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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. In the event there is a change in the current law such that taxes are imposed, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 31, 2035, pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966. The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate. The jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Australia, Belgium, Canada, Germany, Gibraltar, Luxembourg, the Netherlands, Singapore, Sweden, Switzerland, the United Kingdom and the United States. The total income tax benefit (expense) for the years ended December 31, 2013, 2012 and 2011 consisted of the following:
|  | Year Ended December 31,
Millions |  | 2013 |  | 2012 |  | 2011
Current tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (19.0 | ) |  | $ | 8.2 |  |  | $ | 36.3 |
State |  | (1.4 | ) |  | (3.4 | ) |  | (2.4 | )
Non-U.S. |  | (16.5 | ) |  | (5.9 | ) |  | 5.1 |
Total current tax (expense) benefit |  | (36.9 | ) |  | (1.1 | ) |  | 39.0 |
Deferred tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | (24.4 | ) |  | (55.5 | ) |  | (43.7 | )
State |  | — |  |  | — |  |  | — |
Non-U.S. |  | (15.3 | ) |  | 72.3 |  |  | 114.7 |
Total deferred tax (expense) benefit |  | (39.7 | ) |  | 16.8 |  |  | 71.0 |
Total income tax (expense) benefit |  | $ | (76.6 | ) |  | $ | 15.7 |  |  | $ | 110.0 |
Effective Rate Reconciliation A reconciliation of taxes calculated using the 35% U.S. statutory rate (the tax rate at which the majority of White Mountains’ worldwide operations are taxed) to the income tax (expense) benefit on pre-tax income follows:
|  | Year Ended December 31,
Millions |  | 2013 |  | 2012 |  | 2011
Tax (expense) benefit at the U.S. statutory rate |  | $ | (120.7 | ) |  | $ | (92.0 | ) |  | $ | (34.3 | )
Differences in taxes resulting from: |  |  |  |  |  |  |  |  |
Non-U.S. earnings, net of foreign taxes |  | 82.9 |  |  | 43.0 |  |  | 6.2 |
Change in valuation allowance |  | (33.6 | ) |  | (14.1 | ) |  | 128.2 |
Tax reserve adjustments |  | (10.2 | ) |  | (1.3 | ) |  | 4.3 |
Purchase of subsidiaries |  | 5.3 |  |  | 5.1 |  |  | — |
Tax exempt interest and dividends |  | 3.2 |  |  | 3.1 |  |  | 2.9 |
Withholding tax |  | (1.7 | ) |  | (2.9 | ) |  | 0.2 |
Tax rate change enacted in Sweden |  | — |  |  | 65.4 |  |  | — |
Tax rate change enacted in Luxembourg |  | — |  |  | 7.2 |  |  | 1.2 |
Other, net |  | (1.8 | ) |  | 2.2 |  |  | 1.3 |
Total income tax (expense) benefit on pre-tax income |  | $ | (76.6 | ) |  | $ | 15.7 |  |  | $ | 110.0 |
In 2012, new tax legislation was enacted in Sweden, which was effective January 1, 2013, that reduces the corporate tax rate from 26.3% to 22.0%. This resulted in a reduction of $65.4 million in Sirius Group’s net deferred tax liabilities in Sweden. The non-U.S. component of pre-tax income was $294.3 million, $250.0 million and $65.4 million for the years ended December 31, 2013, 2012 and 2011. Tax Payments and Receipts Net income tax payments to (receipts from) national governments (primarily the United States) totaled $13.9 million, $17.5 million, and $12.5 million for the years ended December 31, 2013, 2012 and 2011. Deferred Tax Inventory Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for tax purposes. An outline of the significant components of White Mountains’ deferred tax assets and liabilities follows:
|  | December 31,
Millions |  | 2013 |  | 2012
Deferred income tax assets related to: |  |  |  |  |  |
Non-U.S. net operating loss carryforwards |  | $ | 520.6 |  |  | $ | 511.9 |
U.S. federal net operating and capital loss carryforwards |  | 148.6 |  |  | 164.8 |
Loss reserve discount |  | 74.9 |  |  | 88.6 |
Incentive compensation |  | 53.9 |  |  | 36.8 |
Unearned premiums |  | 38.9 |  |  | 45.5 |
Runoff Transaction |  | 24.2 |  |  | 49.3 |
Tax credit carryforwards |  | 23.1 |  |  | 17.0 |
Deferred compensation |  | 10.3 |  |  | 10.4 |
Fixed assets |  | 4.9 |  |  | 2.8 |
Accrued interest |  | 1.1 |  |  | 8.0 |
Pension and benefit accruals |  | — |  |  | 10.3 |
Other items |  | 6.9 |  |  | 5.7 |
Total gross deferred income tax assets |  | 907.4 |  |  | 951.1 |
Less: valuation allowances |  | (289.8 | ) |  | (254.0 | )
Total net deferred income tax assets |  | 617.6 |  |  | 697.1 |
Deferred income tax liabilities related to: |  |  |  |  |  |
Safety reserve |  | 357.2 |  |  | 326.7 |
Net unrealized investment gains |  | 44.6 |  |  | 54.2 |
Deferred acquisition costs |  | 33.0 |  |  | 49.8 |
Purchase accounting |  | 7.2 |  |  | 9.5 |
Members surplus contributions |  | 5.4 |  |  | .1 |
Pension and benefit accruals |  | 3.4 |  |  | — |
Investment basis difference |  | 3.0 |  |  | 21.0 |
Other items |  | 7.9 |  |  | 7.5 |
Total deferred income tax liabilities |  | 461.7 |  |  | 468.8 |
Net deferred tax asset |  | $ | 155.9 |  |  | $ | 228.3 |
White Mountains’ deferred tax assets are net of U.S. federal, state, and non-U.S. valuation allowances and, to the extent they relate to non-U.S. jurisdictions, they are shown at year-end exchange rates. Of the $155.9 million net deferred tax asset at December 31, 2013, $193.1 million relates to net deferred tax assets in U.S. subsidiaries, $315.7 million relates to net deferred tax assets in Luxembourg subsidiaries, $3.3 million relates to net deferred tax assets in United Kingdom subsidiaries and $356.2 million relates to net deferred tax liabilities in Sweden subsidiaries. Valuation Allowance White Mountains records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. In determining whether or not a valuation allowance, or change therein, is warranted, White Mountains considers factors such as prior earnings history, expected future earnings, carryback and carryforward periods and strategies that if executed would result in the realization of a deferred tax asset. It is possible that certain planning strategies or projected earnings in certain subsidiaries may not be feasible to utilize the entire deferred tax asset, which could result in material changes to White Mountains' deferred tax assets and tax expense. Of the $289.8 million valuation allowance at December 31, 2013, $195.8 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries (discussed under “Net Operating Loss and Capital Loss Carryforwards”), $93.7 million relates to deferred tax assets on U.S. losses and other federal deferred tax benefits, and $0.3 million relates to net operating losses in the Netherlands subsidiaries. Of the $254.0 million valuation allowance at December 31, 2012, $192.0 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries and $62.0 million relates to deferred tax assets on U.S. losses and other federal deferred tax benefits. Luxembourg During 2013, White Mountains recorded a net tax expense of $1.4 million which consisted of a tax benefit of $16.7 million from the release of valuation allowances against deferred tax assets and a tax expense of $18.1 million to establish valuation allowances against deferred tax assets related to additional net operating loss carryforwards at certain Luxembourg-domiciled subsidiaries. During the fourth quarter of 2012, White Mountains recorded net tax benefits of $41.3 million from the net release of valuation allowances against deferred tax assets in Luxembourg-domiciled subsidiaries. These companies had built up substantial deferred tax assets due to net operating loss carryforwards. The loss carryforwards primarily relate to tax deductible write downs in 2007 and 2008 of investments in U.S. subsidiaries. There were partial valuation allowances on these deferred tax assets in periods prior to the fourth quarter of 2012 because the companies did not expect sufficient future taxable income to utilize them. During the fourth quarter of 2012, Sirius Group undertook a series of reorganizations to optimize operational and capital efficiency. As part of the reorganizations, investments and outstanding internal debt instruments were contributed to Luxembourg-domiciled subsidiaries with net operating loss carryforwards. One of the companies, S.I. Holdings (Luxembourg) S.à r.l., (“SI Holdings”) (formerly OneBeacon Holdings (Luxembourg) S.à r.l.), was acquired from OneBeacon on January 24, 2012. As the plan for the Sirius Group to acquire SI Holdings and contribute the notes was in place on December 31, 2011, and this was a transaction between entities under common control, White Mountains accounted for the tax effects of the transaction as if it had occurred in 2011. An investment portfolio was contributed to SI Holdings in January 2013, pursuant to a plan in place on December 31, 2012, that will generate income utilizing the deferred tax asset over an extended period of time. The deferred tax assets for the remaining net operating loss carryforwards at the companies are offset by a valuation allowance as no additional taxable income is expected. United States During 2013, White Mountains recorded tax expense of $16.6 million to establish a valuation allowance against deferred tax assets of Guilford Holdings, Inc. and subsidiaries (“Guilford”), as White Mountains management does not anticipate sufficient taxable income to utilize the deferred tax assets. Guilford consists of service companies that are included in the Other Operations segment. During the fourth quarter 2012, White Mountains recorded tax expense of $3.9 million to establish a valuation allowance against deferred tax assets related to foreign tax credit carryforwards at Sirius Re Holdings, Inc. and subsidiaries (“SRHI”) that expire in 2016 and 2017. SRHI is no longer expected to generate sufficient taxable income to utilize these credits. SRHI has an additional $5.2 million of foreign tax credits that expire in 2018-2022 that are still expected to be utilized. During 2013, White Mountains recorded tax expense of $21.3 million to establish valuation allowances against deferred tax assets of BAM as it is uncertain if these companies will have sufficient taxable income to utilize their deferred tax assets. Also during 2013, BAM has income in other comprehensive income that is available to offset its loss from continuing operations, as a result, BAM recorded a tax benefit of $5.4 million in continuing operations, with an offsetting tax expense in other comprehensive income. However, since BAM is a mutual insurance company that is owned by its members, its results do not affect White Mountains’ common shareholders’ equity as they are attributable to non-controlling interests. During 2013, Houston General Insurance Exchange (“Houston General Insurance”) recorded tax benefit of $6.0 million to reduce a valuation allowance primarily due to the restructuring of a surplus note. Houston General Insurance is a reciprocal which is included in the Company’s consolidated results as a variable interest entity. See Note 17. Net Operating Loss and Capital Loss Carryforwards Net operating loss and capital loss carryforwards as of December 31, 2013, the expiration dates and the deferred tax assets thereon are as follows:
|  | December 31, 2013
Millions |  | United States |  | Luxembourg |  | Sweden |  | Netherlands |  | UK |  | Total
2013 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2014 - 2018 |  | — |  |  | — |  |  | — |  |  | 0.5 |  |  | — |  |  | 0.5 |
2019 - 2023 |  | 11.2 |  |  | — |  |  | — |  |  | 0.6 |  |  | — |  |  | 11.8 |
2024 - 2033 |  | 429.8 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 429.8 |
No expiration date |  | — |  |  | 1,750.0 |  |  | 62.3 |  |  | — |  |  | 15.6 |  |  | 1,827.9 |
Total |  | $ | 441.0 |  |  | $ | 1,750.0 |  |  | $ | 62.3 |  |  | $ | 1.1 |  |  | $ | 15.6 |  |  | $ | 2,270.0 |
Gross deferred tax asset |  | $ | 148.6 |  |  | $ | 511.3 |  |  | $ | 5.8 |  |  | $ | .3 |  |  | $ | 3.2 |  |  | $ | 669.2 |
Valuation allowance |  | (58.3 | ) |  | (195.7 | ) |  | — |  |  | (.3 | ) |  | — |  |  | (254.3 | )
Net deferred tax asset |  | $ | 90.3 |  |  | $ | 315.6 |  |  | $ | 5.8 |  |  | $ | — |  |  | $ | 3.2 |  |  | $ | 414.9 |
White Mountains expects to utilize net operating loss carryforwards in Luxembourg of $1,284.1 million but does not expect to utilize the remainder as they belong to companies that are not expected to have sufficient income in the future. These losses primarily relate to tax deductible write-downs in 2007 and 2008 of investments in U.S. subsidiaries held by Luxembourg subsidiaries. Included in the U.S. net operating loss carryforwards are losses of $18.2 million subject to an annual limitation on utilization under Internal Revenue Code Section 382. At December 31, 2013, there are U.S. foreign tax credit carryforwards available of $11.6 million, which begin to expire in 2016. As discussed above, a deferred tax valuation allowance of $3.9 million is established against these credits. At December 31, 2013, there are U.S. alternative minimum tax credit carryforwards of $11.5 million which do not expire. Uncertain Tax Positions Recognition of the benefit of a given tax position is based upon whether a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. In evaluating the more-likely-than-not recognition threshold, White Mountains must presume that the tax position will be subject to examination by a taxing authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Millions |  | Permanent Differences(1) |  | Temporary Differences(2) |  | Interest and Penalties(3) |  | Total
Balance at January 1, 2011 |  | $ | 14.5 |  |  | $ | 75.1 |  |  | $ | 6.2 |  |  | $ | 95.8 |
Changes in prior year tax positions |  | (.9 | ) |  | .1 |  |  | 2.0 |  |  | 1.2 |
Tax positions taken during the current year |  | — |  |  | (20.4 | ) |  | — |  |  | (20.4 | )
Lapse in statute of limitations |  | (3.4 | ) |  | (5.7 | ) |  | (1.4 | ) |  | (10.5 | )
Settlements with tax authorities |  | (.6 | ) |  | — |  |  | — |  |  | (.6 | )
Balance at December 31, 2011 |  | 9.6 |  |  | 49.1 |  |  | 6.8 |  |  | 65.5 |
Changes in prior year tax positions |  | .5 |  |  | — |  |  | 1.4 |  |  | 1.9 |
Tax positions taken during the current year |  | — |  |  | (20.2 | ) |  | — |  |  | (20.2 | )
Settlements with tax authorities |  | (.4 | ) |  | — |  |  | (.2 | ) |  | (.6 | )
Balance at December 31, 2012 |  | 9.7 |  |  | 28.9 |  |  | 8.0 |  |  | 46.6 |
Changes in prior year tax positions |  | .6 |  |  | (7.1 | ) |  | 1.7 |  |  | (4.8 | )
Tax positions taken during the current year |  | 7.9 |  |  | .7 |  |  | — |  |  | 8.6 |
Settlements with tax authorities |  | — |  |  | — |  |  | (.4 | ) |  | (.4 | )
Balance at December 31, 2013 |  | $ | 18.2 |  |  | $ | 22.5 |  |  | $ | 9.3 |  |  | $ | 50.0 |
(1) | Represents the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate.
(2) | Represents the amount of unrecognized tax benefits that, if recognized would create a temporary difference between the reported amount of an item in the Company’s Consolidated Balance Sheet and its tax basis.
(3) | Net of tax benefit.
If White Mountains determines in the future that its reserves for unrecognized tax benefits on permanent differences and interest and penalties are not needed, the reversal of $27.5 million of such reserves at December 31, 2013 would be recorded as an income tax benefit and would impact the effective tax rate. If White Mountains determines in the future that its reserves for unrecognized tax benefits on temporary differences are not needed, the reversal of $22.5 million of such reserves at December 31, 2013 would not impact the effective tax rate due to deferred tax accounting but would accelerate the payment of cash to the taxing authority. The vast majority of White Mountains’ reserves for unrecognized tax benefits on temporary differences relate to deductions for loss reserves where the timing of the deductions is uncertain. The Company expects that the gross amount of unrecognized tax benefits will decrease by $5.2 million within the next twelve months due to the Company’s resolution of its 2005 and 2006 IRS examination for certain subsidiaries of OneBeacon. White Mountains classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. During the years ended December 31, 2013, 2012 and 2011, White Mountains recognized $1.3 million, $1.2 million, $0.6 million in interest expense, net of any tax benefit. The balance of accrued interest at December 31, 2013 and 2012 is $9.3 million and $8.0 million, net of any tax benefit. Tax Examinations With few exceptions, White Mountains is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2005. The IRS concluded an examination of income tax returns for 2005 and 2006 for certain U.S. subsidiaries of OneBeacon. On February 14, 2014, White Mountains received Form 870-AD (Offer to Waive Restrictions on Assessment and Collection Tax Deficiency and to Accept Over Assessment) from the IRS Appeals Office relating to the examination of tax years 2005 and 2006. All disputed items have been agreed to and resolved with the Joint Committee. The total assessment, including interest, is $3.3 million. However, $2.7 million of the adjustments relate to items for which the expense deduction has been disallowed in a year being examined, but ultimate deductibility is highly certain to occur in a later period. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the deduction in the exam period will not affect the effective tax rate. As the receipt of the Form 870-AD described above represents formal settlement, White Mountains expects to record a tax benefit of approximately $5.0 million in the first quarter of 2014 relating to the settlement of the IRS examination for tax years 2005 and 2006. On July 28, 2011, the IRS commenced an examination of the income tax returns 2007, 2008 and 2009 for certain U.S. subsidiaries of OneBeacon. On July 17, 2013, White Mountains received a revised Form 4549-A (Income Tax Discrepancy Adjustments) from the IRS relating to the examination of tax years 2007, 2008 and 2009. The estimated total assessment, including interest, utilization of alternative minimum and foreign tax credit carryovers and capital loss carrybacks, is $68.3 million. However, $60.2 million of the proposed adjustments relate to items for which the expense deduction has been disallowed in a year being examined, but ultimate deductibility is highly certain to occur in a later period. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the deduction in the exam period would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority. White Mountains disagrees with the adjustments proposed by the IRS and is defending its position. Although the timing of the resolution of these issues is uncertain, it is reasonably possible that the resolution could occur within the next twelve months. An estimate of the range of potential outcomes cannot be made at this time. When ultimately settled, White Mountains does not expect the resolution of this examination to result in a material change to its financial position. On September 2, 2013, the IRS commenced an examination of the income tax returns 2010, 2011 and 2012 for certain U.S. subsidiaries of OneBeacon. White Mountains does not expect the resolution of this examination to result in a material change to its financial position, results of operations and cash flows.

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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 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: 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=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: 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 5: 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 6: 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 + Details
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