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Income Taxes | 12 Months Ended
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Dec. 31, 2022
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 $ 33 million and obtain federal income tax cash refunds of $ 183 million including interest in 2020. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase excise tax and do not expect the legislation to have a material impact on our results of operations. As the IRS issues additional guidance, we will evaluate any impact to our consolidated financial statements. The significant components of the provision are as follows for the periods indicated: Years Ended December 31, (Dollars in millions) 2022 2021 2020 Current tax expense (benefit): U.S. $ 76 $ 124 $ (108) Non-U.S. 5 2 3 Total current tax expense (benefit) 81 126 (105) Deferred tax expense (benefit): U.S. (90) 38 179 Non-U.S. - 3 (3) Total deferred tax expense (benefit) (90) 41 176 Total income tax expense (benefit) $ (9) $ 167 $ 71 (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, 2022 2021 2020 (Dollars in millions) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Underwriting gain (loss) $ (81) $ 558 $ (83) $ 307 $ 24 $ (278) Net investment income 607 223 708 457 340 303 Net realized capital gains (losses) (426) (29) 266 (8) 235 33 Net derivative gain (loss) - - - 3 - 2 Corporate expenses (26) (35) (33) (34) (16) (25) Interest, fee and bond issue cost amortization expense (101) - (70) - (36) (1) Other income (expense) (6) (96) 23 11 (15) 20 Pre-tax income (loss) $ (32) $ 620 $ 811 $ 735 $ 532 $ 53 Expected tax provision at the applicable statutory rate(s) (9) - 170 14 112 (10) Increase (decrease) in taxes resulting from: Tax exempt income (4) - (4) - (4) - Dividend received deduction (3) - (1) - (1) - Proration 1 - 1 - 1 - Affiliated preferred stock dividends 7 - 7 - 7 - Creditable foreign premium tax (11) - (13) - (12) - Tax audit settlement - - - - - - Share-based compensation tax benefits formerly in APIC (3) - (2) - (3) - Impact of CARES Act - - - - (32) - Valuation allowance - 5 - (10) - 15 Change in uncertain tax positions - - - - - - Other 5 - 3 1 3 (5) Total income tax provision $ (14) $ 5 $ 161 $ 5 $ 71 $ - (Some amounts may not reconcile due to rounding.) At December 31, 2022, 2021 and 2020, the Company had no uncertain tax positions. The Company’s 2014 through 2018 U.S. Federal tax returns are under audit by the IRS. To date, the Company has received a significant number of Information Document Requests (“IDRs”). However, the IRS has not issued any Notice of Proposed Adjustments for these tax years. The Company had filed amended tax returns requesting refunds for 2015 and 2016 for $ 2 million and $ 5 million, respectively. Tax years 2019, 2020 and 2021 are open for examination by the U.S. Federal income tax jurisdiction. 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 millions) 2022 2021 Deferred tax assets: Net unrealized investment losses $ 218 $ - Loss reserves 154 130 Unearned premium reserves 114 108 Lease liability 29 31 Net operating loss carryforward 28 20 Unrealized foreign currency losses 24 4 Investment impairments 12 6 Net unrealized losses on benefit plans 9 13 Equity compensation 8 8 Uncollectible reinsurance reserves 3 3 Foreign tax credits 3 22 Other assets 10 9 Total deferred tax assets 611 354 Deferred tax liabilities: Deferred acquisition costs 105 99 Partnership investments 56 57 Right of use asset 25 27 Depreciation 16 4 Net fair value income 7 98 Benefit plan asset 3 2 Net unrealized investment gains - 37 Other liabilities 8 6 Total deferred tax liabilities 220 329 Net deferred tax assets 392 25 Less: Valuation allowance (25) (18) Total net deferred tax assets/(liabilities) $ 367 $ 7 (Some amounts may not reconcile due to rounding.) At December 31, 2022 and 2021, the Company had $ 25 million and $ 18 million of Valuation Allowance (“VA”), respectively. The VA is a result of our conclusion under US GAAP accounting principles that the UK, Netherlands, Ireland, Chile, Switzerland, France, Germany, Singapore, 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 related to COVID 19 and market conditions and the inability to demonstrate overall profitability within the specific jurisdiction. During the year ended December 31, 2022, the Company recorded an overall decrease in its VA of $ 7 million. Tax effected UK Net Operating Losses (“NOLs”) of $ 16 million do not expire. Tax effected Irish NOLs of $ 4 million do not expire. Tax effected Swiss NOLs of $ 5 million begin to expire in 2028 . The remaining tax effected NOLs of $ 3 million arose in various jurisdictions and begin expiring in 2027. Note that not all NOLs had a VA up against them. At December 31, 2022, and 2021, the Company had $ 3 million and $ 29 million respectively of foreign tax credit (“FTC”) carryforwards, all related to the branch basket. The branch basket FTCs begin to expire in 2030 . At December 31, 2022, $ 218 million of the Company’s deferred tax asset relates primarily to unrealized losses on available for sale fixed maturity securities. The unrealized losses on available for sale fixed maturity securities were a result of market conditions, including rising interest rates. Ultimate realization of the deferred tax asset depends on the Company’s ability and intent to hold the available for sale securities until they recover their value or mature. As of December 31, 2022, based on all the available evidence, the Company has concluded that the deferred tax asset related to the unrealized losses on the available for sale fixed maturity portfolio are, more likely than not, expected to be realized. 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 million, $ 2 million and $ 3 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 2022, 2021 and, 2020, 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 $ 0.6 million, $ 0.6 million and $ 0.6 million in 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, 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.

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