Raymond Barrette

Chairman & Chief Executive Officer

October 18, 2012
Dear Fellow Shareholders:
The sale of the OneBeacon runoff business is the final step in the transformation of OneBeacon into a pure specialty underwriter. It is a huge step. This is a clean exit from all liabilities and exposures remaining from the non-specialty legacy businesses, including most notably, all asbestos & environmental exposures. OneBeacon is removing about $2.2 billion of gross reserves from its balance sheet. A complete exit is achieved by the sale of the legal entities that underwrote those liabilities/exposures. (We have agreed to some limited seller financing if required to get to the finish line.) The go-forward companies are essentially clean.
The net reserves were much smaller due to extensive third-party reinsurance covers purchased long ago. So were the float and related investment income. We continue to believe that the net reserves on this business are adequate. The motivation for this transaction is to remove the drag from this low return business and the related risks of claim inflation, tort developments, reinsurer bankruptcies, etc.
The $101 million GAAP cost to get out is a big number ($1.06 per OB share and $11.63 per WTM share). We usually get paid to assume those risks, not pay to exit them. However, this transaction has significant additional benefits, unique to OneBeacon, that we believe clearly enhance the value of the franchise going forward. The transaction frees up over $100 million of capital, net of the loss on sale; OneBeacon's cost structure can be further right-sized to a competitive specialty carrier level; OneBeacon's high performance specialty team will no longer be immersed in the time-consuming issues associated with running off such a large book of business; and a clean OneBeacon will be much more attractive to specialty teams and companies. I believe that you will be pleased with the better ROEs that OneBeacon will report going forward.
It has taken most of twelve years to go from a large, generalist, broken insurance company in 2001 to a high performance, pure specialty carrier today. (You can (re)read our review of the first ten years in White Mountains
2010 annual management report.) This transformation is a rare feat in the insurance business. It is the result of the hard work, difficult choices and dedication on the part of countless individuals. But much of the credit goes to Mike Miller and his fine team. They have accomplished what we thought was impossible. As Jack Byrne would say, "They have turned chicken shxt into chicken salad."
How's that for a strategic plan? I guess I can expect the impossible going forward. "Attaboy!" OneBeacon team.

Respectfully submitted,
Ray Barrette

Corporate Headquarters:

White Mountains Insurance Group, Ltd.

14 Wesley Street, 5th floor

Hamilton HM 11, Bermuda

Ph: 441-278-3160