These days, White Mountains Insurance's (NYSE:WTM) only real insurance operation is its municipal bond reinsurance subsidiaries. Here's how the business works and how it makes money.

A full transcript follows the video.

This video was recorded on June 18, 2018.

Michael Douglass: Let's cover the major businesses they own in whole or in part. The first one, of course, HD Global, which is that still-core insurance company. It includes both Build America Mutual, or BAM, for short, and HG Re, which does reinsurance for BAM.

Matt Frankel: I love that the company is called BAM. [laughs]

Douglass: [laughs] Never going to get tired of saying that, yeah.

Frankel: Essentially, what BAM does is provide reinsurance for municipal bonds. When municipalities issue bonds to cover, say, essential projects -- that's one of White Mountains' big focuses, essential project bonds -- there's risk to them. So, they lay off a little bit of that risk to White Mountains' HD Global or BAM division.

Douglass: Yeah. When you look at BAM, they have about 55% of the transaction market share as of the end of Q1 2018, but they're only at about 16% of the total addressable market. That implies lots of room to grow. Of course, at the same time, their market share has actually been falling from about 20% year-ended 2015. That's not exactly the trajectory you generally want to see, and I think that's a concern.

Looking at the business itself, I'm not really that excited about HG Global. It seems like a pretty sleepy business. They're in munies, but it's not any American territory or really any place outside of American states. It's not a market that I'm really that personally excited about.

Frankel: From my point of view, it seems like a reasonably strong business financially. It's just not that exciting. It's also worth mentioning that, as interest rates are rising, a lot of municipalities will issue fewer and fewer bonds, which can shrink this market. You mentioned that they have a 16% market share right now, but if that market becomes half the size, then investors aren't going to be very happy.