Under current Bermuda law, our Bermuda domiciled companies 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 primary Bermuda subsidiary has an 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 2011 through 2014.

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 2011 through 2014.

In Canada, our U.S. reinsurance company operates through a branch and our U.S. service company has an unlimited liability company subsidiary based in Canada. These Canadian operations are subject to the relevant taxes in that jurisdiction and generally remain subject to examination for tax years 2010 through 2014.

We also have subsidiaries in Ireland, the United Kingdom (U.K.), Australia and Brazil. These subsidiaries and their branches, are not under examination, but generally remain subject to examination in all applicable jurisdictions for tax years 2010 through 2014.

The following table provides an analysis of our income tax expense and net tax assets:




Year ended December 31,	2014			2013			2012

Current income tax expense (benefit)
United States	$	8,411		$	12,466		$	4,931
Europe	16,582			9,039			8,566
Other	1			—			(174		)
Deferred income tax expense (benefit)
United States	1,313			(13,976		)	(10,749		)
Europe	(399		)	(526		)	713
Other	—			(1		)	—
Total income tax expense	$	25,908		$	7,002		$	3,287

Net current tax receivables (payables)	$	(11,203	)	$	5,689		$	1,164
Net deferred tax assets	89,405			80,258			52,794

Net tax assets	$	78,202		$	85,947		$	53,958

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,	2014			2013

Deferred tax assets:
Discounting of loss reserves	$	59,852		$	59,023
Unearned premiums	39,661			39,146
Operating loss carryforwards	26,016			20,316
Accruals not currently deductible	44,082			39,018
Other investment adjustments and impairments	4,001			7,859
Tax credits	15,412			11,886
Depreciation	—			2,410
Other deferred tax assets	1,324			2,906
Deferred tax assets before valuation allowance	190,348			182,564
Valuation allowance	(34,094		)	(25,542		)
Deferred tax assets net of valuation allowance	156,254			157,022

Deferred tax liabilities:
Deferred acquisition costs	(37,712		)	(37,226		)
Net unrealized gains on investments	(12,792		)	(23,200		)
Amortization of intangible assets and goodwill	(10,778		)	(10,059		)
Accrued market discounts	(707		)	(1,151		)
Equalization reserves	(3,554		)	(2,080		)
Other deferred tax liabilities	(1,306		)	(3,048		)
Deferred tax liabilities	(66,849		)	(76,764		)
Net deferred tax assets	$	89,405		$	80,258

At December 31, 2014, the total operating loss carryforwards for our Singapore and Australian branches were $110 million (2013: $115 million) and $68 million (2013: $45 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. At December 31, 2014, our European subsidiaries have a $7 million (2013: $4 million) foreign tax credit which can be carried forward indefinitely. In addition, at December 31, 2014, our U.S. companies have a $8 million (2013: $7 million) alternative minimum tax credit that can be carried forward indefinitely.

The following table provides an analysis of the movement in our valuation allowance:




At December 31,	2014			2013

Income tax expense:
Valuation allowance - beginning of year	$	27,070		$	33,933
Operating loss carryforwards	3,044			(794		)
Capital loss carryforwards	1,262			—
Foreign tax credit	3,194			1,762
Australian CTA and accruals and rate differentials	1,052			—
Change in investment-related items	(757		)	(7,831		)
Valuation allowance - end of year	34,865			27,070

Accumulated other comprehensive income:
Valuation allowance - beginning of year	(1,528		)	(9,359		)
Change in investment-related items	757			7,831
Valuation allowance - end of year	(771		)	(1,528		)

Total valuation allowance - end of year	$	34,094		$	25,542

At December 31, 2014 and 2013, we established a full valuation allowance on: (1) operating loss carryforwards relating to branch operations in Australia and Singapore due to cumulative losses in recent years; (2) unutilized foreign tax credits available in Ireland and (3) certain other deferred tax assets related to branch operations.

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 substantially to our U.S. operations. In evaluating our ability to recover these 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 ordinary deferred tax assets. In 2014 and 2013, there were sufficient net unrealized gains to offset remaining impairments, therefore a valuation allowance on such impairments in the U.S., was not considered necessary.

There were no unrecognized tax benefits at December 31, 2014 and 2013.

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,	2014			2013			2012

Income before income taxes
Bermuda (domestic)	$	690,517		$	625,490		$	485,613
Foreign	139,955			108,977			64,915
Total income before income taxes	$	830,472		$	734,467		$	550,528

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	1.8		%	2.1		%	0.4		%
Europe	1.5		%	1.0		%	1.4		%
Other	—		%	0.3		%	—		%
Valuation allowance	1.1		%	(0.7		)%	0.6		%
Net tax exempt income	(0.7		)%	(1.3		)%	(1.5		)%
Other	(0.6		)%	(0.4		)%	(0.3		)%
Actual tax rate	3.1		%	1.0		%	0.6		%