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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | Under current Bermuda law, the Company's Bermuda domiciled subsidiaries are not required to pay any taxes in Bermuda on income or capital gains. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, it will be exempt from taxation in Bermuda until March 2035. The Company's 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 2015 through 2018. The Company's 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. The Company's U.S. subsidiaries are not under examination but remain subject to examination in the U.S. for tax years 2015 through 2018. In Canada, the Company's U.S. reinsurance company operates through a branch and its 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 remain subject to examination for tax years 2014 through 2018. The Company also has subsidiaries in Ireland, the U.K., Belgium, the Netherlands, Luxembourg, Brazil and Dubai. In 2017, the Company ceased operations in Australia. These subsidiaries and their branches, are not under examination, but remain subject to examination in all applicable jurisdictions for tax years 2014 through 2018. In the U.K., the Company has Lloyd’s syndicates whose income is subject to tax in the U.K. payable by its corporate members. The income from operations at Lloyd’s is also subject to taxes in other jurisdictions in which Lloyd's operates, including the U.S. Under a Closing Agreement between Lloyd’s and the IRS, Lloyd’s Members pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. To the extent that the Lloyd’s syndicates suffer taxes outside the U.K. they may claim a credit for foreign taxes suffered, limited to the U.K. equivalent tax on the same income. An analysis of income tax expense and net tax assets is shown in the following table:
| Year ended December 31, | 2018 |  | 2017 |  | 2016 |
| Current income tax expense (benefit) |  |  |  |  |  |
| U.S. | $ | (5,401 | ) |  | $ | (6,207 | ) |  | $ | 606 |  |
| Europe | 10,409 |  |  | 10,249 |  |  | 7,451 |  |
| Other | 51 |  |  | — |  |  | — |  |
| Deferred income tax expense (benefit) |  |  |  |  |  |
| U.S. | 15,288 |  |  | 18,495 |  |  | (1,829 | ) |
| Europe | (49,833 | ) |  | (30,079 | ) |  | 112 |  |
| Total income tax expense (benefit) | $ | (29,486 | ) |  | $ | (7,542 | ) |  | $ | 6,340 |  |
| Net current tax receivables (payables) | $ | 9,683 |  |  | $ | (639 | ) |  | $ | 3,540 |  |
| Net deferred tax assets | 39,775 |  |  | 4,438 |  |  | 103,313 |  |
| Net tax assets | $ | 49,458 |  |  | $ | 3,799 |  |  | $ | 106,853 |  |
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 deferred tax assets and liabilities were as follows:
| At December 31, | 2018 |  | 2017 |
| Deferred tax assets: |  |  |  |
| Discounting of net reserves for losses and loss expenses | $ | 37,440 |  |  | $ | 27,804 |  |
| Unearned premiums | 40,447 |  |  | 25,188 |  |
| Net unrealized investments losses | 11,438 |  |  | — |  |
| Operating and capital loss carryforwards(1) | 83,850 |  |  | 53,095 |  |
| Accruals not currently deductible | 32,589 |  |  | 31,560 |  |
| Tax credits | 8,672 |  |  | 29,929 |  |
| Other deferred tax assets | 9,195 |  |  | 15,047 |  |
| Deferred tax assets before valuation allowance | 223,631 |  |  | 182,623 |  |
| Valuation allowance | (18,955 | ) |  | (16,157 | ) |
| Deferred tax assets net of valuation allowance | 204,676 |  |  | 166,466 |  |
| Deferred tax liabilities: |  |  |  |
| Deferred acquisition costs | (39,745 | ) |  | (24,249 | ) |
| Net unrealized investments gains | — |  |  | (8,033 | ) |
| Amortization of VOBA, intangible assets and goodwill | (49,097 | ) |  | (85,296 | ) |
| Equalization reserves | (22,069 | ) |  | (23,274 | ) |
| Other deferred tax liabilities | (53,990 | ) |  | (21,176 | ) |
| Deferred tax liabilities | (164,901 | ) |  | (162,028 | ) |
| Net deferred tax assets | $ | 39,775 |  |  | $ | 4,438 |  |
(1) | At December 31, 2018 and 2017, the total operating loss carryforwards includes Lloyd's deferred year of account losses of $68 million and $19 million, respectively.
On December 22, 2017, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 ("U.S. Tax Reform") was signed into law. U.S. Tax Reform, among other things, reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, the Company reduced its net deferred tax assets at December 31, 2017 by $41.6 million. As a result of the Company's acquisitions of Aviabel and Novae in 2017, $103.8 million of net deferred tax liabilities were acquired or established at the acquisition dates. Total operating and capital loss carryforwards and tax credits are summarized in the following table:
| At December 31, | 2018 |  | 2017 |
| Operating and Capital Loss Carryforwards(1) |  |  |  |
| Singapore (branch) operating loss carryforward | $ | 79,445 |  |  | $ | 77,467 |  |
| U.K. operating loss carryforward(2) | 413,504 |  |  | 126,839 |  |
| Ireland operating loss carryforward | 12,756 |  |  | — |  |
| U.S. operating loss carryforward | 15,062 |  |  | 115,236 |  |
| Ireland capital loss carryforward | 716 |  |  | 716 |  |
| Tax Credits(1) |  |  |  |
| Ireland foreign tax credit | $ | 2,248 |  |  | $ | 3,566 |  |
| U.S. alternative minimum tax credit(3) | 6,026 |  |  | 12,052 |  |
| U.K. tax credit | 398 |  |  | 14,310 |  |
(1) | All operating and capital loss carryforwards and tax credits can be carried forward indefinitely with the exception of the U.S. net operating loss, which will expire in 2037.
(2) | At December 31, 2018 and 2017, the U.K. operating loss carryforward includes Lloyd's deferred year of account losses of $403 million and $113 million, respectively.
(3) | As a result of U.S. tax reform, all alternative minimum tax credits will be refunded by tax year 2021.
An analysis of the movement in the Company's valuation allowance is shown in the following table:
| At December 31, | 2018 |  | 2017 |
| Income tax expense: |  |  |  |
| Valuation allowance - beginning of year | $ | 16,157 |  |  | $ | 41,100 |  |
| Operating loss carryforwards | 198 |  |  | (27,116 | ) |
| Foreign tax credit | (1,359 | ) |  | 267 |  |
| U.K. branch assets and other foreign rate differentials | (205 | ) |  | 1,006 |  |
| U.S. alternative minimum tax credits | (900 | ) |  | 900 |  |
| Valuation allowance - end of year | $ | 13,891 |  |  | $ | 16,157 |  |
| Accumulated other comprehensive income: |  |  |  |
| Valuation allowance - beginning of year | — |  |  | — |  |
| Change in investment - related items | 5,064 |  |  | — |  |
| Valuation allowance - end of year | 5,064 |  |  | — |  |
| Total valuation allowance - end of year | $ | 18,955 |  |  | $ | 16,157 |  |
At December 31, 2018 and 2017, the Company established a full valuation allowance on: (1) operating and capital loss carryforwards relating to operations in Singapore; (2) un-utilized foreign tax credits available in Ireland and (3) certain other deferred tax assets related to branch operations. At December 31, 2018, the Company established a valuation allowance on certain unrealized investment losses. In 2017, the valuation allowance was released on the Australian operating loss carryforwards, capital loss carryforwards, and other deferred tax assets upon the cessation of operations. The valuation allowance was reduced by a net $1.2 million for items unrelated to the Australian 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. In evaluating the Company's ability to recover these tax assets within the jurisdiction from which they arise, it considered all available positive and negative evidence, including historical results, operating loss carry-back potential and scheduled reversals of deferred tax liabilities. The Company believes its U.S. and U.K. operations will produce significant taxable income in future periods and have deferred tax liabilities that will reverse in future periods, such that the Company believes sufficient ordinary taxable income is available to utilize all remaining ordinary deferred tax assets. At December 31, 2018 and 2017, there were no unrecognized tax benefits. 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, | 2018 |  | 2017 |  | 2016 |
| Income (loss) before income taxes |  |  |  |  |  |
| Bermuda (domestic) | $ | 181,597 |  |  | $ | (188,420 | ) |  | $ | 469,306 |  |
| Foreign | (168,062 | ) |  | (188,091 | ) |  | 50,402 |  |
| Total income before income taxes | $ | 13,535 |  |  | $ | (376,511 | ) |  | $ | 519,708 |  |
| 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: |  |  |  |  |  |
| U.S. | 65.7 | % |  | 6.6 | % |  | (0.6 | )% |
| Europe | (289.7 | )% |  | 5.8 | % |  | 1.5 | % |
| Other | — | % |  | 0.3 | % |  | — | % |
| Valuation allowance | (13.4 | )% |  | — | % |  | 0.2 | % |
| Net tax exempt income | (3.3 | )% |  | 0.1 | % |  | (0.2 | )% |
| Change in U.S. enacted tax rate | — | % |  | (11.1 | )% |  | — | % |
| Change in European enacted tax rate | 16.9 | % |  | — | % |  | — | % |
| Other | 5.9 | % |  | 0.3 | % |  | 0.3 | % |
| Actual tax rate | (217.9 | )% |  | 2.0 | % |  | 1.2 | % |

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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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