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.

Matthew Frankel has no position in any of the stocks mentioned. Michael Douglass has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.