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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES On December 27, 2023, the Government of Bermuda enacted the Corporate Income Tax Act 2023 (“The 2023 Act”), which will apply a 15% corporate income tax to certain Bermuda businesses in fiscal years beginning on or after January 1, 2025. The 2023 Act includes a provision referred to as “The Economic Transition Adjustment” (the “ETA”), which is intended to provide a fair and equitable transition into the new tax regime, and results in a deferred tax benefit for the Company. However, on January 15, 2025, the OECD issued Guidance related to “deferred tax assets arising from tax benefits provided by General Government” whereby it has restricted the utilization of those deferred tax benefits against the computation of its Pillar Two Global Minimum Taxes to approximately 20% of the originally calculated amounts and only for a grace period of two years through 2026. If the Bermuda Ministry of Finance amends The 2023 Act in response to this Guidance, the exact impact of any such amendments is uncertain but there is a risk that it results in a reduction in the Company's Deferred Tax Assets. 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. The significant components of the provision are as follows for the periods indicated:
| Years Ended December 31,
(Dollars in millions) | 2024 |  | 2023 |  | 2022
Current tax expense (benefit): |  |  |  |  |
U.S. | $ | 152 |  |  | $ | 284 |  |  | $ | 76 |
Non-U.S. | 19 |  |  | 7 |  |  | 5 |
Total current tax expense (benefit) | 171 |  |  | 291 |  |  | 81 |
Deferred tax expense (benefit): |  |  |  |  |
U.S. | (52) |  |  | (76) |  |  | (90) |
Non-U.S. | 1 |  |  | (578) |  |  | — |
Total deferred tax expense (benefit) | (51) |  |  | (654) |  |  | (90) |
Total income tax expense (benefit) | $ | 120 |  |  | $ | (363) |  |  | $ | (9) |
(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,
| 2024 |  | 2023 |  | 2022
(Dollars in millions) | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S. |  | U.S. |  | Non-U.S.
Underwriting gain (loss) | $ | (891) |  |  | $ | 536 |  |  | $ | 533 |  |  | $ | 686 |  |  | $ | (81) |  |  | $ | 558 |
Net investment income | 1,219 |  |  | 734 |  |  | 954 |  |  | 479 |  |  | 607 |  |  | 223 |
Net realized capital gains (losses) | 34 |  |  | (15) |  |  | (190) |  |  | (86) |  |  | (426) |  |  | (29) |
Net derivative gain (loss) | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |
Corporate expenses | (19) |  |  | (76) |  |  | (18) |  |  | (55) |  |  | (26) |  |  | (35) |
Interest, fee and bond issue cost amortization expense | (150) |  |  | 1 |  |  | (134) |  |  | — |  |  | (101) |  |  | — |
Other income (expense) | 64 |  |  | 57 |  |  | (13) |  |  | (3) |  |  | (6) |  |  | (96) |
Pre-tax income (loss) | $ | 257 |  |  | $ | 1,237 |  |  | $ | 1,132 |  |  | $ | 1,022 |  |  | $ | (32) |  |  | $ | 620 |
Expected tax provision at the applicable statutory rate(s) | 54 |  |  | 19 |  |  | 238 |  |  | 26 |  |  | (9) |  |  | — |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |
Tax exempt income | (1) |  |  | — |  |  | (3) |  |  | — |  |  | (4) |  |  | — |
Dividend received deduction | (3) |  |  | — |  |  | (2) |  |  | — |  |  | (3) |  |  | — |
Proration | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |
Affiliated preferred stock dividends | 7 |  |  | — |  |  | 7 |  |  | — |  |  | 7 |  |  | — |
Creditable foreign premium tax | (14) |  |  | — |  |  | (14) |  |  | — |  |  | (11) |  |  | — |
Share-based compensation tax benefits formerly in APIC | (1) |  |  | — |  |  | (3) |  |  | — |  |  | (3) |  |  | — |
BEAT Tax | 66 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Valuation allowance | — |  |  | — |  |  | — |  |  | (13) |  |  | — |  |  | 5 |
Bermuda corporate income tax | — |  |  | — |  |  | — |  |  | (578) |  |  | — |  |  | 5 |
Insurance corporate-owned life insurance | (18) |  |  | — |  |  | (13) |  |  | — |  |  | (1) |  |  | — |
Other | 9 |  |  | 1 |  |  | (3) |  |  | (6) |  |  | 6 |  |  | — |
Total income tax provision | $ | 100 |  |  | $ | 20 |  |  | $ | 208 |  |  | $ | (571) |  |  | $ | (14) |  |  | $ | 5 |
(Some amounts may not reconcile due to rounding.) At December 31, 2024, 2023 and 2022, 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. In 2023, the IRS issued several insignificant Notice(s) of Proposed Adjustment and then a final Revenue Agent Report (“RAR”). In 2024, the Company responded to the RAR with substantial additional information which the IRS has been processing. The IRS requested, and we have signed, an extension of the audit to December 31, 2025. For tax years 2019 and 2020, the Statute of Limitations has expired and, thus, the Federal income tax return for those years is no longer subject to IRS examination except to the extent the Company files an amended return. Tax years 2021, 2022, and 2023 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) | 2024 |  | 2023
Deferred tax assets: |  |  |
Bermuda economic transition adjustment | $ | 536 |  |  | $ | 536 |
Loss reserves | 313 |  |  | 270 |
Unearned premium reserves | 152 |  |  | 143 |
Net unrealized investment losses | 138 |  |  | 67 |
Depreciation | 55 |  |  | 44 |
Unrealized foreign currency losses | 35 |  |  | 15 |
Net operating loss carryforward | 24 |  |  | 18 |
Lease liability | 23 |  |  | 27 |
Foreign tax credits | 16 |  |  | — |
Capital loss carryforward | 14 |  |  | — |
Equity compensation | 10 |  |  | 8 |
Investment impairments | 10 |  |  | 12 |
Uncollectible reinsurance reserves | — |  |  | 3 |
Net unrealized losses on benefit plans | — |  |  | 4 |
Other assets | 21 |  |  | 22 |
Total deferred tax assets | 1,347 |  |  | 1,169 |
Deferred tax liabilities: |  |  |
Deferred acquisition costs | 171 |  |  | 139 |
Net fair value income | 74 |  |  | 74 |
Partnership investments | 43 |  |  | 49 |
Right of use asset | 19 |  |  | 23 |
Deferred investment income | 12 |  |  | — |
Benefit plan asset | — |  |  | 3 |
Other liabilities | 13 |  |  | 11 |
Total deferred tax liabilities | 332 |  |  | 299 |
Net deferred tax assets | 1,015 |  |  | 870 |
Less: Valuation allowance | (25) |  |  | (15) |
Total net deferred tax assets/(liabilities) | $ | 990 |  |  | $ | 855 |
(Some amounts may not reconcile due to rounding.) At December 31, 2024 and 2023, the Company had $25 million and $15 million of Valuation Allowances (“VA”), respectively. The VA is a result of our conclusion under U.S. GAAP accounting principles that the Australia, Colombia, Netherlands, Ireland, Italy, Switzerland, France, Germany, Singapore, Mexico, U.K., 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, 2024, the Company recorded an overall increase in its VA of $10 million. Tax effected U.K. Net Operating Losses (“NOLs”) of $11 million do not expire. Tax effected Irish NOLs of $4 million do not expire. Tax effected Spanish NOLs of $2 million do not expire. The remaining tax effected NOLs of $8 million arose in various jurisdictions and do not expire. Note that not all NOLs had a VA up against them. At December 31, 2024 and 2023, the Company had $16 million and $0 million respectively of foreign tax credit (“FTC”) carryforwards. In 2024, there were approximately $9 million of U.S. FTCs and $7 million of non-US FTCs. The U.S. FTCs expire in 2034. The non-U.S. FTCs do not expire. At December 31, 2024, $138 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, primarily occurring in 2022, were the result of market conditions, including rising interest rates. Ultimate realization of these deferred tax assets 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, 2024, 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 $1 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 2024, 2023 and, 2022, 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 $0.7 million, $0.6 million and $0.6 million in 2024, 2023 and 2022, respectively.

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