XML 32 R17.htm IDEA: XBRL DOCUMENT
v3.20.4

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2020
Income Taxes [Abstract] |
Income Taxes | 10. INCOME TAXES Under Bermuda law, no income or capital gains taxes are imposed on Group and its Bermuda Subsidiaries. The Minister of Finance of Bermuda has assured Group and its Bermuda subsidiaries that, pursuant to The Exempted Undertakings Tax Protection Amendment Act of 2011, they will be exempt until 2035 from imposition of any such taxes. All of the income of Group's non-Bermuda subsidiaries is subject to the applicable federal, foreign, state and local taxes on corporations. Additionally, the income of the foreign branches of the Company's insurance operating companies, in particular the UK branch of Bermuda Re, is subject to various rates of income tax. Group's U.S. subsidiaries conduct business in and are subject to taxation in the U.S. Should the U.S. subsidiaries distribute current or accumulated earnings and profits in the form of dividends or otherwise, the Company would be subject to an accrual of 5% U.S. withholding tax. Currently, however, no withholding tax has been accrued with respect to such un-remitted earnings as management has no intention of remitting them. The cumulative amount that would be subject to withholding tax, if distributed, is not practicable to compute. The provision for income taxes in the consolidated statement of operations and comprehensive income (loss) has been determined in accordance with the individual income of each entity and the respective applicable tax laws. The provision reflects the permanent differences between financial and taxable income relevant to each entity. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020, provided that U.S. companies could carryback for five years net operating losses incurred in 2018, 2019 and/or 2020. This beneficial tax provision in the CARES Act enabled the Company to carryback its significant 2018 net operating losses to prior tax years with higher effective tax rates of 35% versus 21% in 2018 and later years. As a result, the Company was able to record a net income tax benefit from the five-year carryback of $32.5 million and obtain federal income tax cash refunds of $182.5 million including interest in 2020. The significant components of the provision are as follows for the periods indicated:
| Years Ended December 31,
(Dollars in thousands) | 2020 |  | 2019 |  | 2018
Current tax expense (benefit): |  |  |  |  |  |  |  |
U.S. | $ | (107,757) |  | $ | (5,044) |  | $ | (38,625)
Non-U.S. |  | 2,948 |  |  | 14,420 |  |  | 6,497
Total current tax expense (benefit) |  | (104,809) |  |  | 9,376 |  |  | (32,128)
Deferred tax expense (benefit): |  |  |  |  |  |  |  |
U.S. |  | 178,523 |  |  | 80,247 |  |  | (298,998)
Non-U.S. |  | (2,516) |  |  | (97) |  |  | (97)
Total deferred tax expense (benefit) |  | 176,007 |  |  | 80,150 |  |  | (299,095)
Total income tax expense (benefit) | $ | 71,198 |  | $ | 89,526 |  | $ | (331,223)
(Some amounts may not reconcile due to rounding.)
The weighted average expected tax provision has been calculated using the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction's applicable statutory tax rate. Reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the periods indicated is provided below:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
(Dollars in thousands) | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S.
Underwriting gain (loss) | $ | 24,041 |  | $ | (277,852) |  | $ | 38,964 |  | $ | 297,199 |  | $ | (1,407,020) |  | $ | 796,745
Net investment income |  | 339,721 |  |  | 302,744 |  |  | 325,179 |  |  | 321,960 |  |  | 283,569 |  |  | 297,614
Net realized capital gains (losses) |  | 234,970 |  |  | 32,679 |  |  | 155,609 |  |  | 29,394 |  |  | (90,033) |  |  | (37,103)
Net derivative gain (loss) |  | - |  |  | 1,541 |  |  | - |  |  | 6,374 |  |  | - |  |  | 520
Corporate expenses |  | (15,985) |  |  | (25,133) |  |  | (13,063) |  |  | (19,903) |  |  | (11,035) |  |  | (19,637)
Interest, fee and bond issue cost amortization expense |  | (35,659) |  |  | (664) |  |  | (34,931) |  |  | 3,239 |  |  | (30,611) |  |  | (420)
Other income (expense) |  | (14,656) |  |  | 19,602 |  |  | (1,976) |  |  | (9,057) |  |  | (5,894) |  |  | (18,877)
Pre-tax income (loss) | $ | 532,432 |  | $ | 52,917 |  | $ | 469,782 |  | $ | 629,206 |  | $ | (1,261,024) |  | $ | 1,018,842
Expected tax provision at the applicable statutory rate(s) |  | 111,846 |  |  | (10,356) |  |  | 98,766 |  |  | 17,205 |  |  | (264,912) |  |  | 9,647
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt income |  | (3,598) |  |  | - |  |  | (3,680) |  |  | - |  |  | (3,824) |  |  | -
Dividend received deduction |  | (1,100) |  |  | - |  |  | (998) |  |  | - |  |  | (1,520) |  |  | -
Proration |  | 1,049 |  |  | - |  |  | 1,050 |  |  | - |  |  | 1,150 |  |  | -
Affiliated preferred stock dividends |  | 6,517 |  |  | - |  |  | 6,517 |  |  | - |  |  | 6,517 |  |  | -
Creditable foreign premium tax |  | (11,513) |  |  | - |  |  | (9,852) |  |  | - |  |  | (13,475) |  |  | -
Tax audit settlement |  | - |  |  | - |  |  | (1,576) |  |  | - |  |  | (2,094) |  |  | -
U.S. rate differential on carryback of net operation losses to PY |  | - |  |  | - |  |  | - |  |  | - |  |  | (43,734) |  |  | -
U.S. rate differential on deferred tax 2017 return to provision |  | - |  |  | - |  |  | - |  |  | - |  |  | (28,411) |  |  | -
Share based compensation tax benefits formerly in APIC |  | (2,605) |  |  | (388) |  |  | (2,984) |  |  | (373) |  |  | (3,333) |  |  | (120)
Impact of CARES Act |  | (32,500) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | -
Valuation allowance |  | 277 |  |  | 15,144 |  |  | 138 |  |  | 3,772 |  |  | 73 |  |  | 2,257
Change in uncertain tax positions |  | - |  |  | - |  |  | (8,434) |  |  | - |  |  | 8,434 |  |  | -
Other |  | 2,393 |  |  | (3,968) |  |  | (3,744) |  |  | (6,281) |  |  | 7,506 |  |  | (5,384)
Total income tax provision | $ | 70,766 |  | $ | 432 |  | $ | 75,203 |  | $ | 14,323 |  | $ | (337,623) |  | $ | 6,400
(Some amounts may not reconcile due to rounding.)
Reconciliation of the beginning and ending unrecognized tax benefits, for the periods indicated, is as follows:
(Dollars in thousands) | 2020 |  | 2019 |  | 2018
Balance at January 1 | $ | - |  | $ | 8,434 |  | $ | -
Additions based on tax positions related to the current year |  | - |  |  | - |  |  | 8,434
Additions for tax positions of prior years |  | - |  |  | - |  |  | -
Reductions for tax positions of prior years |  | - |  |  | (8,434) |  |  | -
Settlements with taxing authorities |  | - |  |  | - |  |  | -
Lapses of applicable statutes of limitations |  | - |  |  | - |  |  | -
Balance at December 31 | $ | - |  | $ | - |  | $ | 8,434
At December 31, 2020, the Company’s unrecognized tax benefits, excluding interest and penalties, that would impact the effective tax rate was $0 thousand. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2020, the Company accrued $0 thousand for the payment of interest (net of the federal benefit) and penalties. At December 31, 2019 and 2018, there were no accrued liabilities, respectively, for the payment of interest and penalties. The Company’s 2014 and subsequent U.S. tax years are open to audit by the IRS. In 2018, the IRS opened an audit of the 2014 tax year. To date, the Company has received only one notice of proposed adjustment for an immaterial amount of tax. The Company proposed affirmative beneficial income tax return adjustments to the IRS at the start of the audit. Subsequent to the Company’s CARES Act net operating loss carryback, the Company expects a tax refund of $16,287 thousand of recaptured foreign tax credits related to the affirmative adjustments. In 2019, the IRS opened an audit of the 2015 through 2017 tax years. To date, the Company has not received any Information Document Requests (“IDRs”) or notices of proposed adjustment. The Company had filed amended tax returns requesting refunds for 2015 and 2016 for $1,519 thousand and $4,685 thousand, respectively. During 2020, the IRS added 2018 to the audit and indicated that, subsequent to the CARES Act, it would audit tax years 2014 – 2018 all together and conclude its audits simultaneously. To date, the Company has not received any IDRs or notices of proposed adjustment for the 2018 tax year. Deferred Income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement purposes and such values are measured by the U.S. tax laws and regulations. The principal items making up the net deferred income tax assets/(liabilities) are as follows for the periods indicated:
| Years Ended December 31,
(Dollars in thousands) | 2020 |  | 2019
Deferred tax assets: |  |  |  |  |
Loss reserves | $ | 96,840 |  | $ | 66,025
Unearned premium reserves |  | 85,028 |  |  | 75,130
Foreign tax credits |  | 46,109 |  |  | 186,706
Net operating loss carryforward |  | 33,504 |  |  | 31,698
Lease liability |  | 31,989 |  |  | 33,042
Net unrealized losses on benefit plans |  | 19,636 |  |  | 19,818
Equity compensation |  | 7,367 |  |  | 7,817
Other tax credits |  | 4,591 |  |  | 2,294
Uncollectible reinsurance reserves |  | 3,142 |  |  | 3,142
Investment impairments |  | 1,121 |  |  | 3,961
Unrealized foreign currency losses |  | 603 |  |  | 7,964
Other assets |  | 7,285 |  |  | 4,520
Total deferred tax assets |  | 337,215 |  |  | 442,117
Deferred tax liabilities: |  |  |  |  |
Net unrealized investment gains |  | 90,268 |  |  | 39,413
Deferred acquisition costs |  | 79,994 |  |  | 81,931
Net fair value income |  | 75,692 |  |  | 25,936
Right of use asset |  | 28,822 |  |  | 31,510
Partnership investments |  | 26,119 |  |  | 15,039
Benefit plan asset |  | 1,765 |  |  | 2,333
Other liabilities |  | 6,710 |  |  | 4,937
Total deferred tax liabilities |  | 309,370 |  |  | 201,099
Net deferred tax assets |  | 27,845 |  |  | 241,018
Less: Valuation allowance |  | (28,805) |  |  | (12,997)
Total net deferred tax assets/(liabilities) | $ | (960) |  | $ | 228,021
(Some amounts may not reconcile due to rounding.)
At December 31, 2020 and 2019, the Company had $28,805 thousand and $12,997 thousand of Valuation Allowance (“VA”), respectively. The majority of the VA relates to the Company’s UK operations and were due primarily to net operating losses incurred in 2020 as a result of COVID 19. The VA is a result of our conclusion under US GAAP accounting principles, that the UK, Swiss, Irish, Canadian and U.S. jurisdictions could not demonstrate that it was more likely than not that the related deferred tax assets will be realized. This was primarily due to factors such as cumulative losses in recent years and the inability to demonstrate profits within the specific jurisdictions related to recent changes in market conditions. Tax effected UK NOLs of $26,428 thousand do not expire. Tax effected Swiss NOLs of $2,317 thousand expire in 2028. Tax effected Irish NOLs of $2,300 thousand do not expire. Tax effected Canadian NOLs of $1,774 thousand begin to expire in 2035. Tax effected U.S. Separate Return Limitation Year NOLs of $684 thousand begin to expire in 2037. Due to the passage of the CARES Act in 2020, which allowed for a five-year carryback of NOLs, as of December 31, 2020 the Company no longer has a Consolidated U.S. NOL carryforward Without the Consolidated U.S. NOL carryforward, the Company was able to utilize a significant amount of U.S. Foreign Tax Credits (“FTCs”) in both 2019 and 2020. As a result, its FTC carryforwards were significantly reduced at December 31, 2020 to only $46,109 thousand. The remaining FTC carryforwards expire between 2025 and 2030. During 2018, the Company completed its accounting for the TCJA in accordance with SEC Staff Accounting Bulletin 118, including interpretation of the additional guidance issued by the IRS and U.S. Department of the Treasury, and recognized an income tax benefit of $28,411 thousand primarily related to the 2017 tax return to tax provision true-up recorded in 2018. Effective January 1, 2017, the Company adopted ASU 2016-09 which provided new guidance on the treatment of the tax effects of share-based compensation transactions. ASU 2016-09 required that the income tax effects of restricted stock vestings and stock option exercises resulting from the change in value of share based compensation awards between the grant date and settlement (vesting/exercise) date be recorded as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss). Per the new guidance, the Company recorded excess tax benefits of $2,993 thousand, $3,357 thousand and $3,453 thousand related to restricted stock vestings and stock option exercises as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss) in 2020, 2019 and 2018, respectively. In years prior to 2017, the Company recorded tax benefits related to restricted stock vestings and stock option exercises as part of additional paid-in capital in the shareholders' equity section of the consolidated balance sheets. The adoption of ASU 2016-09 did not impact the accounting treatment of tax benefits related to dividends on restricted stock. The tax benefits related to the payment of dividends on restricted stock have been recorded as part of additional paid-in capital in the shareholders' equity section of the consolidated balance sheets in all years. The tax benefits related to the payment of dividends on restricted stock were $583 thousand, $484 thousand and $403 thousand in 2020, 2019 and 2018, respectively. For the year ended December 31, 2020, we consider our earnings within each jurisdiction to be indefinitely reinvested. Should the subsidiaries distribute current or accumulated earnings and profits in the form of dividends or otherwise, the Company would be subject to withholding taxes. The cumulative amount that would be subject to withholding tax, if distributed, is not practicable to compute.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration