This is certainly not the letter I envisioned as my first as White Mountains' new CEO. As a result of the financial impact of hurricanes Katrina, Rita, and Wilma on our insurance operations, and the related decline in the value of our investment in Montpelier Re, our financial results for 2005 were very disappointing. Fully converted tangible book value per share, including dividends, grew by an anemic 2%, obviously well below our targets. All-in, Katrina, Rita, and Wilma, as well as the lesser known but still significant European storm Erwin, cost the Company $310 million after-tax in 2005.

The obvious question is—how did this happen? In short, we failed to fully assess the models' deficiencies, we were not sufficiently skeptical about their output, and we failed to identify important correlations in our underwriting activities. This will not happen again! Fortunately, through a combination of our natural tendency towards conservatism and our effective risk mitigation strategies, we avoided overexposing our capital. We were able to limit White Mountains Re's net after-tax financial loss from hurricanes Katrina, Rita, and Wilma to approximately 11% of its capital.

Your Company is in great shape and we intend to make the most of these opportunities. Our balance sheet is strong, our businesses are performing well, and the Company is positioned to fully participate in an attractive underwriting environment. Most importantly, you have a team of professionals that are always looking for new ways to grow economic value while adhering to our operating principles.