White Mountains (WTM) 2015 Annual Report

White Mountains (WTM) Managing Director Reid Campbell called the current investment opportunity set lackluster

“We continue to face a lousy opportunity set in financial markets. Equity valuations are still rich, and interest rates are still near historic lows. Now, more than ever, some sig- nificant volatility in both equity and fixed income markets would play to our advantage. We took advantage of the equity market pullback in January and February of this year to begin averaging back into equities and sit well positioned with significant dry powder to take advantage of additional market disruptions.”

Insurance is still currently in a soft underwriting market but that may be changing 

“We begin 2016 with challenging conditions in underwriting and investments. We anticipate premiums will be pressured as competitors look for market share. At year- end 2015, the cracks were apparent in many companies’ underwriting results, which may slow some rate reduc- tions and push for corrective actions in troubled lines.”


We’re excited to announce that Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.


White Mountain (Ticker: WTM) CEO Ray Barette says book value and share price have grown at nearly the same rate since the firm’s IPO 30 years ago

“2015 marks the thirtieth anniversary of the Company’s IPO. Since then, we have grown book value per share and share price by 14% and 13% per year, respectively, including dividends.”

White Mountains thinks about the insurance business in a way that’s materially different than a majority of their insurance peers

We have achieved these results by remaining focused on creating shareholder value per share, often giving up short term upside to avoid big downside. Our results have been lumpy, often disappointing, for extended periods of time. The key to success in the insurance business is to avoid big mistakes.”

Nonetheless, they have made some strategic mistakes along the way

“We made three big mistakes in the last ten years that have significantly reduced our overall performance.  We have learned from those lessons, and I believe we have improved our approach to managing those and other major risks. The challenge has been in not becoming overly risk averse. In practice, we have substantially de-risked your Company.”

They are still experiencing soft pricing in some insurance lines

“The influx of capital from peers and alternative markets is putting pressure on prices and terms and conditions, mostly in peak cat zones and some specialty areas.”

A large portion of their investment portfolio is in conservative, short duration bonds which has hurt their investment returns 

“The short duration positioning of the fixed income portfolio left money on the table but protected our capital position from what we continue to perceive as an asymmetrical risk to rate movements.”

The company has nearly $1 billion of cash sitting on the balance sheet and is no hurry to put it to work given current valuations 

“Intellectually, we really don’t care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we all just went to play golf.”

The firm prioritizes underwriting for profitability rather than underwriting in order to grow revenues

“An 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.”




IBM CFO Martin Schroeter reminded the financial community of the mission critical work & transaction data that are run using IBM’s servers

“Let me give you a real example of what we’re talking about. If you are UPS, one of the largest logistics companies in the world, you have to manage nearly 5 billion deliveries a year with highly seasonal changes in demand. Your customers expect their packages to arrive on time, and they expect to schedule, manage and track shipments anywhere, anytime, and increasingly through their mobile devices.  These mobile transactions can lead to dramatic increases in overall traffic as customers complete transactions at will. This requires a system that can handle the growth and scale seamlessly when activity spikes, maintaining a secure system that’s always available. That’s why UPS chose to upgrade to the IBM z13 mainframe because it could meet the expanding demands of the mobile economy.  I don’t think that mainframe is fully appreciated for the essential nature of the work it does.”

“Financial services sector is obviously one where the mainframe plays a pretty vital role in how the world banks run and when you get a new mainframe, particularly when so relevant to them shifting their business into mobile, particularly one where counter fraud is such an important part of what they have to think about every day.  And again you need scalability, you need reliability. You have to run all the time.”




Verizon (VZ) CFO Frank Shammo says the company is willing to let the most price sensitive customers defect to other carriers

“If the customer who is just price-sensitive and does not care about the quality of the network, or is sufficient with just paying a lower price, that’s probably the customer we’re not going to be able to keep”



Travelers (TRV) CEO Jay Fishman on the firm’s insurance underwriting pricing discipline 

“We don’t pressure underwriters for volume, we don’t. If you do, you will get volume; you won’t like what you get; that’s been our philosophy but you will get it. We let them run their business with tremendous amounts of data like adults making thoughtful decisions managing it for the long-term.”

Travelers CEO Jay Fishman says that low interest rates require clients to pay higher premiums than usual in order for Travelers to earn a decent return on capital

“Fixed income returns remain at historical lows and as a consequence, we must continue to be mindful that this challenging environment has already lasted far longer than most would have assumed and we will continue to factor that environment into our pricing strategies.”



Pentair (PNR) CEO Randall Hogan says the company saw  a significant slowdown in all parts of their business  

“We do not see this to be a Pentair specific issue as this broad-based decline was across virtually every business, every geography and every market.”

Pentair CFO John Stauch says he sees deflation in his sector

“I think clearly global commodity prices are not increasing.  We don’t want to use the word deflation yet but it feels like we are heading a little bit more into deflation area environment and so we are put our main suppliers on notice that we all have to work competitively to reduce our cost structures.”



iRobot (IRBT) CEO Colin Angle says robot vacuuming is becoming more of a substitution to traditional vacuuming 

“I think that one of the driving factors is the demand for robot vacuuming is showing very strong continued signs of growth, so that we have an underlying improvement in demand for our products. The robot vacuuming is becoming more and more mainstream. The skepticism, barriers to purchase continue to be reduced. And I think that our marketing programs continue to improve and as we more efficiently learn how to speak to our customers.  We believe that we’re approaching a mainstreaming of robot vacuuming, where our household penetration is still quite low relative to where we believe it’s going.”



MarketAxxess (MKTX) CEO Rick McVey says his firm is taking market share from clients who traditionally call a banks sales & trading desk to buy or sell bonds   

“Accelerating market share gains across high-grade, high-yield emerging market and euro bond products drove our record results. Our estimated adjusted U.S. high-grade market share was 15.6% for the quarter up from 13.4% a year ago.”



Bank of New York Mellon (BK) CEO Curtis Farrell says the firm is leveraging technology to increase efficiency on a profit per employee basis    

“Our goal as part of our business improvement process is to drive down the labor component of our company and use technology as the strategic asset. So, one of our goals is to get to revenue per employee up, the employee expense down and use technology as a strategic asset to get there. So clearly part of our plan is to reduce that employee headcount per revenue.”