All right, welcome to White Mountains Annual Investor Day. Thanks for being here. First things first, many of you will have seen the recent news that Morgan Davis has retired from the White Mountains board. Morgan served as our chairman for six years and as a board member for 17 years, depending on your accounting, Morgan's been a member of the White Mountains family in one capacity or another for the better part of 40 years. Morgan's been a valued and trusted partner and a friend to great many people in this room over the years at White Mountains, including me. In fact, myself more than most. I'd like to take this opportunity to recognize Morgan's many years of exemplary service to the company and to its shareholders. Morgan, could I ask you to stand and take a bow? All right.
Next, I'd like to introduce the rest of the White Mountains Board and just ask you to raise your hand when I call your name. David Tanner, Mary C. Choksi, Phil Gelston, Pete Carlson. Suzanne Shank is not with us today. Margie Dillon, Weston Hicks, and Stevie, he is not with us today. He's decided that shoulder surgery is more fun than Investor Day. Now, I'd like to take a moment to introduce the new Chairman of the White Mountains Board, and that's Weston Hicks. Weston's relatively new to our Board, but he's not new to our company or our industry. We know Weston all the way back to his days at Sanford C. Bernstein, where he was the best insurance stock analyst on the street.
Later, of course, the CEO of Alleghany, which is one of a handful of companies that you can truly say are cut from the same cloth as White Mountains. Weston is uniquely qualified to be our Chairman, and we're thrilled to have him and excited about what's coming next. Let me invite Weston to say a few words, if he would.
Thanks, Manning. I'll be very brief. First of all, I'm honored to step into this role and big shoes to fill, hopefully I will do a good job there. White Mountains is a company I've known for a long, long time, going back to when Fireman's Fund was a public company. I was at Moody's. I used to deal with Jack Byrne back then, and I've followed it ever since. This is a real capstone to my time in the industry. It's a great company, you all know, and I'm privileged to be a part of it. I'm looking forward to at least a couple of terms in this job, and we'll see where it goes. Thanks.
All right. I'm going to quickly introduce the White Mountains parent company senior team. Reid Campbell, President, Rob Seelig, General Counsel and Investor Relations. Many of his shareholders will know Rob. Liam Caffrey, CFO. Mike Papamichael, Deputy CFO. Jason Lichtenstein, Deputy GC. Dave Staples, Head of Tax. Michaela Hildreth, Chief Accounting Officer. Caroline Fedorowich, General Auditor. Mark Plourde, President of White Mountains Advisors. Jonathan Cramer, Chief Investment Officer. Chris Delehanty, Head of Corporate Development and M&A, and Jen Moyer, our Chief Administrative Officer. I would note, as I do every year, that each member of the senior team is a White Mountains shareholder, and in most cases, has shares worth many multiples of their salary. I can assure you that every one of the folks I've just introduced thinks like an owner every day.
I'm going to introduce the senior teams of our operating companies as we proceed, so we can get started. All right, 2022 was a strong year for White Mountains. Adjusted book value per share was up 26%, the stock price was up 40%. Clearly, the sale of NSM was a big driver of the results. If we put NSM aside, we had good results in most areas of the company. Our three biggest operating companies, BAM, HG, Ark, and Kudu, all produced good to better than good results last year, and we'll hear more about those in detail as we go forward. Our investment portfolio produced a return of -2%, and in a year where financial market indices were down double digits across the board, this was an excellent relative return.
In particular, the equity portfolio of the parent company produced exceptional results. The stock price of MediaAlpha or MAX declined for the second consecutive calendar year, and it drove an unrealized loss on the roughly 17 million shares that we continue to own. This is all about where we are in the underwriting cycle for personal lines, P&C, which is MediaAlpha's largest vertical. For a number of reasons, it's been the most intense underwriting cycle in that sector that any of us have ever seen. Later in the presentation, we'll talk about the state of play and what we're gonna do about it. Finally, the NSM transaction generated about $1.4 billion of cash proceeds, so it put us back in a position of having undeployed capital to work with of size.
Capital management activity over the balance of the year was additive to value. We successfully completed a tender offer for a half a billion dollars worth of shares. We committed $200 million to Outrigger Re, which is a way of leaning into the hard market for property cat and supporting the teams at Ark. We'll discuss those initiatives as we go. Here you get some context around the slides, sorry, around the returns. 2022 returns were strong by any measure. In the first quarter, book value per share was up about 5%, while the stock price took a breather. Time will tell. Here we have NSM, which was a big driver of value last year.
We talked about the deal in detail at last year's meeting and also in the annual report, so I'm not gonna drag you through the whole story again, but I do wanna make two quick points. First, the transaction increased our adjusted book value per share by about $300. I wanna point out that we've seen this movie before. We've had large gains on sale from Esurance, OneBeacon, Symetra, and so on and so forth. It's not uncommon, and our guiding principles all the way back to Jack are to seek to produce a superior shareholder return over time and not to care whether that return is smooth or lumpy. Lumps happen, and hopefully, they're for the good, and this was a big one.
Fundamentally, we are not seeking to produce a steady stream of quarterly earnings, but rather to grow adjusted book value per share for our shareholders over long periods. The second thing I would mention again is the proceeds, which left us with significant undeployed capital. We know what it takes to redeploy this capital in pursuit of shareholder value, and Liam's gonna talk about what we've done so far.
Thank you, Manning. Good morning. First I'd like to walk through our capital position over the past nine quarters. What this does is, following the sale of NSM last August, we found ourself with just short of $1.6 billion of undeployed capital. At the time, we said we would seek to put that to use through a combination of returns to shareholders, as well as capital redeployments, which is exactly what we've done. Since last August, we've repurchased approximately $500 million of our shares back. The majority of that, or about $460 million, was through our self-tender offer, which we executed last August and September. The remaining $40 million has been through our normal 10b5-1 share repurchase program. We've made a couple of major capital deployments in that time.
The first, which we'll talk about in more detail later, is $205 million into Outrigger Re to support Ark's reinsurance business out of Bermuda. The second is an additional $150 million commitment to Kudu. I'd say both of these are examples of where we love to put additional capital to work behind our existing operating companies and our proven management teams. Lastly, we had a number of smaller, both deployments and proceeds. This included our preferred investment in Doxa and some smaller strategic investments, as well as some distributions from our operating companies, as well as some smaller sales throughout the portfolio. We ended the first quarter with approximately $720 million of undeployed capital. Next page seeks to put that into a little bit of context over the past six-plus years.
Again, if you go back to 2017, we were fresh on the heels of the sales of OneBeacon, Symetra, Sirius Group, Tranzact. We found ourself with $3.1 billion of undeployed capital on a capital base of $4 billion. Over 75% of our capital base, 80%, was undeployed. What we did over the following four years was a combination of the same playbook, which was returns to shareholders through a series of tender offers, as well as new deployments into operating businesses, many of which you see here on this stage, so Kudu, NSM, Elementum and Ark, amongst others. When we came into 2021, we were essentially fully deployed, having returned $1.3 billion to shareholders and redeployed $2 billion of those initial proceeds from 2017.
Over the past two years, you've seen us generate additional proceeds through NSM, secondary offering at MediaAlpha, among other actions, such that we had the picture we saw in the previous slide of $1.6 billion of undeployed capital. Again, we've gotten busy putting that to work through a combination of returns to shareholders, as well as redeployments. As Manning said, this is a playbook we've run many times over our history and are quite comfortable with it and are gonna be patient in terms of how we think about those deployments. Maybe pause here. A question we often get from investors is, How do we think about the trade-off of redeploying capital versus share repurchase or returns to shareholders? The answer is: it depends on a number of factors, but one of the main ones is our level of undeployed capital.
In instances where we have what VJ Dowling would refer to as excess capital, which is we have more capital than we can hope to invest at a reasonable return over a reasonable period of time, we generally look to return that capital to shareholders. If you go back to 2017, when we had $3.1 billion of capital, if you go back to last August when we had $1.6 billion, there was certainly a component of that which we viewed as excess, and hence, we executed the tender offers. When we're in a situation where we feel like that marginal dollar of capital can be equally either redeployed or repurchased, which is where we find ourselves today, we're really guided by what provides the highest return to shareholders.
We have a view on the intrinsic value of our stock. We adhere to the Buffett rule, which is, if we're trading below 80% of a conservative estimate for intrinsic value, we'll look to repurchase where possible. If not, we're going to look to redeploy. We're constantly guided by what do we think provides the best return. As Manning has stated over the past few quarters, we're pursuing redeployments with vigor right now. We'd love to add a fourth major operating unit going forward that can sit here next year. Depending on the share price, we'll do what's in the best interest of shareholders in terms of returns. I think you'll continue to see a little bit of a mix going forward. We are approaching and pursuing redeployments with vigor, and can talk about that a little bit later.
With that said, on capital, maybe talk a little bit about our current financial position and our investment portfolio and investment returns. Our total capital position at the end of Q1 was $4.8 billion. That's principally roughly $3.94 billion of that is in shareholders' equity. We have no financial leverage at the parent. We do employ prudent levels of financial leverage at our individual operating companies, including HG Global, Ark, and Kudu. On a consolidated basis, our debt to total capital ratio stands at 12%. That's down from about 15% a year ago when we owned NSM. As we discussed, our undeployed capital is $0.7 billion, or about 15% of our capital base today. Investments.
You know, going back to our IPO, our approach on investments is to maximize long-term total returns on an after-tax basis, while taking prudent levels of financial risk and maintaining a diversified portfolio. Our total portfolio is defined here on more of a management basis. Within this, we've excluded our holdings in MediaAlpha. We've excluded our holdings in the participation contracts at Kudu to get a more of a management view of our investment portfolio. Stood at $3.6 billion at the end of Q1. $2.5 billion of that was in policyholder funds at Ark and HG Global, and $1.2 billion in shareholder funds.
Our general philosophy as on policyholder funds, we invest conservatively, and we'll go through that, but predominantly in highly rated fixed income instruments, and our shareholder funds, we invest a little bit more aggressively. Versus insurance peers in the industry generally, I'd say our portfolio tends to have a bit of a shorter duration and higher equity exposure. It's important to note that we don't make investment decisions in a vacuum. We're guided by our corporate needs and our known capital deployments in terms of how we think about the allocation of that parent portfolio. We have three main investment mandates across the company: Ark, HG Global, and then our parent portfolio. Within Ark, total portfolio value at the end of 1Q was $1.9 billion.
Here, the mandate is first and foremost, to meet our insurance obligations, and second, to manage for total return. As a result, you'll see a mix of predominantly fixed income, but also some equities and alternatives exposure. HG Global, that portfolio stands at $0.6 billion. Here, we're solely focused on preserving claims, paying resources to support HG Global's reinsurance obligations to BAM. As a result, we only hold highly rated fixed income instruments. There's no equity exposure in this portfolio. Then at the parent, the $1.2 billion, again, we want to safeguard our known capital commitments and then manage for total return otherwise. Again, you'll see a mix of fixed income and equities.
To put some numbers behind that, again, as of the end of the first quarter, breakdown of those portfolios, again, Ark, a $1.9 billion portfolio, about 80% in highly rated fixed income, average duration of one year and an A+ rating, and the remainder in equities and alternatives. I'd note that a decent portion of the equities exposure here is more market neutral funds, so it's not straight beta exposure. It's actually managing for more of a total return market neutral approach within that allocation. HG Global, again, the $552 million, all in fixed income. Average duration is a little bit longer, four years. Credit quality, AA-. The parent, a $1.2 billion portfolio. Again, here, it's 55% fixed income at the moment, 45% equities.
Again, shorter duration, higher quality on the fixed income side. Within that equities exposure, again, that includes a fair chunk of more market neutral versus straight beta positions. On a consolidated basis, our equity exposure, this includes the equity exposure within this portfolio, as well as for this metric, we've added back our MediaAlpha exposure and our Kudu participation contract exposure is about 42% of our shareholders' equity at the moment. Finally, portfolio returns over the last 2+ years. 2021, I'd say a good year in terms of both absolute returns and relative returns. 2.3% total portfolio return, better than or in line with our total return benchmarks, driven by both fixed income and then in-line performance on equities.
As Manning mentioned, 2022 was a poor year, I think, for everybody on an absolute basis, but we're proud and really felt very good about our relative returns there. Down 2.1% versus the total return benchmarks were down double digits, driven by both fixed income, where we had a shorter duration portfolio, which helped us on the mark-to-market losses versus the industry averages, but particularly the parent equity performance and the Ark equity performance up 8% in total on a consolidated basis. So far through the first quarter, again, I'd say good results, you know, generally in line, a little bit below benchmarks, driven by the same dynamics. We have more of a total return market neutral approach in equities, which means we're going to trail the S&P a little bit.
We have a shorter duration on the fixed income portfolio, so as the mark to market starts to unwind, we get less of a lift, but likewise, had less of a decline last year. Up 1% through the first quarter. Again, as Manny pointed out, a lot of the drivers, that bottom line, which is the equity and alternatives performance, heavily driven by our performance at the parent. At this moment, I'd like to call out our CIO, Jonathan Cramer, thank him for his contributions to this excellent result. I think Jonathan's happy to take any questions if we have them now, or if you want to think about them, we can circle back at the end. Happy to do that as well. All right, we'll wait.
Everyone's shy at the moment, we'll wait for Q&A a little bit later. Let me turn it back over to Manny to begin to walk through our operating company performance.
Okay. Thank you, Liam. This slide gives you a visual of the allocation of book value per share by operating business. Over the past three years, we've seen three large operating businesses really emerge, BAM, HG Global, Ark, and Kudu. This reflects organic growth and also some knock-on capital deployment of different types at Ark and Kudu. I think the current allocation here against these businesses sets us up quite nicely for going forward. Here, a little more detail on the six largest operating businesses. I won't drag you through it, but instead just point out a couple of themes. First, all of our businesses are in the insurance or related financial services sectors. There are no exceptions to that. Second, we tend to prefer controlled positions in our operating businesses.
This is true of four of the six businesses today, and it used to be true of MediaAlpha before the IPO. Elementum is the lone exception to that. Third, the management teams of our operating companies are significant owners in their businesses straight down the line. There are no exceptions. All right, slide 19. I'm gonna cover this first slide on BAM and HG Global, and then hand things off to Seán. BAM is a financial guarantor of essential public purpose municipal bonds. This means bonds issued by state and local governments to finance things like school districts and sewers. BAM is the primary insurer that faces the market. It's a mutual company, and it's owned by its member municipalities, the same municipalities that use its insurance on their issuances. HG Re is a single-purpose, first loss reinsurance company.
It's a private stock company, essentially owned entirely by White Mountains. White Mountains provided the formation capital for BAM, including $500 million of surplus notes. Our economics from BAM and HG Re come from two places. The first is interest on the surplus notes, and the second is the reinsurance profit that's being generated at HG Re. Before I hand off to Seán, I want to call out one key development that happened at HG Global in 2022. In April, HGG, which is the ultimate parent in the HG Re chain, closed and funded a new $150 million investment grade-rated senior debt facility. Of that amount, $116 million proceeds were upstreamed to the parent company, and they're available for deployment elsewhere in the White Mountains family. This deal is important.
It demonstrates continued financial progress at BAM and HG Re. It represents the most significant return of equity capital to White Mountains since we started the business in 2012. Very happy with that outcome in 2022. All right, let me invite Seán up. Well, I'll introduce him first, CEO and Cofounder of Build America Mutual, Seán McCarthy . Why don't you come on down and take it from here?
Thanks, Manny. BAM has now been in existence for 11 years. In that period of time, we've underwritten $125 billion worth of transactions. We have $100 billion worth of state and local governmental guarantees outstanding right now. During that period of time, we've had no payment defaults. We have no credits on our credit watch. I think that's really a testimony to, first, sticking to our knitting as municipal only, and to having very strict credit discipline. In that regard, we've been through a number of cycles. The first eight years were, interest rates were steadily going down, the last couple of years, interest rates have been going up and creating a lot of volatility. COVID.
Throughout that entire period of time, I really have to give credit to our surveillance team and our underwriting discipline to make sure that we maintain our number one goal, which is to have no credit defaults. The last three years have been the strongest 3 years in BAM's existence. 2022 actually was the strongest year we had. We underwrote $147 million worth of premiums, and that was up 24% from the year before. It's interesting because the pricing actually improved last year, and we're really in 2 businesses, covering 1 market.
The two businesses can be defined as the primary market, which is new issues that come to market, and the secondary market, which is where we guarantee a bond that was not insured when it initially came to market. That's primarily one of the big things that's happened right now, is that that business has really become a tool for institutional investors to not only protect their portfolios against a payment default, but also preserve liquidity, lower volatility in terms of how they trade, and manage single risk. All of those things have worked well to our benefit and to the market's benefit.
The important thing about it is that as the primary market is in very active, the secondary market is usually a little bit slower in that those same institutional investors are looking to digest the primary market volume. When the markets are slower, they're much more focused on creating relative value in their portfolio through our guarantee. They, they complement each other well, and over the long period of time, that they produce a stable result regardless of those market conditions. We're pleased to one of the fundamental things for BAM is it's making a surplus note payment. We think it's a, it's a demonstration of our financial health. Last year, we made our largest one of $36 million to HG Global. If I can turn the slide.
A couple of interesting things. The primary market has been steadily going down since interest rates have steadily been going up. Now, there's two things that cause that. The first is higher interest rates eliminate refinancings. Now, essentially, every municipal bond that is callable will eventually be called. But as interest rates have been, gone from 3% to up to 5%, the number of refinancings, which is historically 25%-30% of the volume, really evaporated. That's not all bad, although between 2021 and 2022, it declined 21%. Between 20 through 2022, it declined to 24%. You can see that primary market has been going away. Municipalities have been standing on the sidelines for two reasons. One, they.
The Fed activity, there really is not very much political will to come to market with your transaction if you think interest rates are volatile, and it might not be perceived or received well in the market. The second thing is that a lot of municipalities got a ton of money from the federal government through COVID, and so their coffers were really full. The desire to, or the need to come to market for your financings has been decreased. One thing I'll point out is, we measure a variety of different things to figure out what's gonna happen in the future. One of them is referenda that have been voted on, voter-approved bond issues.
In 2022, there were 1,174 referenda that were approved in 40 states for $127 billion worth of new money. If you take that, it was $100 billion the year before that, in 2021, voter-approved transactions that have yet to come to the market. We combine that with the fact that the Bipartisan Infrastructure Law requires matched funding for, to draw the federal monies out, which have a limit to it in terms of when it expires, use it or lose it. We think that the primary market is likely to rebound. I can't predict which quarter, whether it's gonna be in the end of the summer, the third quarter, the fourth quarter into next year, but it's certainly going to happen.
The history books would tell you that any voter-approved bond transaction will come to market. That sort of leads me to what is the industry penetration? Right now, it's about 8%. Actually, in the first quarter, it was 8.2. We look at it differently than just the overall penetration market. We look at what is what we would define as the, our target market, meaning that transactions that are AA or AAA on the run rate, transactions that are non-investment grade or unacceptable credits, or in categories that we don't underwrite, are excluded. When we look at the target market, we've been underwriting about 26%-27% for the last several years in terms of utilization in that market. In the first quarter, that number jumped up to 41%.
BAM's goal is to be active in the market, but to be focused on returns. The thing I will note that in this particular. Until the Fed sort of calms down, you can see that interest rates are going down a little bit, but the credit spread, which is really the thing to focus on, the spread between AA and A, is actually tightening. We think that will, again, adjust before. For our capital markets effort, volatility is what drives activity more than absolute interest rates, if in one way to think about it. On the third slide. As you can see, our par amount of insured has been holding fairly steady. Our pricing holds fairly steady, and again, it's sort of complementary between the two markets.
We focus very much on our returns, and we feel that this year, as it's unfolding, is gonna be. I couldn't promise you another record year, wouldn't promise you another record year, but I think that we're gonna have a solid year going forward. Of course, our other thing that we really focus on is increasing our claims paying resources so that as the company goes forward, you can see that we've been building that on a steady basis over that period of time. Are there any? Can I answer any questions?
We'll just pause there and open for questions on BAM and HG.
Yes.
There's seasonality in the business if you annualize the first quarter.
There is the first quarter is always the slowest quarter. It's been that way forever. The reason normally is that there's a tremendous push to get transactions done towards the end of the year, then normally the first quarter is sort of a respite from that. Another thing that's happening right now, if you think about what happened in through the December, all the way through, you know, the last Fed meeting, having the market be unstable from the fact that if they don't know whether interest rates are going to go up half a point, quarter of a point, not at all, are they gonna start to decline over some period of time? All of that in the municipal market causes primary market participants to take a pause.
When we look at you, and we talked to, and really one of the things that we've done at BAM is we love data. We have a centralized database that we're fortunate enough to have the head of BlackRock's IT group join us at the inception. We gather everything from deal inquiry to financial reporting, and one of the things we track is what is the backlog of transactions or what are the level of transactions that financial advisors and investment bankers have on their portfolios to price?
We see that that's sort of like identifying transactions long into the future, what we hear from them is that there has been this delay for issuers, big and small, to come to market, until they think the Fed is sort of all the way done. Any other questions? Again, thank you, I wanna, I, you know, I couldn't leave the podium without thanking White Mountains and its management team and board for their support. You know, since inception, they've been really great partners, and we, I really appreciate that. Thank you.
All right. Thank you, Seán. Let's turn now to Ark. Please allow me to introduce Ian Beaton, CEO and co-founder, and Nick Bonnar, Chief Underwriting Officer and co-founder. Ian, you're up.
Good morning, everyone. This year has started better than last year. Last year, I forgot to bring a jacket. It's there. It's not perfect, because this year I forgot to bring a tie as well. One of these years, I'll bring either or both, and wear at least one of them. Happy to take questions as we go, what I'm intending to do over the next few minutes is spend a little bit of time refreshing everybody's memory of who is Ark and what do we do, because there's quite a few things that happen in White Mountains, and we are just a small part of it. Secondly, talk about how we're doing, how we're doing with your money, your investment, and it's our investment, too.
Thirdly, have a little peek at the future and what we think is happening in the market in terms of rate. It's not a crystal ball exercise, or if it is, it's a badly designed and constructed crystal ball, but we'll talk about that. I'm sure there'll be some interest in that. Just a quick refresh on what Ark is and what we do. We're a specialty lines company. Ark inhabit the P&C space. So we do property, about 45% of what we do at the moment. About half of that is reinsurance, and about half of that is what we call property D&F, but that's probably a less familiar term, and it means E&S insurance, E&S property insurance, both primary and excess. That's the largest chunk of what we do right now, mostly driven by opportunity and rate.
The next two big chunks are marine and energy and specialty. Between them, they're about another 45%. About equally weighted, slightly more specialty at the moment. The remaining 10% at the moment is A&H and casualty. We've been on a growth binge recently because of market opportunity, and those have definitely happened in the marine energy, specialty, and property areas, and less so in the other two areas, which is why the portfolio's changed that way. We're 16 years old. I may look it. Nick, the silver-haired gentleman over there, doesn't look it, but doesn't look bad. At least he's got a tie and, you know, other accoutrements. A jacket, thank you. We have two main platforms. We have two syndicates at Lloyd's. Lloyd's of London is the largest insurance market in the world. It's actually a marketplace with a central fund.
It's quite unique, and we have two of the approximately 90 syndicates there. There's no magic about having two. There's about, as we said, sort of 90 odd syndicates in total, and it's just grown up over the years. We have a Bermuda-based business now, which we set up with the assistance of White Mountains when they took the investment in us at the beginning of 2021 to rekey our Class 3 to a Class 4, get an AM Best A rating, and build out the platform there. We write about 60% of our business now in London and about 40% in Bermuda. In London, it's about 80% insurance, 20% reinsurance, because that's where we see opportunity in London and Lloyd's.
The other way around, it's about 90% reinsurance in Bermuda, which is what it is famous for, and 10% insurance. That's what we are. We'll talk about Outrigger at the end, and we'll probably talk about our performance as we seamlessly move with a nod to the next slide. Well done. Thank you. This slide is complicated, but the, the vertical axis really shows the volatility of our returns versus other syndicates in the Lloyd's market, other competitors in the Lloyd's market. That's the volatility of returns. Then on the X-axis, it's the profitability of those syndicates. The more volatile ones are towards the bottom, and the more profitable ones are towards the right.
Intuitively, you would think that if you're more volatile, you'd be more profitable on average, because risk and reward would sort of seem to dictate that would make sense, and less profitable would be less volatile. What this scatter diagram shows is actually there's quite a few that actually don't fit that mold. In fact, the line's really the other way around. You can be profitable, and you can be less volatile, and we've highlighted that by going green with it. We shan't talk about red, because that's not a good place to be. We're one of the most profitable and one of the least volatile businesses in the Lloyd's market. This is over the last 10 years, so this is 2013 to 2022. It's not a one year, it's not a two year, it's a 10-year view on us.
We could go back further, but I think we've made the point in 10 years. That's how we've performed historically. How are we doing right now? Well, it's a good time in our market. It's a good time, but it's not a great time in our market. We keep getting cats, right? Nonetheless, that is part of our business and what we do. Combined ratio last year was 82, and we wrote about $1.5 billion of premium, which is up strongly on the year before. It was just over $1 billion the year before. Post one-one, which is a big renewal cycle for us, things are looking pretty good into 2023 as well. First quarter, for what it's worth, was a combined 94.
Rate, we had a plan rate of up 3%, which was written before Hurricane Ian landed, and it's up 14 or 15 right now. We've seen strong continued momentum because of Ukraine, and Ian, and inflation, and interest rates. Those are big drivers for us, and it's probably the best rating environment that we've seen in our 16 years. The bars show you how our premium's grown over the last four years, and the red line shows you our combined ratio, and it's dropped down. We can have growth at this point in the market cycle, and we can also have increased profitability at the same time. That's not always possible. Obviously, in a soft market, we'll be shrinking the top line to protect the bottom line. Here we can have both.
You can see the mix of businesses again, which I pointed out, property at the bottom, marine and energy and specialty, and A&H, and casualty. Quick little picture. The one on the far left, the 98 combined is a UK combined number. The difference between UK combined and US combined is you can probably drop that by about 3 or 4 points for like-for-like comparisons. Before we came to one-one, and the renewal of a lot of reinsurance business, we saw quite a squeeze in the market cycle. A squeeze that we hadn't seen for 10 or 15 years. We saw a supply/demand imbalance of about what we would think would be about $50 billion. You'll have read in other trade press, I'm sure, you know, sometimes it's 30, sometimes it's 80, but somewhere in between.
A substantial squeeze on an industry that has, let's call it, half a trillion of capital. It's a big shortfall. Again, that was driven by willingness and ability to play. Some hedge funds, some collateralized funds, had trapped the capital because there was a large loss. Hurricane Ian is going to cost us probably about $50 billion. It's a large number. That wasn't available for deployment. A lot of people on the insurance and the reinsurance side had sort of given up the will to live in terms of interest in this market, because, quite frankly, it had disappointed for years and years and years. Between the willingness and ability to play on one side, and then increased demand because of all these frequency of severity of cats and inflation, that balance led to a repricing, certainly in property treaty, of upwards of 30%.
The market was dislocated at one-one. There was lots of negotiation about terms and conditions, and it was quite fractious, but we got through it. Now where are we? Where are we versus one-one? How long will the market cycle last? Well, if you want those answers, I don't know. What I will start with is the pure rate numbers. On the left-hand side, you'll see numbers that you may have seen elsewhere. We, broadly speaking, agree with those numbers. We have seen property treaty rates go up 30%, 40%, 50% at one-one. That has continued at one-four and indeed at one-six. Property in Florida, the Florida renewals were up between sort of 25% and 35%, probably low 30s. Yeah, it's continued. It's continued.
The difference with one-one, perhaps, is that the expectations about terms and conditions have been sort of set, and that unruliness, that market behavior settled down. It was a much more orderly renewal at the one-sixes than it was at the one-ones, but the rate is just as good. Property reinsurance has been hardening for two or three years, and it's accelerated this year. You know, low 30s isn't a bad place to be. It was sort of 20s last year, and it was up maybe five or so the year before. We're in our third year of hardening property treaty, which is quite unusual. Property insurance, this D&F I was talking about, the E&S insurance, has been hardening for. It's now in its fifth year. A long time. It started hardening well before property reinsurance did. It was a much darker place.
It had demons. It had lost a lot of money. Didn't turn to drink, but it did eventually turn, and it has, this year, picked up again. The end of last year, we were seeing rates starting to go up, but not as much. With the reinsurance rates going up by a substantial amount, that's put pressure on the underlying profitability in the insurance market, and that has lifted it up. We're seeing U.S. insurance up by 20-25 points and non-U.S. international up 10-15 points. Marine specialty, a big lump there. Marine energy, hull, cargo, specie, specialty, anything that doesn't fit the above, basically, so cyber, political risk. That's anywhere between small single digits and up 20%. We saw very strong rate increase on marine energy composite reinsurances at one-one.
Composite is marine and energy and other stuff, but typically, previously, a lot of terror and war had been thrown in for very, very cheap. Those pillars were stripped out. Those components were stripped out and properly repriced. There's a lot of squeeze on terror aggregates, for example, at one-one, not just cat aggregates. The point I want to make about rate, is rate doesn't translate necessarily into great profits, right? Everybody's probably being punted with, you know, this year is the year to be in property treaty, and this year I would say it is, but everybody says that, don't they? The year before, and the year before that, and the year before that.
Rate increases don't mean it's going to be profitable, because whilst you've all seen these charts about rate being at historic highs or decadal highs, cats are at decadal highs as well. The last 5 or 6 years have had twice the volume and value of cats as the prior five years. It's a bit like A Tale of Two Cities in Charles Dickens. Is it the best of times, or is it the worst of times? We think it's good, but we don't think it's great, right? We do think it is good, and we should be leaning hard into it. That's what we have been doing.
I won't probably focus too much on the middle section, but just to say, in this whole melange of things, don't forget that the perils you cover, the attachment points you attach at, the pillars of risk you give, otherwise known as the terms and conditions, are very, very important components of what will drive your profitability. At the end, we all know about inflation, because we're all experiencing it every time I buy a coffee downstairs. Maybe that's a matter of during the Oriental, of course. That comes to Outrigger. Outrigger was an opportunity to grow harder and faster than our balance sheet could sustain with our capital alone. We believe there is a great opportunity in property treaty. We also believe we don't have the balance sheet and the risk tolerance to take that all on Ark's balance sheet.
We picked up the phone. Guess who to? There'll be no prizes for that one. We said, "We want to deploy $250 million supporting effectively a quota share of our Bermuda property cat XL book, property reinsurance. We think there's a year, 2, don't know, in this." Very quickly, the answer is yes. We've got a couple of other friends and family involved, and that was the $250, and we went to market. That is on plan, it is on track, and it is deployed. It's now deployed. We say that's a great opportunity. We don't know how long that will last, but we do think now is a good time to be involved.
What I would say to all those people who do want to get into property treaty and are thinking of investing in this space is, don't come in, ruins it for the rest of us. Also, given the volume of capital, that can come in very quickly, it also can very quickly become a crowded trade. We need to think very carefully about what the needs are in terms of demand and what the supply is. That'd be my little Christmas present request. Thank you.
All right. Let's open for Q&A on Ark and Outrigger.
Just given your noted lack of historical profitability, given your noted historical lack of profitability, particularly in the cat segment and in the context of the significant price increases that you've levied on this segment, I guess my question is: Why fundamentally does pricing not keep up with elevated losses in this segment? If that question makes sense.
It does. I'll just correct you first, though, because we've been highly profitable as opposed to unprofitable, so us, but I suppose you meant the market. Why doesn't it behave logically? Well, there's loads of markets that are cyclical. Yeah, name a commodity market that's not cyclical. Name a stock market that's not cyclical. Name an energy market that is not cyclical. Because you have supply and demand imbalance. Effectively, the insurance industry, reinsurance industry, is driven by a supply side overhanging cycle. Effectively, there's a lag between when people write business for a certain premium, a certain rate, and then when the losses come through.
When the losses come through, they may be more or less, and particularly with longer tail casualty classes, which is a huge part of our sector, because it's not just about a property or a property reinsurance story. That lag will lead to several years of losses when premiums then have to hike up very quickly to rebalance and recalibrate. You get these sort of sawtooth cycles, almost. The prices go up because of prior losses that have only been recognized today by actuarial methods. Then they drift down again as people go, "Hey, this looks really good. I'll come back in." Then supply comes back in, competition drives down. It's an equilibrium, but not a stable one.
The only thing I would add to that is that the barriers to entry are fairly low at the further you get away from the primary customer, so into the reinsurance and retro markets. It allows the equilibrium to be achieved pretty quickly.
Simon?
Hi. At last year's Investor Day, you talked about, your-.
... feeling comfortable with the low 90s combined ratio, in the future. I think you also mentioned about $5 billion of gross written premium in 2025, maybe 2026. Are those targets still achievable? Has anything changed with those?
Can you say that last bit again? What premium in 2025?
I think you had mentioned an aspiration to get to $5 billion.
Not me.
Okay.
What was I wearing?
It's my aspiration.
You, yeah, you had a pretty good memory until then. What was I wearing?
It wasn't-
Wasn't wearing a jacket.
It wasn't an aspiration. You promised.
I did no such thing. Yes, you did. We think we're at about $1.8 billion this year, right? We don't know next year and the year after. We think the strong growth has gone. We think there's further growth to be had, but we don't think the rates of growth we've shown there will continue because of this sawtooth nature of the cycle. We're always looking for opportunities. There's nothing wrong with that number that you said. It's just, you know, I ain't got a cunning plan right now hidden to do that. In terms of the combined ratios you mentioned, yeah, we think those are good combined ratios this year, last year, next year, that we would like to operate at, but that's no promise.
Couple things to add. In terms of returns, profitability, the mantra at Ark is to aim for 20 and hit 15. That's net ROE, and you can work out, depending on your interest rate assumption, your investment assumption, et cetera, what combines might be required to get you there. That remains the goal. The other thing I would say in terms of scale, when we invested at the end of 2020, our expectation was to try to grow the business to $1.5 billion over three years. We've exceeded that. Where we go from here is hard to say.
All right.
Two unrelated questions. We've seen some consolidation with Renaissance buying Validus. Do you think there'll be further consolidation in reinsurance? How will you be involved in that or not? Then just secondly, the Outrigger transaction, can you talk about the pros and cons of doing that type of sidecar as opposed to just taking more equity and other equity investments from White Mountains just directly into the existing-
Sure
capital structure?
Consolidation first. There will be more consolidation. You know, we all know it's all coming. Consolidation tends to, as a macro phenomenon, follow the latter stages of the cycle as things soften, but it happens the whole time. They're going very much for scale, power, presence, and that totally makes sense. The macro comment is really as organic growth tails off and people feel flush with reported earnings, how do they continue to grow? That's often through, you know, consolidation or inorganic growth. We absolutely believe it'll continue. How we play and play into that, we're always looking, always on the hunt if there's a deal or it can be a JV or a partnership, doesn't have to be M&A per se. We, we'll look at it if it makes sense.
Nothing has to date, but that doesn't mean it won't. There's no. I can't give you, "This is how we're going to play it." We'll be opportunistic about it. The second point on why did we take non-equity participation in the form of Outrigger rather than more equity straight into the investment in the balance sheet is twofold. Threefold. I'm an ex-consultant, there's always three things. Firstly, risk tolerance. You will notice that chart about being top quartile and volatility, yeah, and profitability. We think we can achieve low vol and high profitability with a certain business mix, with certain ways of protecting ourselves. It's not to say that not writing more property reinsurance on our balance sheet is not a good thing.
It pushes us to the outer bound of our comfort level with profitability and volatility. Number one, do we want that all on balance sheet, the balance sheet our size? That's a risk/reward trade-off that we feel comfortable with. You know, we've got a significant stake in this business. Why take more permanently as equity when we know this is a cyclical industry? At some stage, it will change, and we might want to collapse it down and make it go away. In which case, why do we take that? Because we think, don't know, but we think, you know, White Mountains, I've been involved in privately a couple of cycles of investment into Ark.
They helped, privately helped found Ark, sort of we like it as a form, but at some stage they have to leave, and hey, guess what? Five years, time's up, right? These guys don't have to, and they can play long, and they can play short time. The very interesting capital pool, right, from my perspective, which is they don't have to disappear after five, we can carry on to trundle and shrink and grow as the market cycle dictates, we can also be sort of fast and furious. He can be Vin Diesel, I can be somebody else, right? We can take capital in and then shut it down again.
We think that timing is different for us versus equity, I think would be probably the other point I'd make, and if I had a third point, I've forgotten it.
I think the key is the flexibility of the form, of the format against the cyclical opportunity. It's simpler to unwind when the opportunity shifts.
Just from a cost of equity standpoint, it's your cost, it's your cost of capital, it's White Mountains' return on investment, right?
Right.
You guys are facing off each other, so who won?
That's why I forgot my third thing, because it's dilutive. I thought at their investor day, maybe I shouldn't say that, so, you know, but you reminded me, so I had to fess up to it. Thanks for that. I won't get lunch now, will I?
Other questions on Ark?
A question that's come in from the ether for you was, with respect to the supply-demand imbalance that you talked about before, how much capital do you think would be needed to plug the imbalance?
What I would say is the market cleared, right? It's an artificial construct we put up there. My apologies for being simplistic, but you have to shove something on a PowerPoint slide, don't you? You know, as demand and supply move and pricing changes. What we know at one-one was the market cleared, so there is enough capital. The market did not fail. The market did fail around 9/11. The market sort of failed back in the early nineties. This market did not fail. It repriced and cleared, and it was much more orderly at the one-sixes than the one-ones, and there's a lot of capacity out there. There was two or three very large players taking very large lines around one-six, but it's at a repriced level. I don't think the shortfall is there necessarily.
It's how much additional capital comes in to then put pressure on pricing. I don't know if that answers their question, you know, there we go.
All right, any other questions on Ark? Thanks, Ian. All right, let's turn now to Kudu. Please allow me to introduce Rob Jakacki, CEO, and Charlie Ruffel, Managing Partner. Rob, take it from here.
Happy to be here with you today to give you an update on Kudu. By way of a refresh, Kudu is an investment platform that buys minority interests in asset managers and wealth management firms. We focus on the lower middle market of these industries, the value proposition that we deliver to our managers continues to resonate. Part of that is fueled by the permanent capital that we represent. It's a big part of our ability to achieve an alignment of interest with the teams that we're backing, that capital, oftentimes, since the beginning of the company, has been used to facilitate generational transfers of equity and succession initiatives.
Increasingly, the capital's been used for growth initiatives as well, with an increasing requirement of a lot of our managers to meet co-investment requirements for their LPs. Charlie and I, and Charlie, who doesn't sit with me up here anymore for some reason, we started the firm in 2015, but it was really in early 2018, White Mountains made their first investment and recapitalized the business that started the proper history of Kudu. In that time, Kudu's made roughly $750 million of investments of debt and equity capital across 21 managers of high quality and of diverse investment strategies.
Where we sit today is a strong pipeline of investment opportunities, and we're working with White Mountains and our capital partners to arrange an incremental $150 million, as you heard before, of capital, to facilitate those opportunities. An opportunity to thank Manning, Wes, and Jonathan, and the White Mountains team for their belief in us, as evidenced by this capital commitment and the partnership over this five years. Thank you. 2022 was a difficult year in many respects. The dramatic rise in interest rates, coupled with the price pressure on virtually every asset class, meant that there was virtually nowhere to hide. Despite this, the portfolio at Kudu showed its resiliency.
Our managers, the diversification of our managers was on full display, and most of those managers retained the vast majority of their clients. The client retention rates were very high across our portfolio, which is one of the characteristics we look for when we're selecting new investment candidates. It was great to see, during a time of stress, that client retention was right there. That was a very satisfactory outcome. Over the course of the year, our portfolio grew on a same-store basis, 8%. It was partly benefited by some monetizations across our portfolio versus capital. A Denver-based real estate manager elected to sell itself to a strategic partner.
They sought a relationship with a Canadian-based real estate firm, Colliers, and as a result, our investment was liquidated in full. While we're sad to see the versus partnership come to its conclusion, it was a highly profitable outcome for all of us, generating about two and a quarter times our initial capital in less than three and a half years timeframe. It's a very satisfactory outcome. In addition, Sequoia, our Ohio-based wealth manager, brought in a new private equity partner in the fourth quarter of last year, to fuel their inorganic ambitions. We achieved a partial monetization there. Also, Tiedemann Investment Group, TIG, along with their affiliates, achieved their public listing in early 2023, of which we received a partial monetization as well.
Those latter two, we retain a significant portion of our initial interest in those businesses, so we'll continue to participate as they grow. Through those transactions, we completely de-risked our initial capital outlay, so very, very pleased with those results. We're off to a solid start in 2023. The GAAP ROE for the trailing 12 months, ending 3/31, was 13%, reflecting a strong, you know, Q1 valuations in our portfolio over the quarter. Also, the other metric that we monitor is our levered return, which excludes the benefit of realized and unrealized gains as the GAAP ROE figure does, and focuses more on a yield component. That figure is down slightly year-over-year.
If you'd wanna go to the next slide, you can see the trend line, where we were at the end of 2022, at 8%, off of a stronger 2021, reflecting higher borrowing costs at Kudu, and the removal of some of the higher-yielding investments that were monetized, as I mentioned. As we look out to 2023, I showed you the GAAP ROE, that levered our levered return, at 7% for those reasons. That right-hand column, importantly shows the top two sections of the graph. I'm colorblind, so I'll have to point to the position they are on the chart. represent our dry powder.
Significant dry powder at Kudu today, reflecting those sale events, the proceeds from those sale events, as well as the $150 of new commitments. We're sitting on a very robust pipeline as we sit here today. One of such is gonna close today, so very exciting for us. An announcement will be made in the next week or 2, and then a couple, probably 3 or 4, to follow in the next several weeks. We're quite bullish on where we sit right now with our pipeline and have the capital to drive it. Hopefully we can push that levered return up over the course of the year as those investments are made.
All right. Thank you, Rob. Let's open for questions on Kudu. All right. Hearing none, we'll move on.
Excellent.
All right, let's turn to MediaAlpha. As I mentioned when we started, Steve Yi, the CEO and Co-founder, is unable to be here today. He's undergoing shoulder surgery. Please allow me to introduce Pat Thompson, CFO of MediaAlpha, who's joining us today. I'm gonna cover these slides and then invite Pat to come up for Q&A. As a reminder, MediaAlpha is a customer acquisition technology platform. It operates in multiple verticals. It has particular expertise in the insurance verticals, P&C health and life. In simple terms, MediaAlpha enables advertisers, who are often insurance carriers, to acquire potential customer traffic, whether it's clicks, calls or leads, efficiently and transparently, and MediaAlpha is essentially a toll business. It collects a percentage of all the volume of transactions that it facilitates.
In 2022, MAX, the MAX share price declined for the second consecutive year from about $15 a share at the outset, to about $10 a share at the end of the year. This drove an unrealized loss on our continuing position in MAX, and that negatively impacted White Mountains' adjusted book value per share. The main event here is the underwriting cycle in personal lines P&C insurance, which is MediaAlpha's largest vertical. I think everybody understands this, but just to connect the dots, when underwriting profit for insurance carriers expand, they increase their spend on advertising and customer acquisition, and that drives MediaAlpha's top line higher. We saw an extreme version of this in 2020 when COVID hit, for 2 reasons. One is, frequency went through the floor, and carriers had found underwriting profits to spend.
Second, the way they spent them was through online advertising, disproportionately to offline advertising. That was a big boon to MediaAlpha's business. On the other hand, when underwriting profit contracts, carriers reduce spend on advertising and customer acquisition, and that drives MediaAlpha's top line down. We've seen an extreme version of that in late 2021 and into early 2023, as the cycle has turned and turned hard, and there are a bunch of reasons for that. Frequency reversion, elevated severity, which has been affected by economic and social inflation, and a number of idiosyncratic factors. I'll say that in my career, this is the most extreme cycle we've seen in this line of business. We've seen continued volatility in early 2023.
In the January and February renewals, which are a big renewal period for this line, we saw year-over-year increases in ad spend on the MediaAlpha platform, we thought we were seeing the early signs of lift-off. That was wrong, in retrospect. Then came Progressive, when they announced their first quarter results in April, and their decision to cut back on ad spend in light of elevated loss ratios. Since then there have been a flurry of similar announcements and rate filings. It's pretty clear at this point that the industry as a whole remains in the phase of the cycle where their pricing is chasing their loss costs. How much longer that's gonna be is hard to say, although I think it's measured in quarters and not in years.
When all of this happened in early 2023, there was also a lot of volatility in the MAX share price, which is understandable. Traded all the way up to $16 in February, and then back down to $5 in May. How do we at White Mountains interpret and react to all of these events? For us, the touchstone is always the intrinsic value of MediaAlpha. On this point, I want to say that MediaAlpha is not, and never has been, a fancy, serially funded, cash-burning insurtech. It's just not that business. It's produced positive cash flow and dividends to shareholders every year since we invested in 2014, and it continues to do that. The other thing to note is that MediaAlpha provides a differentiated solution to a market that is gonna grow.
If you look through the cycle, there's a healthy secular growth rate, and there should be. When you think about what the intrinsic value of MediaAlpha is, it's not that difficult to put a number on it, except for one issue, which is handicapping the cyclicality in the core verticals. Now, in terms of what we think that intrinsic value is, you can get a pretty good sense of it by reviewing the bidding. We sold shares in the IPO of MediaAlpha in October 2020, at $19 a share, and trading into that first day at $33 a share, fully distributed. Then in March 2021, we sold in a secondary offering at $46 a share.
In May 2023, when the stock has sold off, we've launched a tender offer and stated our willingness to buy up to 5 million shares at a fixed price of $10. We think $10 is a significant discount to intrinsic value, and that purchasing shares at this level is inherently attractive to White Mountains. Simple as that. That's the tender and what we're up to. Just a reminder for everybody on the big picture, we've generated a return on investment from MediaAlpha of 9 times our money in cash, and we also have a continuing shares, 17 million shares of continuing upside, and maybe more depending on how this tender plays out. We recognize that it's a matter of when and not if, the cycle in P&C insurance turns.
Looking through that cycle, the more powerful secular force here is the growth in online advertising and insurance, which has got a long way to run and against which MediaAlpha is very well positioned. Let me turn the slide. Yeah, this more or less tells the whole story in a visual. I probably should have just started here and said a lot less. Let me point out a couple things. One is, if you look at 2015 and 2016, this is the last downturn in the cycle for personal auto in the U.S. You can see it. You see the growth flattening, and then you see what happened on the backside as the cycle hardened, coming into 2016, 2017, 2018, where the growth of MediaAlpha just took off.
You can see here what happened in 2020 with the COVID lockdown, and then you can see the cycle turn again in 2021 and 2022. As we have turned into 2023 with the rate of change flattening out. All right, let me stop there. Let me ask Pat, if he'll join me, and we'll take questions on MediaAlpha. Yep.
There was a pre-submitted question. This is a question directed to White Mountains about the MediaAlpha tender offer, the question is: how do you navigate the potential conflicts of interest for Steve Yi in his role as a White Mountains director and as CEO of MediaAlpha?
It's a good question. On the question of the tender, specifically, this is a decision that's been made in the best interest of White Mountains, full stop. Steve Yi was not a part of that decision. More generally, Steve Yi has joined our board. We're very happy with that. It does raise potentials for conflicts. We have protocol around that. We've faced this issue before. That's nothing new. I would say, in my opinion, that's the tail wagging the dog. The main event is that Steve Yi brings a lot to the board in terms of subject matter knowledge, expertise, entrepreneurship, and a range of skills that are additive, so we're thrilled to have him.
Did you consider doing a primary purchase of shares? In other words, buying the $50 million directly from MediaAlpha and providing more cash for the business as opposed to doing the public tender?
We considered a lot of options. I think this is the most direct, straightforward, controllable initiative to take, and so we've taken it.
Yeah.
Why, 5 million shares? Why that number?
Well, there's a question really on what's realistic and feasible. There's 70 million shares outstanding, White Mountains owns a good chunk. Our partners in Insignia Capital own a good chunk. The founders own a good chunk. There are passive investors who probably don't have appetite for a tender. There are other long-term shareholders involved. When you get down to the addressable market, shall we say, in share count that's interested realistically in a tender, it's a number way less than 70, and we're triangulating what we think is feasible to get done. The other thing I would say is that if it's fully subscribed at $5 million, it takes White Mountains' ownership from 27% to 34%, and we think we're gonna make great money on that, it doesn't fundamentally change the position that White Mountains finds itself in today.
Maybe I'll, maybe I'll sneak in another one. What is your long-term vision for MediaAlpha? Or kind of what do you see MediaAlpha in five years, right? Because it's not, I mean, dare I say, it's not statistically cheap on current run rate profitability, right? Just when you say when you say $10 is a significant discount to intrinsic value, what is your framework?
There's several questions there in terms of vision and value, and I think we should tag-team the vision question. I'll take the value for question first and then come back. I don't think trailing or run rate earnings is the right metric. I think you need to look across a cycle, pick a midpoint to the cycle, and then look at the trough and the peak. I think if you work through that exercise, you'll come up with a number that you can capitalize. That's how we look at it. In terms of vision, you know, White Mountains doesn't have to have a vision for five years, and we really don't. This is a business we believe in and a team we believe in. We don't have an exit plan for this business.
We don't have an exit plan for any of our businesses. It's one of the great advantages to being at White Mountains and to being a capital partner with White Mountains. When opportunities come, we take them. If an opportunity came to sell at $46, we might do that, as we did in March of 2021. Here, we have an opportunity to buy at $10, we're buyers at $10. How it plays out from here, it plays out. Now, that's a very White Mountains-centric view of things, and frankly, is steeped in our culture and approach. Let me turn to Pat and talk about MediaAlpha and where you think you're going in five years.
Yeah. You know, I could give the kind of the flip short answer and say, P&C recovery is gonna be really exciting. I recognize that's probably an insufficient answer. There really is kind of one stat that got me excited when I joined MediaAlpha 18 months ago and still gets me really excited every time I look at it and talk about it, which is pretty frequent, actually, with investors. It's understanding and looking at kind of how advertising dollars are spent in the U.S. as a whole and in P&C insurance kind of as a subsegment of that. Across the U.S., about two-thirds of media time is spent online. About two-thirds of media dollars are spent online. The two of those are kind of well aligned now.
I think, you know, over the last 10 or 15 years, the spend has been catching up to the eyeballs, essentially, and now that has happened. Well, within P&C, around 20%-25% of the working marketing spend is spent online. I don't have a perfect crystal ball, and I haven't seen a perfect report that says five years from now, that percentage is gonna be X, but I am highly confident that number is gonna be a lot higher than 20, and we will be, you know, one of, if not the biggest, beneficiary of that. It'll probably be us and Google.
You know, I look at what's happened to our business over the soft market run-up and then the hard market, and we've seen volumes grow, and it's really been kind of a pricing challenge that we have faced. You know, we know that insurers, P&C insurers, when, you know, the business is profitable, they are in growth mode. You know, we're excited to see that return, and we think we've got the wind at our back in P&C, where we've got that 20% stat. On the health side, where that number is actually even lower than it is in P&C, because that business is probably five to 10 years behind auto insurance in terms of moving online.
We think the future is really bright, and we're excited for the journey and excited to have White Mountains by our side as we do it.
Other questions on MediaAlpha? Yep, please.
Can you talk about the acquisition costs over time? I know you just started, but let's just talk about the insurance industry. How is it trending Verisk Google and other platforms online? Is it mature, or do you see areas that are kind of growing, that are gonna be low cost or a competitive advantage for MediaAlpha?
Yeah, I would say that the vast majority of our business is we are a marketplace that allows publishers that effectively have customers that have some sort of intent to shop for insurance, to be matched up with hundreds of different advertisers, the largest of which are carriers. You know, within P&C, you know, we have essentially four groups of publishers. One of them would be price comparison sites. You can think of folks like Insurify and Zebra. The second would be financial apps. You can think of a Credit Karma or a Mint or a NerdWallet, somebody like that, who for whom insurance is kind of a logical adjacency to their core business.
third would be traditional kind of lead generation sites, and these, you know, can be anything from, you know, a couple of guys in their garage advertising on Google or Facebook to, you know, larger operations that are really doing variable marketing arbitrage. Insurance carriers themselves. You can think of, you know, a carrier that has customers that don't qualify, or states where they don't underwrite, you know, or customers where they feel like they aren't gonna be price competitive. As we look at, you know, across all four of those, you know, kind of different segments, we think there are interesting tailwinds there. You know, the one that's probably the most exciting over time is the carriers becoming publishers. We have, you know, data scientific statistical models that can ascertain likelihood of binding.
You know, perhaps unsurprisingly, the top 10 or 20% of customers have a pretty interesting likelihood to bind, and then the lowest 20, 40%, it's, you know, essentially zero, and an interesting monetization opportunity for carriers. You know, I think as we look at each of those four, we see pretty good growth trajectory over time, and so we're really excited to see the market recover and see that play out.
Yeah, the segment of insurance carriers is important. It's really the reason we were invested in the first place. We owned Esurance at the time. Esurance had challenges with monetization of remnant traffic for a bunch of reasons. They were licensed only in 15 states, advertised nationwide. They needed to recoup their ad spend on the states in which they couldn't bind a policy. That's how we found our way to MediaAlpha, which we viewed as the best mousetrap for doing that. At that time, it was really Esurance, and only Esurance, that was monetizing leads. That's changed, and there's a long way to go. You know, you rob banks 'cause that's where the money is. Well, the carriers have the leads, and if they're willing to transact in the leads, that's a big market segment. Other questions on MediaAlpha?
All right, thanks, Pat.
Thanks.
All right, let's turn now to PassportCard DavidShield. Let me introduce Alon Ketzef, Group CEO and Founder. PassportCard's an MGA for travel and expat medical insurance. It delivers its services pretty much anywhere in the world. It provides coverage and settles claims in real time, without any paper, via a debit card solution. We view this as a better mousetrap, it observably drives higher levels of customer satisfaction, premium pricing levels, and high reactivation rates. That latter point is very important. Travelers and expats who use PassportCard DavidShield once are highly likely to use it again, and that's quite unusual, especially in travel. Business was launched in Israel. It remains Israeli-centric. What I mean by that is, the customers who buy our products when traveling or living abroad tend to be Israeli.
Our long-term goal is to add more customer markets around the world. What I mean by that is to be able to sell to consumers whose travel or overseas journey is emanating from another country. We can deliver everywhere in the world. It's a question of opening new customer-facing markets internationally. We're focused on the markets that resemble Israel, and we're doing it selectively. In particular, we want markets where travelers and expats value the services that are differentiated at PassportCard DavidShield, chiefly the medical insurance component of the coverage. The last point I'd make on the prior slide is that PassportCard DavidShield doesn't retain any underwriting risk on a net basis. It's ceded to our global reinsurance partner, which is Allianz. Slide 37.
I mean, obviously, PassportCard DavidShield was the White Mountains business that was most directly impacted by COVID. Travel insurance volumes went to zero for the better part of 2020 and into 2021. The bounce back started later in 2021 and continued in 2022, which was a record year, and you can see the numbers here. The main driver was the return of leisure travel, where everything went in the right direction in 2022. Insured penetration was up, pricing was up, market share was up, and days traveled for the year ended up more or less at pre-COVID levels. Nothing beats a vacation except for an insured vacation. The expat medical business continues to produce steady growth and good results year in, year out. It's a real Steady Eddie.
Early 2023, the results are quite good, and it's a pretty safe bet that PassportCard DavidShield is gonna have another record year in 2023. Finally, I want to just comment on the international expansion initiatives. There's two to note. First, expat medical in Germany. We just continued plugging away on this one through COVID, and now we have a nice little business that's emerging, and we expect it to hit break even with that business late this year or early next year. Second, travel insurance in Australia, where we didn't keep plugging. Australia, as many of you know, was essentially shut down to travel in from overseas. We put the business in mothballs, but we have made the decision to relaunch, and we will begin selling policies imminently.
The Australia business is a longer build-out. It's probably three to five years to break even, but the size of the prize is much bigger, and this would be a substantial business, if and when we're successful. Yeah, again, this slide tells the whole story, and I should have just started here. Alon, if you'd join me, we'll open for Q&A.
Please.
You mentioned Germany and Australia especially are currently generating losses. The $32 million in trailing EBITDA, how much of how much in kind of new launch losses are in that number?
Just to clarify how we do these numbers, it's a phrase called, we call core EBITDA, and it excludes new initiative, growth initiatives. We made the decision in 2022 to move Germany into core, even though it was slightly loss-making. Germany is in the core. The only things that are not in the core are Australia and, you know, central technology spend away from the core business. Anything you want to add to that?
I think that when it comes to certain investments, some of them are still in the core, okay? Taking into consideration that if you want to move the business forward, it will always be kind of a core expense. On top of that, there are other expenses that are associated with different new initiatives that are in the pipeline and are not considered to be a core activity. We will meet those initiatives hopefully next year.
Yeah. Just to put a frame of reference around Australia, the spin that you would have seen in 2022 and so far into 2023 is pretty modest. And again, that's outside the core EBITDA figure. But we anticipate $25- 40 million of funded losses to reach break even over three to five years. I mean, don't hold me to those numbers, but it'll give you an order of magnitude for what we're planning to do. Any other questions? Yep.
LTM core EBITDA, $31 million, and I think it's on White Mountains' books for $140 million of book value?
Our interest is on the books for $140.
Okay.
we own 54%.
Okay. That was the question. All right.
Just curious why you decided to expand first into Germany and Australia, then beyond Australia, what other international countries are in the pipeline?
Please.
Thank you very much for asking. Germany is one of the largest market for IPMI insurance, for International Private Medical Insurance. The German market sends many, many employees to different parts of the world, it was for us natural to pick this market as where we want to launch our European hub, if you like, headquarter. Mainland Europe, same license, largest market, so it's only natural that we will be there. One has to take into consideration that we have extensive experience working in Germany. We work with certain insurance players over there, so it was a natural choice, and I think that we are very happy that we made this choice because business is moving in the right direction. Germany is a very conservative market, and despite that fact, we made a good entry, and the results are positive.
As for Australia, which is travel insurance activity, we actually had a scorecard, looking at different markets, sizable markets, matured markets, pretty much markets that have an island mentality. In other words, it's not just taking the car and go buy croissants over the borders in France, but rather go to the airport and fly for a few hours, where the definition of going abroad is well felt. There were other characteristics that we looked at that. We compared it to the Israeli market, where we had the, you know, the proven success. Using this scoring system, we came up with a shortlist of markets that we want to enter. I would just mention two of them.
One of them is the Australian market, the other one is the Canadian market. We had quite a dilemma which market to enter first. Eventually, we decided to go with the Australian market, given the fact that it's one regulator, it's relatively a small market, I mean, large in size, but it's a kind of a five cities market, so you don't have to have hundreds of employees in order to service distribution channels. The unit economics is very favorable, and the unit size is very favorable, as Australians, you know, the shortest trip from Australia is like eight, nine hours. They take those trips, and they stay for 14 days and even longer than that. Putting all that together gives you know, a good market to tap into.
Indeed, in 2018, when we started off with Australia, it was, you know, a very good entry. By 2020, January and February, we could see, as we say in Israel, the soldiers coming back home. In other words, started to see the signs of investments that we expect to see back. Unfortunately, COVID hit us, and, unlike any other industry in Australia, the only industry that was completely shut down was the travel industry, and we had to shut down to hibernate the operation. We kept few executives on the payroll in order to be ready for a restart, and here we are restarting now. I think we are going to see good results there.
When you're talking about the second market, one of the, you know, up there on the list is the Canadian market. It's a market that consists of three different segments. You have those who are going across the border to do shopping in Buffalo, none of our business. You have the snowbirds, which is a huge market, and that really ties into what we do, because in the spectrum of International Private Medical Insurance and travel insurance, snowbirds are right in the middle. They go for few months, they need good medical care, they pay top dollar for their solution, and it's really where we want to be. To that, you should add those who are going to Paris for a few days.
We expect the Canadian market, once we feel confident with Australia, that this will be our next direction. Again, still in the planning. I hope I answered your question.
Other questions on PassportCard? Yep, please.
How comparable is this business to NSM? Can we compare the margin profile? I just note that NSM had EBITDA margins kind of north of 25%, and margins, I guess, LTM here are closer to 14% or 15%. Can we, as this business scales, will it look like NSM from a profitability standpoint?
The short answer is not really. I don't think they're directly comparable. This is a direct-to-consumer business for the most part. NSM had a couple of businesses that looked like that, but generally not. I think the inherent profitability of PassportCard DavidShield is higher than NSM as a whole, over the fullness of time and at maturity. Other questions on PassportCard? Okay, hearing none. Thank you.
Thank you very much.
All right, last but not least, we're gonna cover Elementum. Let me introduce the team, Tony Rettino, Senior Portfolio Manager and Founding Partner, John DeCaro, Senior Portfolio Manager and Founding Partner, and Mike France, Chief Financial Officer. Elementum's an asset management business. It manages assets for institutional investors in separate account and commingled fund formats. It invests those assets in insurance-linked securities, things like cat bonds and collateralized reinsurance. It's a typical fee-based business. It earns management fees and performance fees. We own a 27% stake in the business, and that's the main event from our perspective when we think about our relationship with Elementum. Separately, we've invested funds out of our parent company portfolio that Jonathan runs, into several of the Elementum funds. In a way, it's just eating our own cooking.
These investments have attractive risk-return profiles, they're generally liquid, and they're a nice diversifier in the context of the overall portfolio. We think of them as non-correlated, high-yield bonds, and we like them. Slide 40. The ILS market had a tough year, and the same was true for Elementum in 2022. The main event was really Hurricane Ian, which turned the funds from profits to losses in the course of a one weekend in November. The key metrics for Elementum's business are AUM, net revenues, and EBITDA, and all of those metrics were down in 2022, although the business does remain a positive cash flowing business that produced dividends for us last year. 2023 is off to a solid start, and there's some interesting developments.
The first is that the conditions for ILS investing are strongly favorable for all the reasons that Ian mentioned earlier. The second is that Elementum has had some noteworthy fundraising success here in the first quarter, landing three new mandates of meaningful size. A couple observations on those new mandates. The first is, the appetite we're seeing from institutional investors is barbelled. Folks either want a low risk, low return, highly liquid, cat bond-only product, or at the other end of the spectrum, they want a high risk, high return, illiquid CRI strategy. We're seeing inbound interest for both. Second, the appetite is coming from different places than where the market has been in the last few years, most notably, hedge funds and endowments, who have really picked up their interest and are moving money into the asset class.
All right, let me stop there. I'll ask Tony to join me, we can open for questions on Elementum. Any questions? You scared them off.
That was easy.
All right. What to expect? more of the same. We're focused on growing our per share values over long periods of time and adhering to our core operating principles, and above all else, thinking and acting like owners, which we are. Some wise words here from Benjamin Graham, and they apply to us pretty directly. All right, and with that, let's open for any other final Q&A.
Can you talk about your recent investment in Doxa? I understand it's preferred and not really large, but what do you plan to expand it further and what are your intentions here? Then you mentioned that you are vigorously pursuing capital deployment opportunity and looking to add the fourth large operating unit, adding to Ark, HG Global, and Kudu. What's the most likely shape and form of this fourth? Do you look to diversify what you have? Would it likely to look to a repeat success of NSM, it will be more like in the distribution area. Thank you.
Okay. First on Doxa. Doxa is a business that's not dissimilar to NSM in terms of business model and size, scope, and scale when we got it started with NSM in 2018. We closed the deal in the first or second quarter for a $50 million preferred equity investment into Doxa that was used to finance roll-up activity under Doxa, not dissimilar from the activity that NSM pursued. That's the extent of our investment at this time. I mean, as we talked about earlier, our preference, our strong preference, is for control positions in large businesses. Sometimes when there's an opportunity to make money, we rise above our principles. That's what we saw here.
Liked the team, liked the business model, saw an opportunity where whether it goes further than that or not is impossible to predict. The other thing I would say that's interesting if you look at what happened at Doxa, is it's a little bit of an indirect comment on the financing market for businesses like NSM or acquisitive brokers or MGAs. A little bit, you know, I think we're past peak on the ability to put straight debt on those businesses. If you, if you don't, can't get an extra turn of debt, you don't have equity to deploy, or you don't want to, then these preferred financings are maybe a way to thread the needle. I think there's some information content there for what's going on in the financing of the MGA and distributional world.
In terms of where we're going with M&A, more broadly, I couldn't tell you. We don't think about it strategically. We don't think about it from top down, really, although we do more thematic work than we used to. The strategy for us has always been to try to be in the marketplace, in our defined sector of expertise, to the full extent possible, with intermediaries, with founders, with anybody and everybody, and then to find a deal that we like and feel good about, and then work that deal. I can't really tell you where that approach is gonna lead us. I can just tell you that's the approach we've always taken, all the way back to Jack Byrne, and that's still the approach we're following. Yeah.
An online question, building on Julia's question, and combining two of them: Do you think at all about the diversity of businesses that White Mountains is invested in when you're looking at new investments? When you are looking at new businesses to buy, be it a platform or a larger acquisition, what do you prioritize in looking at those businesses? Current return valuations, future capital deployment, the management team, the market they're in, et cetera?
Yeah, the short answer on the first question on diversification is it's not a, it's not an objective or a consideration. The answer on the second question is, there is no answer. It's, you know, it's all of those things and more things. There's no one factor that drives the decision above and beyond other factors. I would say a couple of things. One is we tend to be looking for businesses that produce a healthy cash yield right away. We're looking for businesses that are gonna give us, we think, you know, a baseline return in excess of our equity return targets at the price we go in at, pretty reliably. We're focused on that, and then upside from there.
On the question of and whether, you know, we're agnostic to sector or style or model or so on, within reason. On the question of management team, that's one where my bar has just gone up and up and up over the years. It used to be that if I saw something, a business whose characteristics I really liked, and I wasn't 100% on the management team, I might do it and think that we could figure it out later, I've learned the hard way not to do that anymore. Question?
A clarification on, I think Liam mentioned your decision-making on buybacks. Did you say 80% of book or 80% of intrinsic value?
We look to buy back at 80% or less of a conservatively calculated intrinsic.
What do you mean by intrinsic?
Our view of what the business is worth as a whole. Question?
Another pre-submitted question. Could you talk about interesting trends or classes of business that you see in small commercial P&C?
Yeah. Small commercial P&C is a marketplace that I would characterize as historically dominated by brand name, blue chip insurers. The hallmarks of the business have been relatively high acquisition costs, expense ratios, and relatively low loss ratios. That has been very tempting in the insurtech era to a lot of people because it feels intuitively like it's ripe for disintermediation, and a solution that will lower those elevated expense ratios. Five years ago or so, this was the idea du jour. I mean, we were pitched repeatedly on SME, commercial line startup businesses that were gonna go direct. It turns out that it's pretty hard, in particular, the last mile of sales and service to the policyholder. There have been some successes.
Our friend, Adam Black, who's we're backing in his venture at Zillion, which is a new startup that sort of as an aside, but he had great success at AP Intego with workers' comp because he figured out how to integrate it with payroll processing and make it easy for the small business owner to accomplish a couple of things at once. We have invested in Pie, which is pursuing a not dissimilar business model initially for workers' comp. We're in there with some private equity partners who we know well, and obviously, the founder and CEO of Pie is John Swigart, who was at one point, the CFO and the Chief Marketing Officer of Esurance, so a guy we've known for 20 years and believe in.
There, I think they feel that their data set gives them an advantage on underwriting, and, you know, they can deliver and sell on a direct basis pretty seamlessly. They have recently launched commercial auto. You might see them add things down the line. There's a long way to go. Any of these businesses face the same fundamental problem that all of these public insurtechs face, which is there's a law of gravity called customer acquisition cost. It takes a while to build a business, but we're in there with John and feel pretty good about where it's headed. Israel?
Thank you. How do you assess the relative attractiveness for new capital investment? Related, do you think that the opportunity is at the compared to the undeployed capital, how do you compare that? Whether you would, you think that?
Talking about our capital?
Undeployed capital.
Yeah. I think Liam touched on this, but I'll just recapitulate. One way to describe is we have a baseline return, threshold return, that is the implied economics over a reasonable time frame to a share repurchase at the prices that are available. You can figure out, based on our intrinsic value and where we think the business is headed, you can derive an embedded return to that activity. If you think about that as a starting point baseline, we then look at deployment opportunities into our existing businesses relative to that and into new businesses. Frankly, the threshold goes up as you proceed because we know these businesses from these teams quite well.
Something brand new team concept, depending on its, you know, its risk and volatility, profile, you know, the threshold needs to be a bit higher. That's how I tend to think about it, which is there's a baseline running return available to us at all times. We need to do better than that when we go out to deploy capital into new businesses. Yep.
Another question that was submitted online, could you talk about what a market neutral equity portfolio looks like at the parent level?
Jonathan, you want to take this?
The market neutral equity portfolio is comprised of investments in vehicles that are exactly that. They're vehicles that are long and short with a market neutral basis.
Any other questions? All right, folks, I want to thank everybody for being here, everybody for participating. See you next year.