ----
Merrill Lynch Global Allocation Fund $ 772,446 $ 864,575
Merrill Lynch Balanced Capital Fund 1,229,026 1,423,529
Merrill Lynch Fundamental Growth Fund 802,815 943,996
Merrill Lynch Retirement Preservation Trust Fund & Other* 3,590,548 3,196,811
White Mountains Insurance Group, Ltd. 2,642,752 2,731,080
Merrill Lynch S&P Index Fund 981,417 982,278
Davis Venture Fund 762,384 684,071
PIMCO Total Return Fund 715,009 --
Self-Direct RCMA Option 815,662 697,174
----------- -----------
$12,312,059 $11,523,514
=========== ===========
*Other includes cash of $2,435 and $4,229 in pooled separate accounts
(reported separately by Merrill Lynch) at December 31, 2001 and 2000.
Each participant's account is credited with the participant's contributions,
which include amounts transferred from other Plans.
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Folksamerica Holding Company
Notes to Financial Statements
-------------------
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500:
2001:
Total contributions:
Balance per financial statements $ 1,957,321
Current contributions receivable (139,411)
Prior year contribution receivable 90,766
Classification difference - Plan Conversion (371,371)
------------
Balance per Form 5500 $ 1,537,305
============
Net assets available for plan benefits - end of year
Balance per financial statements $ 13,787,981
Current contributions receivable (139,411)
Classification difference (90)
------------
Balance per Form 5500 $ 13,648,480
============
2000:
Total contributions:
Balance per financial statements $ 1,332,678
Contribution Receivable (90,766)
Classification difference (14,980)
------------
Balance per Form 5500 $ 1,226,932
============
Total investment income:
Balance per financial statements $ 1,693,343
Classification difference 14,944
------------
Balance per Form 5500 $ 1,708,287
============
Net assets available for plan benefits - end of year
Balance per financial statements $ 12,716,407
Contributions receivable (90,766)
Classification difference (36)
------------
Balance per Form 5500 $ 12,625,605
============
7
Identity of
Issue,
Borrower Description of Investment Cost Current Value
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Merrill Lynch Retirement Preservation Trust and other cash accounts $3,590,548 $ 3,590,548
White Mountains Insurance Group, Ltd. 1,292,321 2,642,752
Merrill Lynch Capital Fund 1,566,598 1,229,026
Merrill Lynch S&P 500 Index Fund 1,139,741 981,417
Self-Direct RCMA Option 815,662 815,662
Merrill Lynch Fundamental Growth Fund 1,261,654 802,815
Merrill Lynch Global Allocation Fund 841,649 772,446
Davis Venture Fund 815,707 762,384
PIMCO Total Return Fund 712,461 715,009
Merrill Lynch Small Capital Value Fund 381,994 461,716
Van Kampen Emergency Growth Fund 279,018 192,420
AIM International Equity Fund 207,978 178,676
Oppenheimer Quest Balanced Value Fund 174,101 160,145
Ivy International II Fund 92,568 93,552
Merrill Lynch Healthcare Fund 47,126 46,767
Merrill Lynch Pacific Fund 41,360 42,145
Davis Financial Fund 17,110 16,471
Pioneer Europe Fund 10,380 9,925
PIMCO Innovation Fund 8,307 6,072
Merrill Lynch Small Cap Index Fund 3,873 3,984
Seligman Comm & Info Fund 3,590 3,607
Federated International Small Company Fund 3,368 3,198
AIM Advanced Real Estate Fund 2,155 2,239
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$13,309,269 $13,532,976
============= ===========
Participant
loans Interest rates, 7.0% to 10.5% $ -- $ 115,505
============= ===========
8
Folksamerica Holding Company
401 (k) Savings and Investment Plan
Supplemental Data Required by the Department of Labor
Schedule H, Line 4(j)
Schedule of Reportable Transactions
for the year ended December 31, 2001
The following represents any transactions or series of transactions during 2001,
which included an amount in excess of five percent of the current value of Plan
assets as of December 31, 2000:
Current
Value of
Asset on
Identity of Purchase Selling Cost of Transaction
Part Involved Description of Asset Price Price Asset Date Net Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Merrill Lynch Retirement
Preservation Trust Fund $1,906,108 $1,906,108 $1,906,108 --
9