• Underwriting Comes First

  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.

• Maintain a Disciplined Balance Sheet

  The 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 underwriting all depend on informed judgement 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, the group must invest for the best growth in value over time. In addition to investing our bond portfolios for total after-tax return, that will mean prudent investment in equities consistent with leverage and insurance risk considerations.

• Think Like Owners

  Thinking like owners has a value all its own. There are other stakeholders in a business enterprise and doing 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.

White Mountains Cares Least About:

Trying to produce a regular stream of quarterly operating earnings often produces disaster. Trying to manage your company according to generally accepted accounting principles can often be silly. We prefer to measure ourselves as we would hope our owners measure us - by growth in intrinsic business value per share.

• Growth in Revenues

  We applaud owners who reward executives on premium growth. This often provides fine opportunities for us later.

• Market Share

  Often introduced by business consultants. In our personal experience chasing market share has produced the biggest disasters in our business. Often, we have profited later from that excitement.

• Strategic Purchases

  We have never made a strategic purchase… maybe we will someday.

  We often sell to strategic buyers. Our problem is we really don't have much of a strategy other than to increase intrinsic business value per share.

Putting Our Capital To Work:

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 just all went to play golf.

Overall we should be students of capital and business. Adam Smith had it right: "Capital will flow according to its own nature; the invisible hand." If we do not earn and deserve our owners' capital, we will not long have it.

We also admire Benjamin Graham who said: "In the short run the market is a voting machine; in the long run it is a weighing machine."