XML 34 R17.htm IDEA: XBRL DOCUMENT
v3.22.0.1

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2021
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) | 2021 |  | 2020 |  | 2019
Current tax expense (benefit): |  |  |  |  |  |  |  |
U.S. | $ | 123,876 |  | $ | (107,757) |  | $ | (5,044)
Non-U.S. |  | 2,038 |  |  | 2,948 |  |  | 14,420
Total current tax expense (benefit) |  | 125,914 |  |  | (104,809) |  |  | 9,376
Deferred tax expense (benefit): |  |  |  |  |  |  |  |
U.S. |  | 37,597 |  |  | 178,523 |  |  | 80,247
Non-U.S. |  | 3,027 |  |  | (2,516) |  |  | (97)
Total deferred tax expense (benefit) |  | 40,624 |  |  | 176,007 |  |  | 80,150
Total income tax expense (benefit) | $ | 166,538 |  | $ | 71,198 |  | $ | 89,526
(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,
| 2021 |  | 2020 |  | 2019
(Dollars in thousands) | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S.
Underwriting gain (loss) | $ | (83,159) |  | $ | 306,933 |  | $ | 24,041 |  | $ | (277,852) |  | $ | 38,964 |  | $ | 297,199
Net investment income |  | 707,971 |  |  | 456,921 |  |  | 339,721 |  |  | 302,744 |  |  | 325,179 |  |  | 321,960
Net realized capital gains (losses) |  | 266,036 |  |  | (8,094) |  |  | 234,970 |  |  | 32,679 |  |  | 155,609 |  |  | 29,394
Net derivative gain (loss) |  | - |  |  | 2,965 |  |  | - |  |  | 1,541 |  |  | - |  |  | 6,374
Corporate expenses |  | (33,334) |  |  | (34,493) |  |  | (15,985) |  |  | (25,133) |  |  | (13,063) |  |  | (19,903)
Interest, fee and bond issue cost amortization expense |  | (69,974) |  |  | (175) |  |  | (35,659) |  |  | (664) |  |  | (34,931) |  |  | 3,239
Other income (expense) |  | 23,315 |  |  | 10,709 |  |  | (14,656) |  |  | 19,602 |  |  | (1,976) |  |  | (9,057)
Pre-tax income (loss) | $ | 810,855 |  | $ | 734,766 |  | $ | 532,432 |  | $ | 52,917 |  | $ | 469,782 |  | $ | 629,206
Expected tax provision at the applicable statutory rate(s) |  | 170,170 |  |  | 14,358 |  |  | 111,846 |  |  | (10,356) |  |  | 98,766 |  |  | 17,205
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt income |  | (3,927) |  |  | - |  |  | (3,598) |  |  | - |  |  | (3,680) |  |  | -
Dividend received deduction |  | (840) |  |  | - |  |  | (1,100) |  |  | - |  |  | (998) |  |  | -
Proration |  | 1,048 |  |  | - |  |  | 1,049 |  |  | - |  |  | 1,050 |  |  | -
Affiliated preferred stock dividends |  | 6,517 |  |  | - |  |  | 6,517 |  |  | - |  |  | 6,517 |  |  | -
Creditable foreign premium tax |  | (13,392) |  |  | - |  |  | (11,513) |  |  | - |  |  | (9,852) |  |  | -
Tax audit settlement |  | - |  |  | - |  |  | - |  |  | - |  |  | (1,576) |  |  | -
Share based compensation tax benefits formerly in APIC |  | (1,950) |  |  | (232) |  |  | (2,605) |  |  | (388) |  |  | (2,984) |  |  | (373)
Impact of CARES Act |  | - |  |  | - |  |  | (32,500) |  |  | - |  |  | - |  |  | -
Valuation allowance |  | 324 |  |  | (9,796) |  |  | 277 |  |  | 15,144 |  |  | 138 |  |  | 3,772
Change in uncertain tax positions |  | - |  |  | - |  |  | - |  |  | - |  |  | (8,434) |  |  | -
Other |  | 3,523 |  |  | 735 |  |  | 2,393 |  |  | (3,968) |  |  | (3,744) |  |  | (6,281)
Total income tax provision | $ | 161,473 |  | $ | 5,065 |  | $ | 70,766 |  | $ | 432 |  | $ | 75,203 |  | $ | 14,323
(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) | 2021 |  | 2020 |  | 2019
Balance at January 1 | $ | - |  | $ | - |  | $ | 8,434
Additions based on tax positions related to the current year |  | - |  |  | - |  |  | -
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 | $ | - |  | $ | - |  | $ | -
At December 31, 2021, the Company’s unrecognized tax benefits, excluding interest and penalties, that would impact the effective tax rate was $0 million. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2021, the Company accrued $0 million for the payment of interest (net of the federal benefit) and penalties. At December 31, 2020 and 2019, there were no accrued liabilities, respectively, for the payment of interest and penalties. The Company’s 2014 through 2018 U.S. tax years are under audit by the IRS. To date, the Company has received only one notice of proposed adjustment for an immaterial amount of tax for the 2014 tax year. Also, the Company proposed affirmative beneficial income tax return adjustments to the IRS at the start of the 2014 audit. Subsequent to the Company’s CARES Act net operating loss carryback, the Company received a tax refund of $16.3 million of recaptured foreign tax credits related to the affirmative adjustments. In addition, tax years 2019 and 2020 are open for examination by the U.S. Federal jurisdiction. To date, the Company has not received any additional Information Document Requests (“IDRs”) or notices of proposed adjustment for 2015 to 2018. The Company had filed amended tax returns requesting refunds for 2015 and 2016 for $1.5 million and $4.7 million, respectively. 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) | 2021 |  | 2020
Deferred tax assets: |  |  |  |  |
Loss reserves | $ | 129,861 |  | $ | 96,840
Unearned premium reserves |  | 107,724 |  |  | 85,028
Lease liability |  | 30,885 |  |  | 31,989
Foreign tax credits |  | 21,787 |  |  | 46,109
Net operating loss carryforward |  | 20,228 |  |  | 33,504
Net unrealized losses on benefit plans |  | 13,395 |  |  | 19,636
Equity compensation |  | 7,558 |  |  | 7,367
Investment impairments |  | 6,160 |  |  | 1,121
Unrealized foreign currency losses |  | 4,486 |  |  | 603
Uncollectible reinsurance reserves |  | 3,142 |  |  | 3,142
Other tax credits |  | 213 |  |  | 4,591
Other assets |  | 8,973 |  |  | 7,285
Total deferred tax assets |  | 354,412 |  |  | 337,215
Deferred tax liabilities: |  |  |  |  |
Deferred acquisition costs |  | 99,395 |  |  | 79,994
Net fair value income |  | 97,974 |  |  | 75,692
Partnership investments |  | 56,699 |  |  | 26,119
Net unrealized investment gains |  | 36,615 |  |  | 90,268
Right of use asset |  | 27,111 |  |  | 28,822
Benefit plan asset |  | 1,667 |  |  | 1,765
Other liabilities |  | 9,963 |  |  | 6,710
Total deferred tax liabilities |  | 329,424 |  |  | 309,370
Net deferred tax assets |  | 24,988 |  |  | 27,845
Less: Valuation allowance |  | (17,765) |  |  | (28,805)
Total net deferred tax assets/(liabilities) | $ | 7,223 |  | $ | (960)
(Some amounts may not reconcile due to rounding.)
At December 31, 2021 and 2020, the Company had $17.8 million and $28.8 million 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 market conditions and COVID 19. The VA is a result of our conclusion under US GAAP accounting principles, that the UK, Netherlands, 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. During the year ended December 31, 2021, the Company recorded an overall decrease in its valuation allowance of approximately $11.0 million, primarily due to utilization of UK and Canadian NOLs. Tax effected UK NOLs of $16.7 million do not expire. Tax effected Swiss NOLs of $2.5 million begin to expire in 2028. Tax effected Netherland NOLs of $0.2 million begin to expire in 2027. Tax effected U.S. Separate Return Limitation Year NOLs of $0.8 million 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 $46.1 million. The remaining FTC carryforwards as of December 31, 2021 begin to expire in 2028 related to our branch basket. The Company follows ASU 2016-09 in regard to 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 ASU 2016-09, the Company recorded excess tax benefits of $2.2 million, $3.0 million and $3.5 million 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 2021, 2020 and, 2019, respectively. ASU 2016-09 does 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 $611 thousand, $583 thousand and $484 thousand in 2021, 2020 and 2019, respectively. For the year ended December 31, 2021, the Company considers 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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration