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Income Tax | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Tax | INCOME TAX The Tax Cuts and Jobs Act (“U.S. Tax Reform”) was signed into law on December 22, 2017. U.S. Tax Reform made broad changes to the U.S. tax code, including (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) imposed a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminated U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminated the corporate alternative minimum tax (“AMT”) and changed how existing AMT credits can be realized; (5) created the base erosion anti-abuse tax (“BEAT”); (6) established a new provision designed to tax global intangible low-taxed income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50% to offset the income tax liability (subject to some limitations); and (7) modified the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. In connection with the Company’s initial analysis of the impact of U.S. Tax Reform, it recorded a discrete provisional net tax benefit of $1,033.8 million in the period ending December 31, 2017. This estimated net benefit primarily consisted of the U.S. federal rate reduction from 35% to 21% applied to the net deferred tax liability. The Company provisionally estimated there would be no one-time transition tax on unrepatriated earnings of foreign subsidiaries. Further, as a result of U.S. Tax Reform, the Company established a valuation allowance of $58.9 million related to U.S. foreign tax credit carryforwards. The valuation allowance related to the Company’s interpretation of the changes in the ability to use existing foreign tax credit carryforwards against future foreign branch profits. The SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of U.S. Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from U.S. Tax Reform enactment date for companies to complete the accounting under ASC 740. The Company completed its accounting for the effects of U.S. Tax Reform within the measurement period during the fourth quarter of 2018. The Company’s refinement of the provisional estimates for the impact of U.S. Tax Reform resulted in the aforementioned valuation allowance adjustment and other immaterial adjustments to the amounts originally estimated. Upon review of the Proposed Treasury Regulations issued during the year and completion of the accumulated and current earnings and profits calculations of the Company’s foreign subsidiaries, no adjustment to the provisional estimate of the transition tax on unrepatriated earnings was necessary. The valuation allowance established with U.S. Tax Reform was released in 2018. The Company recognized an uncertain tax position due to the expiration of the statute of limitations. Concurrent with this recognition of a prior year tax position, the Company established a new uncertain tax liability. The foreign tax credits were used to offset the new uncertain tax liability, hence a valuation allowance was no longer necessary. Under GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to the GILTI as a current-period expense when incurred (“the period cost method”) or (2) factoring such amounts into a Company’s measurement of its deferred taxes (“the deferred method”). The Company made a policy election to account for GILTI as a period cost. For the year ended December 31, 2018, the Company is not subject to the BEAT. The Company continues to monitor guidance as it is issued; however, it does not expect changes in guidance to result in a BEAT liability. The effective tax rate for 2018 was lower than the U.S. Statutory rate of 21.0% primarily as a result of the release of a valuation allowance on foreign tax credits, which partially offset tax expense related to GILTI and valuation allowance increases. The effective tax rate for 2017 was lower than the U.S. Statutory rate of 35% primarily as a result of accounting for the effects of U.S. Tax Reform and income generated in non-U.S. jurisdictions with lower tax rates than the U.S. See the table below for additional information. Pre-tax income for the years ended December 31, 2018, 2017 and 2016 consists of the following (dollars in thousands):
|  | 2018 |  | 2017 |  | 2016
Pre-tax income - U.S. |  | $ | 626,197 |  |  | $ | 870,532 |  |  | $ | 758,496 |
Pre-tax income - foreign |  | 219,623 |  |  | 272,283 |  |  | 285,450 |
Total pre-tax income |  | $ | 845,820 |  |  | $ | 1,142,815 |  |  | $ | 1,043,946 |
The provision for income tax expense for the years ended December 31, 2018, 2017 and 2016 consists of the following (dollars in thousands):
|  | 2018 |  | 2017 |  | 2016
Current income tax expense (benefit): |  |  |  |  |  |
U.S. |  | $ | 78,431 |  |  | $ | 131,108 |  |  | $ | 1,020 |
U.S. Tax Reform |  | (68,080 | ) |  | — |  |  | — |
Foreign |  | 43,120 |  |  | 36,830 |  |  | 47,706 |
Total current |  | 53,471 |  |  | 167,938 |  |  | 48,726 |
Deferred income tax expense (benefit): |  |  |  |  |  |
U.S. |  | 62,890 |  |  | 159,853 |  |  | 273,928 |
U.S. Tax Reform |  | 5,907 |  |  | (1,033,755 | ) |  | — |
Foreign |  | 7,710 |  |  | 26,598 |  |  | 19,849 |
Total deferred |  | 76,507 |  |  | (847,304 | ) |  | 293,777 |
Total provision for income taxes |  | $ | 129,978 |  |  | $ | (679,366 | ) |  | $ | 342,503 |
The Company’s effective tax rate differed from the U.S. federal income tax statutory rate of 21%, 35%, and 35% as a result of the following for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
|  | 2018 |  | 2017 |  | 2016
Tax provision at U.S. statutory rate |  | $ | 177,622 |  |  | $ | 399,985 |  |  | $ | 365,381 |
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |
U.S. Tax Reform |  | (62,173 | ) |  | (1,033,755 | ) |  | — |
Foreign tax rate differing from U.S. tax rate |  | 4,526 |  |  | (21,867 | ) |  | (13,974 | )
Differences in tax basis in foreign jurisdictions |  | (23,257 | ) |  | (23,324 | ) |  | (17,770 | )
Deferred tax valuation allowance |  | 23,144 |  |  | 29,458 |  |  | 10,963 |
Amounts related to audit contingencies |  | 1,516 |  |  | (7,184 | ) |  | 111 |
Equity compensation excess benefit |  | (6,103 | ) |  | (10,532 | ) |  | — |
Corporate rate changes |  | 1,008 |  |  | (6,065 | ) |  | — |
GILTI, net of credits |  | 10,400 |  |  | — |  |  | — |
Subpart F for non-full inclusion companies |  | 583 |  |  | 1,528 |  |  | 1,783 |
Foreign tax credits |  | (2,544 | ) |  | (1,681 | ) |  | (1,683 | )
Return to provision adjustments |  | (1,305 | ) |  | (4,674 | ) |  | (1,473 | )
Other, net |  | 6,561 |  |  | (1,255 | ) |  | (835 | )
Total provision for income taxes |  | $ | 129,978 |  |  | $ | (679,366 | ) |  | $ | 342,503 |
Effective tax rate |  | 15.4 | % |  | (59.4 | )% |  | 32.8 | %
Total income taxes for the years ended December 31, 2018, 2017 and 2016 were as follows (dollars in thousands):
|  | 2018 |  | 2017 |  | 2016
Provision for income taxes |  | $ | 129,978 |  |  | $ | (679,366 | ) |  | $ | 342,503 |
Income tax from OCI and additional paid-in-capital: |  |  |  |  |  |
Net unrealized holding gain (loss) on debt and equity securities recognized for financial reporting purposes |  | (367,933 | ) |  | 306,849 |  |  | 157,929 |
Exercise of stock options |  | — |  |  | — |  |  | (162 | )
Foreign currency translation |  | 19,101 |  |  | (42,153 | ) |  | 21,081 |
Unrealized pension and post retirement |  | 134 |  |  | 404 |  |  | 1,772 |
Total income taxes provided |  | $ | (218,720 | ) |  | $ | (414,266 | ) |  | $ | 523,123 |
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities at December 31, 2018 and 2017, are presented in the following tables (dollars in thousands):
|  | 2018 |  | 2017
Deferred income tax assets: |  |  |  |
Nondeductible accruals |  | $ | 86,092 |  |  | $ | 80,905 |
Differences between tax and financial reporting amounts concerning certain reinsurance transactions |  | 102,014 |  |  | 96,043 |
Differences in the tax basis of cash and invested assets |  | 28,398 |  |  | 557 |
Investment income differences |  | 80,200 |  |  | 43,230 |
Deferred acquisition costs capitalized for tax |  | 124,707 |  |  | 88,531 |
Net operating loss carryforward |  | 405,958 |  |  | 535,374 |
Capital loss and tax credit carryforwards |  | 32,897 |  |  | 102,143 |
Subtotal |  | 860,266 |  |  | 946,783 |
Valuation allowance |  | (181,110 | ) |  | (226,884 | )
Total deferred income tax assets |  | 679,156 |  |  | 719,899 |
Deferred income tax liabilities: |  |  |  |
Deferred acquisition costs capitalized for financial reporting |  | 843,328 |  |  | 627,378 |
Differences between tax and financial reporting amounts concerning certain reinsurance transactions |  | 1,151,419 |  |  | 1,547,101 |
Differences in the tax basis of cash and invested assets |  | 345,836 |  |  | 674,569 |
Investment income differences |  | 9,493 |  |  | 1,858 |
Differences in foreign currency translation |  | 52,928 |  |  | 33,803 |
Anticipated future tax credit reduction |  | 25,433 |  |  | — |
Total deferred income tax liabilities |  | 2,428,437 |  |  | 2,884,709 |
Net deferred income tax liabilities |  | $ | 1,749,281 |  |  | $ | 2,164,810 |
Balance sheet presentation of net deferred income tax liabilities: |  |  |  |
Included in other assets |  | $ | 49,519 |  |  | $ | 33,499 |
Included in deferred income taxes |  | 1,798,800 |  |  | 2,198,309 |
Net deferred income tax liabilities |  | $ | 1,749,281 |  |  | $ | 2,164,810 |
As of December 31, 2018, the valuation allowance against deferred tax assets was $181.1 million. During 2018, a valuation allowance on the U.S. Foreign tax credit carryforwards of $65.1 million was released. This release partially offset a $24.5 million increase to the valuation allowance related to the net operating losses of RGA Reinsurance Company of Australia Limited (“RGA Australia”) and increases and decreases to the valuation allowance in jurisdictions where the Company does not have a history of earnings. Further movement in the valuation allowance includes foreign currency translation and reclassifications with other deferred tax assets of ($12.8) million. As of December 31, 2017, the valuation allowance against deferred tax assets was approximately $226.9 million. During 2017 a valuation allowance was established on the U.S. Foreign tax credit carryforwards of $65.1 million, RGA Australia net operating losses of $20.1 million, as well as on the deferred tax assets of other jurisdictions of $3.3 million. Further movement in the valuation allowance includes foreign currency translation and reclassifications with other deferred tax assets of $10.6 million and ($5.6) million, respectively. The other significant components of the valuation allowance relate to a partial valuation allowance on the net operating loss carryforwards in RGA Australia and the foreign tax credit carryforwards in RGA International Reinsurance Company dac (“RGA International”). A valuation allowance also exists against the deferred tax assets of other branches and legal entities most of which there is no history of earnings in recent years. The earnings of substantially all of the Company’s foreign subsidiaries have been permanently reinvested in foreign operations. No provision has been made for U.S. tax or foreign withholding taxes that may be applicable upon any repatriation or sale. At December 31, 2018 and 2017, the financial reporting basis in excess of the tax basis for which no deferred taxes have been recognized was approximately $1,364.1 million and $1,442.9 million, respectively. As U.S. Tax Reform generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, the Company does not expect to incur material income taxes if these funds are repatriated. During 2018, 2017 and 2016, the Company received federal and foreign income tax refunds of approximately $2.4 million, $11.6 million and $6.9 million, respectively. The Company made cash income tax payments of approximately $144.1 million, $48.7 million and $68.0 million in 2018, 2017 and 2016, respectively. The following table presents consolidated net operating losses (“NOL”) as of December 31, 2018 (dollars in millions):
| 2018
NOL with no expiration and with no valuation allowance | $ | 52 |
NOL with a full valuation allowance | 167 |
NOL with no expiration and a partial valuation allowance | 396 |
NOL with expiration dates between 2029 & 2035 with no valuation allowance | 1,118 |
Total net operating loss carryforwards | $ | 1,733 |
These net operating losses, other than the net operating losses for which there is a valuation allowance, are expected to be utilized in the normal course of business during the period allowed for carryforwards and in any event, are not expected to be lost, due to the application of tax planning strategies that management would utilize. As of December 31, 2018 the Company had foreign tax credit carryforwards of $27.8 million in Ireland and as of December 31, 2017, the Company had $152.0 million of foreign tax credit carryforwards in the U.S. and Ireland. The Ireland foreign tax credit carryforward has a full valuation allowance. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is under continuous examination by the Internal Revenue Service and is subject to audit by taxing authorities in other foreign jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2015, Canadian tax authorities for years prior to 2014 and with a few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years prior to 2013. As of December 31, 2018, the Company’s total amount of unrecognized tax benefits was $324.6 million and the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, was $12.8 million. Management believes there will be no material impact to the Company’s effective tax rate related to unrecognized tax benefits over the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016, is as follows (dollars in thousands):
|  | Total Unrecognized Tax Benefits
|  | 2018 |  | 2017 |  | 2016
Beginning balance, January 1 |  | $ | 321,224 |  |  | $ | 297,290 |  |  | $ | 296,213 |
Accounting for business combinations |  | 521 |  |  | — |  |  | — |
Additions for tax positions of prior years |  | 255,970 |  |  | 247,596 |  |  | 226,720 |
Reductions for tax positions of prior years |  | (256,587 | ) |  | (246,894 | ) |  | (229,719 | )
Additions for tax positions of current year |  | 3,682 |  |  | 36,438 |  |  | 4,186 |
Payment on deposit |  | (185 | ) |  | — |  |  | — |
Settlements with tax authorities |  | — |  |  | (13,206 | ) |  | (110 | )
Ending balance, December 31 |  | $ | 324,625 |  |  | $ | 321,224 |  |  | $ | 297,290 |
The Company recognized a benefit in interest expense associated with uncertain tax positions in 2018, 2017 and 2016 of $3.3 million, $5.0 million and $8.4 million, respectively. Additionally, the Company recognized penalties of $0.3 million in 2016. As of December 31, 2018 and 2017, the Company had $11.6 million and $15.1 million, respectively, of accrued interest related to unrecognized tax benefits. There are no penalties accrued as of December 31, 2018 or December 31, 2017.

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- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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