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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES With the assent of the governor on December 27, 2023, the Bermuda Corporate Income Tax Act of 2023 (“The 2023 Act”) became law. Beginning in 2025, a 15% corporate income tax will be applicable to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750M or more. Group’s Bermuda entities will be subject to the new corporate income tax. The Company has evaluated The 2023 Act and has recorded $578 million of net deferred income tax benefits in 2023 related to it. The net deferred income tax benefits relate primarily to a default provision in the law which allows for what is called an “Economic Transition Adjustment” (“ETA”). The ETA allows companies to establish deferred tax assets or liabilities related to the revaluation of intangible assets, excluding goodwill, and their other assets and liabilities, based on fair value as of September 30, 2023. The deferred tax assets or liabilities are then amortized in accordance with The 2023 Act. 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 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. 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. The significant components of the provision are as follows for the periods indicated:
| Years Ended December 31,
(Dollars in millions) | 2023 |  | 2022 |  | 2021
Current tax expense (benefit): |  |  |  |  |
U.S. | $ | 284 |  |  | $ | 76 |  |  | $ | 124 |
Non-U.S. | 7 |  |  | 5 |  |  | 2 |
Total current tax expense (benefit) | 291 |  |  | 81 |  |  | 126 |
Deferred tax expense (benefit): |  |  |  |  |
U.S. | (76) |  |  | (90) |  |  | 38 |
Non-U.S. | (578) |  |  | — |  |  | 3 |
Total deferred tax expense (benefit) | (654) |  |  | (90) |  |  | 41 |
Total income tax expense (benefit) | $ | (363) |  |  | $ | (9) |  |  | $ | 167 |
(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,
| 2023 |  | 2022 |  | 2021
(Dollars in millions) | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S.
Underwriting gain (loss) | $ | 533 |  |  | $ | 686 |  |  | $ | (81) |  |  | $ | 558 |  |  | $ | (83) |  |  | $ | 307 |
Net investment income | 954 |  |  | 479 |  |  | 607 |  |  | 223 |  |  | 708 |  |  | 457 |
Net realized capital gains (losses) | (190) |  |  | (86) |  |  | (426) |  |  | (29) |  |  | 266 |  |  | (8) |
Net derivative gain (loss) | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | 3 |
Corporate expenses | (18) |  |  | (55) |  |  | (26) |  |  | (35) |  |  | (33) |  |  | (34) |
Interest, fee and bond issue cost amortization expense | (134) |  |  | — |  |  | (101) |  |  | — |  |  | (70) |  |  | — |
Other income (expense) | (13) |  |  | (3) |  |  | (6) |  |  | (96) |  |  | 23 |  |  | 11 |
Pre-tax income (loss) | $ | 1,132 |  |  | $ | 1,022 |  |  | $ | (32) |  |  | $ | 620 |  |  | $ | 811 |  |  | $ | 735 |
Expected tax provision at the applicable statutory rate(s) | 238 |  |  | 26 |  |  | (9) |  |  | — |  |  | 170 |  |  | 14 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |
Tax exempt income | (3) |  |  | — |  |  | (4) |  |  | — |  |  | (4) |  |  | — |
Dividend received deduction | (2) |  |  | — |  |  | (3) |  |  | — |  |  | (1) |  |  | — |
Proration | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |
Affiliated preferred stock dividends | 7 |  |  | — |  |  | 7 |  |  | — |  |  | 7 |  |  | — |
Creditable foreign premium tax | (14) |  |  | — |  |  | (11) |  |  | — |  |  | (13) |  |  | — |
Tax audit settlement | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation tax benefits formerly in APIC | (3) |  |  | — |  |  | (3) |  |  | — |  |  | (2) |  |  | — |
Valuation allowance | — |  |  | (13) |  |  | — |  |  | 5 |  |  | — |  |  | (10) |
Bermuda corporate income tax | — |  |  | (578) |  |  | — |  |  | 5 |  |  | — |  |  | — |
Insurance company-owned life insurance | (13) |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | — |
Other | (3) |  |  | (6) |  |  | 6 |  |  | — |  |  | 3 |  |  | 1 |
Total income tax provision | $ | 208 |  |  | $ | (571) |  |  | $ | (14) |  |  | $ | 5 |  |  | $ | 161 |  |  | $ | 5 |
(Some amounts may not reconcile due to rounding.) At December 31, 2023, 2022 and 2021, the Company had no uncertain tax positions. The Company’s 2014 through 2018 U.S. Federal tax returns are under audit by the IRS. Over several years, the Company had received and responded to a substantial number of Information Document Requests (“IDRs”). In 2023, the IRS issued several insignificant Notice(s) of Proposed Adjustment. The Company had filed amended tax returns requesting refunds for 2015 and 2016 for $2 million and $5 million, respectively. In the fall of 2023, the IRS issued a final Revenue Agent Report (“RAR”) which is under review by the Company. We have asked for and received an extension from the IRS to complete our review. Note that the IRS requested, and we have signed, an extension of the audit to June 30, 2025. For tax year 2019, the Statute of Limitations has expired and, thus, the Federal income tax return for the year is no longer subject to IRS examination except to the extent the Company files an amended return. Tax years 2020, 2021 and 2022 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) | 2023 |  | 2022
Deferred tax assets: |  |  |
Bermuda intangible asset | $ | 536 |  |  | $ | — |
Loss reserves | 270 |  |  | 154 |
Unearned premium reserves | 143 |  |  | 114 |
Net unrealized investment losses | 67 |  |  | 218 |
Depreciation | 44 |  |  | — |
Lease liability | 27 |  |  | 29 |
Net operating loss carryforward | 18 |  |  | 28 |
Net Unrealized foreign currency losses | 15 |  |  | 24 |
Investment impairments | 12 |  |  | 12 |
Equity compensation | 8 |  |  | 8 |
Net unrealized losses on benefit plans | 4 |  |  | 9 |
Uncollectible reinsurance reserves | 3 |  |  | 3 |
Foreign tax credits | — |  |  | 3 |
Other assets | 22 |  |  | 10 |
Total deferred tax assets | 1,169 |  |  | 611 |
Deferred tax liabilities: |  |  |
Deferred acquisition costs | 139 |  |  | 105 |
Net fair value income | 74 |  |  | 7 |
Partnership investments | 49 |  |  | 56 |
Right of use asset | 23 |  |  | 25 |
Benefit plan asset | 3 |  |  | 3 |
Depreciation | — |  |  | 16 |
Other liabilities | 11 |  |  | 8 |
Total deferred tax liabilities | 299 |  |  | 220 |
Net deferred tax assets | 870 |  |  | 392 |
Less: Valuation allowance | (15) |  |  | (25) |
Total net deferred tax assets/(liabilities) | $ | 855 |  |  | $ | 367 |
(Some amounts may not reconcile due to rounding.) At December 31, 2023 and 2022, the Company had $15 million and $25 million of Valuation Allowance (“VA”), respectively. The VA is a result of our conclusion under US GAAP accounting principles that the UK, Netherlands, Ireland, Switzerland, France, Germany, Singapore, Mexico, 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 operating losses in recent years, cumulative capital losses and, therefore, an inability to demonstrate overall profitability within the specific jurisdiction. During the year ended December 31, 2023, the Company recorded an overall decrease in its VA of $10 million. Tax effected UK Net Operating Losses (“NOLs”) of $7 million do not expire. Tax effected Irish NOLs of $2 million do not expire. Tax effected Swiss NOLs of $2 million begin to expire in 2028. The remaining tax effected NOLs of $7 million arose in various jurisdictions and begin expiring in 2027. Note that not all NOLs had a VA up against them. At December 31, 2023, and 2022, the Company had $0 million and $3 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, 2023, $67 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, 2023, 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 regarding 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 $2 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 2023, 2022 and, 2021, 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 2023, 2022 and 2021, respectively.

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