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INCOME TAXES | 12 Months Ended
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Dec. 31, 2011
INCOME TAXES [Abstract] |
INCOME TAXES [Text Block] | 17. INCOME TAXES Under current Bermuda law, we are not required to pay any taxes in Bermuda on income or capital gains. We have received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, we will be exempt from taxation in Bermuda until March 2035. Our Bermuda subsidiary has a n operating branch in Singapore, which is subject to the relevant taxes in that jurisdiction. The branch is not under examination in this tax jurisdiction, but remains subject to examination for tax years 2008 through 2011. Our U.S. subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for federal income taxes has been determined under the principles of the consolidated tax provisions of the U.S. Internal Revenue Code and Regulations. Should the U.S. subsidiaries pay a dividend outside the U.S. group, withholding taxes will apply. Our U.S. subsidiaries are not under examination but remain subject to examination in the U.S. for tax years 2008 through 2011. In Canada, our U.S. reinsurance company operates through a branch. In addition, commencing in 2011, our U.S. service company has an unlimited liability company subsidiary based in Canada. Prior to 2011, our U.S. service company operated in Canada via a Canadian branch. These Canadian operations are subject to the relevant taxes in that jurisdiction, are not currently under examination and generally remain subject to examination for tax years 2007 through 2011. We also have subsidiaries in Ireland, the United Kingdom (U.K.) and Brazil. Our Ireland insurance subsidiary with branch operations in the U.K. and Australia is subject to a compliance review of the U.K. branch for 2009. Our Ireland reinsurance subsidiary, with a branch in Switzerland and a Brazil marketing subsidiary, was audited by Ireland and Switzerland taxing authorities through 2009 with no significant adjustments. These subsidiaries and branches generally remain subject to examination in all applicable jurisdictions for tax years 2007 through 2011.
The following table provides an analysis of our income tax expense and net tax assets:
| Year ended December 31, |  | 2011 |  |  | 2010 |  |  | 2009 |
| Current income tax expense |  |  |  |  |  |  |  |  |
| United States | $ | 5,064 |  | $ | 26,633 |  | $ | 32,182 |
| Europe |  | 9,598 |  |  | 12,173 |  |  | 7,020 |
| Other |  | 188 |  |  | 120 |  |  | 408 |
| Deferred income tax expense (benefit) |  |  |  |  |  |  |  |  |
| United States |  | 1,379 |  |  | 121 |  |  | 2,252 |
| Europe |  | (996) |  |  | (173) |  |  | 113 |
| Other |  | - |  |  | (194) |  |  | - |
| Total income tax expense | $ | 15,233 |  | $ | 38,680 |  | $ | 41,975 |
| Net current tax (liabilities) receivables | $ | 1,318 |  | $ | (8,525) |  | $ | (7,322) |
| Net deferred tax assets |  | 60,836 |  |  | 72,606 |  |  | 72,362 |
| Net tax assets | $ | 62,154 |  | $ | 64,081 |  | $ | 65,040 |
Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant components of our deferred tax assets and liabilities were as follows:
| At December 31, |  | 2011 |  |  | 2010 |
| Deferred tax assets: |  |  |  |  |  |
| Discounting of loss reserves | $ | 65,271 |  | $ | 61,997 |
| Unearned premiums |  | 31,640 |  |  | 30,623 |
| Operating loss carryforwards |  | 21,074 |  |  | 8,671 |
| Accruals not currently deductible |  | 14,187 |  |  | 16,282 |
| Net unrealized losses and impairments on investments |  | 6,310 |  |  | 5,140 |
| Capital loss carryforwards |  | 4,245 |  |  | 17,763 |
| Other deferred tax assets |  | 7,357 |  |  | 5,541 |
| Deferred tax assets before valuation allowance |  | 150,084 |  |  | 146,017 |
| Valuation allowance |  | (21,264) |  |  | (18,180) |
| Deferred tax assets net of valuation allowance |  | 128,820 |  |  | 127,837 |
| Deferred tax liabilities: |  |  |  |  |  |
| Deferred acquisition costs |  | (29,195) |  |  | (28,697) |
| Net unrealized gains on investments |  | (25,925) |  |  | (14,538) |
| Amortization of intangible assets and goodwill |  | (6,999) |  |  | (5,477) |
| Accrued market discounts |  | (4,156) |  |  | (2,753) |
| Other deferred tax liabilities |  | (1,709) |  |  | (3,766) |
| Deferred tax liabilities |  | (67,984) |  |  | (55,231) |
| Net deferred tax assets | $ | 60,836 |  | $ | 72,606 |
For 2011 and 2010, we have established a full valuation allowance on operating loss carryforwards relating to branch operations in Australia and Singapore due to cumulative losses in recent years. In 2011, we concluded that a valuation allowance on U.S. capital loss carryforwards and impairments is not needed as there are net unrealized capital gains of $74 million that would, if necessary, be recognized to generate sufficient capital gains within the carryforward period. In 2010, a partial valuation allowance was recorded against U.S. capital loss carryforwards and impairments taking into account net unrealized capital gains of $38 million that would, if necessary, be recognized to generate capital gains within the carryforward period. The movement in the valuation allowance is allocated first to income tax expense and the remainder to AOCI using the intraperiod tax allocation method.
The following table provides an analysis of the movement in our valuation allowance: |
| At December 31, |  | 2011 |  |  | 2010 |
| Income tax expense: |  |  |  |  |  |
| Valuation allowance - beginning of year | $ | 27,539 |  | $ | 36,231 |
| Operating loss carryforwards |  | 12,593 |  |  | 5,714 |
| Capital loss carryforwards and impairments |  | (9,509) |  |  | (14,406) |
| Valuation allowance - end of year |  | 30,623 |  |  | 27,539 |
| Accumulated other comprehensive income: |  |  |  |  |  |
| Valuation allowance - beginning of year |  | (9,359) |  |  | (4,529) |
| Net unrealized losses on investments |  | - |  |  | (4,830) |
| Valuation allowance - end of year |  | (9,359) |  |  | (9,359) |
| Total valuation allowance - end of year | $ | 21,264 |  | $ | 18,180 |
Although realization is not assured, management believes it is more likely than not that the tax benefit of the recorded net deferred tax assets will be realized. Other than the items discussed above, the remaining gross deferred tax assets relate to ordinary income items and substantially all of these deferred tax assets relate to our U.S. operations. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including historical results, operating loss carryback potential and scheduled reversals of deferred tax liabilities. Our U.S. operations have produced significant taxable income in prior periods and have deferred tax liabilities that will reverse in future periods such that we believe sufficient ordinary taxable income is available to utilize all remaining deferred tax assets. There were no unrecognized tax benefits at December 31, 2011 and 2010. At December 31, 2011, we had $12 million of capital loss carryforwards in the U.S. whic h will expire in 2014. In 2011, we generated a $2 million alternative minimum tax credit carryforward in the U.S., which can be carried forward indefinitely. At December 31, 2011, the total operating loss carryforwards for our Singapore and Australian branch es were $112 million (2010: $34 million) and $54 million (2010: $30 million), respectively. Such operating losses are currently available to offset future taxable income of the branches and may be carried forward indefinitely in each jurisdiction.
The following table presents the distribution of income before income taxes between domestic and foreign jurisdictions as well as a reconciliation of the actual income tax rate to the amount computed by applying the effective tax rate of 0% under Bermuda law to income before income taxes:
| Year ended December 31, |  | 2011 |  | 2010 |  | 2009 |
| Income before income taxes: |  |  |  |  |  |  |  |  |  |
| Bermuda (domestic) |  | $ | 10,911 |  | $ | 713,100 |  | $ | 404,575 |
| Foreign |  |  | 50,627 |  |  | 182,303 |  |  | 135,286 |
|  |  | $ | 61,538 |  | $ | 895,403 |  | $ | 539,861 |
| Reconciliation of effective tax rate (% of income before income taxes) |  |  |  |
| Expected tax rate |  |  | 0.0% |  |  | 0.0% |  |  | 0.0% |
| Foreign taxes at local expected rates: |  |  |  |  |  |  |  |  |  |
| United States |  |  | 33.2% |  |  | 5.1% |  |  | 6.8% |
| Europe |  |  | 10.7% |  |  | 1.3% |  |  | 1.0% |
| Other |  |  | 3.3% |  |  | (0.2%) |  |  | (0.6%) |
| Valuation allowance |  |  | (15.5%) |  |  | (1.0%) |  |  | 1.2% |
| Net tax exempt income |  |  | (11.2%) |  |  | (0.6%) |  |  | (0.9%) |
| Other |  |  | 4.3% |  |  | (0.3%) |  |  | 0.3% |
| Actual tax rate |  |  | 24.8% |  |  | 4.3% |  |  | 7.8% |

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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