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Income Taxes
 12 Months Ended
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.