White Mountains Makes Board Changes; Steinberg Out; Restructures Relationship with Prospector

The Bermuda-based White Mountains Insurance Group, Ltd. (WTM) has announced several changes. Joseph Steinberg, the chairman of Olympus Re, has resigned from the company’s Board of Directors. He will be replaced by Michael Frinquelli.

In a separate bulletin WTM said it was altering its relationship with investment manager Prospector Partners, headed by John Gillespie, who will remain a member of the Board.

Steinberg is also president of Leucadia National Corp, which has a 19 percent share in Olympus Re. WTM, Leucadia and other investors established the reinsurer in Bermuda after the Sept. 11 attacks. Its business is exclusively with WTM. The ongoing investigations by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission have raised questions about the propriety of such interlocking relationships. In May Olympus announced that it was in the process of reevaluating its ties with WTM in light of those investigations.

Frinquelli has no such ties. WTM described him as “a private investor who has significant experience in the insurance sector.” Until 2004 he was a general partner of Renaissance Executive Partners, a hedge fund specializing in investments in the insurance industry, which he co-founded in April 1997. Previously, he was a managing director at Merrill Lynch and a managing director at Salomon Brothers. Frinquelli was on Institutional Investor Magazine’s “All American” team for insurance from 1979 to 1996. He is a chartered financial analyst, a member of the Association for Investment Management and Research, and former president of the Association of Insurance and Financial Analysts, and a director of Primus Financial Products Inc.

WTM CEO Ray Barrette commented: “We are pleased to welcome Mike to our Board. He is a knowledgeable director with over 30 years experience as an insurance industry financial analyst and will be a valuable addition to our Board.”

Commenting on Steinberg’s resignation, WTM Chairman George Gillespie stated: “Joe has contributed considerable financial acumen and wisdom to our board considerations. We will miss his candid counsel.”

The main change in WTM’s relationship with Prospector Partners and John Gillespie, its founder and managing member, concerns alterations in the revenue sharing arrangements established in 2001. WTM said: “Under the revised arrangement, Prospector will manage White Mountains’ common equity portfolios, currently around $1.2 billion, for a fixed fee schedule. John Gillespie, Rich Howard, Kevin O’Brien and other current White Mountains Advisors equity professionals will no longer be employees of WM Advisors. The company’s fixed income and other portfolios will continue to be managed by White Mountains Advisors.”

Further elaborating on the changes, WTM indicated that “Prospector will also advise White Mountains on matters including capital management, asset allocation, private equity investments and mergers and acquisitions. Pursuant to a consulting agreement for those services, White Mountains will pay incentive compensation to Prospector based on the performance of the company and of its total investment portfolio.

“The revenue sharing arrangement that was established in June 2001 between Prospector and White Mountains is being terminated. The company will continue to receive the share of the gross fees generated by Prospector to which it is entitled as a result of its founding investment in Prospector made in 1997.”

Barrette commented: “John Gillespie has been and will remain a great partner for the company. The restructured relationship preserves our access to the superior talent at Prospector Partners while allowing John and his team to further build an independent investment management business. From January 2001 through the first quarter of 2005, this team produced a cumulative time-weighted return in our common equity portfolio of 105 percent compared to -4 percent for the S&P 500. Going forward, we expect to receive the high level of attention from John and his partners that has produced these superior returns at roughly the same total net cost.”