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Income Taxes | 12 Months Ended
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Dec. 31, 2015
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 Barbados, Germany, Gibraltar, Israel, Luxembourg, the Netherlands, Peru, Sweden, Switzerland, the United Kingdom and the United States. The total income tax (expense) benefit for the years ended December 31, 2015, 2014 and 2013 consisted of the following:
|  | Year Ended December 31,
Millions |  | 2015 |  | 2014 |  | 2013
Current tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 9.1 |  |  | $ | (4.3 | ) |  | $ | (20.3 | )
State |  | (1.8 | ) |  | (2.0 | ) |  | (1.0 | )
Non-U.S. |  | (1.5 | ) |  | (1.4 | ) |  | (1.2 | )
Total current tax expense |  | 5.8 |  |  | (7.7 | ) |  | (22.5 | )
Deferred tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | (5.1 | ) |  | 22.5 |  |  | (10.1 | )
Total deferred tax benefit (expense) |  | (5.1 | ) |  | 22.5 |  |  | (10.1 | )
Total income tax (expense) benefit |  | $ | .7 |  |  | $ | 14.8 |  |  | $ | (32.6 | )
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’s worldwide operations are taxed) to the income tax (expense) benefit on pre-tax income follows:
|  | Year Ended December 31,
Millions |  | 2015 |  | 2014 |  | 2013
Tax (expense) benefit at the U.S. statutory rate |  | $ | (54.2 | ) |  | $ | 10.2 |  |  | $ | (55.5 | )
Differences in taxes resulting from: |  |  |  |  |  |  |  |  |
Non-U.S. earnings, net of foreign taxes |  | 76.7 |  |  | 37.8 |  |  | 75.1 |
Change in valuation allowance |  | (18.7 | ) |  | (36.0 | ) |  | (49.9 | )
Tax exempt interest and dividends |  | 2.6 |  |  | 2.5 |  |  | 2.4 |
Tax reserve adjustments |  | (1.7 | ) |  | 5.2 |  |  | (1.2 | )
Withholding tax |  | (1.2 | ) |  | (2.4 | ) |  | (1.0 | )
Other, net |  | (2.8 | ) |  | (2.5 | ) |  | (2.5 | )
Total income tax (expense) benefit on pre-tax income |  | $ | .7 |  |  | $ | 14.8 |  |  | $ | (32.6 | )
The non-U.S. component of pre-tax income was $209.5 million, $60.4 million and $163.7 million for the years ended December 31, 2015, 2014 and 2013. Tax Payments and Receipts Net income tax payments to (receipts from) national governments (primarily the United States) totaled $(6.5) million, $2.7 million, and $3.6 million for the years ended December 31, 2015, 2014 and 2013. 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’s deferred tax assets and liabilities follows:
|  | December 31,
Millions |  | 2015 |  | 2014
Deferred income tax assets related to: |  |  |  |  |  |
U.S. federal net operating and capital loss carryforwards |  | $ | 186.6 |  |  | $ | 152.3 |
Incentive compensation |  | 45.4 |  |  | 40.2 |
Unearned premiums |  | 37.5 |  |  | 38.3 |
Non-U.S. net operating loss carryforwards |  | 33.8 |  |  | 33.1 |
Loss reserve discount |  | 26.8 |  |  | 41.4 |
Tax credit carryforwards |  | 16.9 |  |  | 13.4 |
Runoff Transaction |  | 12.6 |  |  | 12.6 |
Deferred compensation |  | 6.2 |  |  | 6.7 |
Fixed assets |  | 1.7 |  |  | 2.3 |
Accrued interest |  | 1.3 |  |  | 5.0 |
Other items |  | 3.0 |  |  | 2.8 |
Total gross deferred income tax assets |  | 371.8 |  |  | 348.1 |
Less: valuation allowances |  | (156.8 | ) |  | (140.5 | )
Total net deferred income tax assets |  | 215.0 |  |  | 207.6 |
Deferred income tax liabilities related to: |  |  |  |  |  |
Deferred acquisition costs |  | 34.9 |  |  | 32.0 |
Net unrealized investment gains |  | 28.2 |  |  | 31.1 |
Members surplus contributions |  | 19.0 |  |  | 10.3 |
Investment basis difference |  | 13.8 |  |  | 17.0 |
Purchase accounting |  | 9.3 |  |  | — |
Pension and benefit accruals |  | 3.5 |  |  | 2.5 |
Other items |  | .5 |  |  | .1 |
Total deferred income tax liabilities |  | 109.2 |  |  | 93.0 |
Net deferred tax asset |  | $ | 105.8 |  |  | $ | 114.6 |
White Mountains’s 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. 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’s deferred tax assets and tax expense. Of the $156.8 million valuation allowance as of December 31, 2015, $28.3 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries, $122.9 million relates to deferred tax assets on U.S. losses and other federal deferred tax benefits, $5.5 million relates to net operating losses in the Israel subsidiaries and $0.1 million relates to net operating losses in the Netherlands subsidiary. Of the $140.5 million valuation allowance as of December 31, 2014, $31.0 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries, $107.5 million relates to deferred tax assets on U.S. losses and other federal deferred tax benefits; and $1.9 million relates to net operating losses in the Israel subsidiaries and $0.1 million relates to net operating losses in the Netherlands subsidiary. Non-U.S. jurisdictions During 2015 and 2014, White Mountains recorded tax expense of $0.3 million and $15.7 million to establish a valuation allowance against deferred tax assets at certain Luxembourg-domiciled subsidiaries, as White Mountains management does not anticipate sufficient taxable income to utilize the deferred tax assets. During 2015 and 2014, White Mountains recorded tax expense of $3.0 million and $1.2 million to establish a valuation allowance against deferred tax assets at certain Israeli-domiciled subsidiaries, as White Mountains management does not anticipate sufficient taxable income to utilize the deferred tax assets. United States During 2015 and 2014, White Mountains recorded tax expense of $8.2 million and $7.2 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 and certain other investments that are included in the Other Operations segment. During 2015 and 2014, White Mountains recorded tax expense of $6.3 million and $8.5 million to establish valuation allowances against deferred tax assets of BAM, as it is uncertain if it will have sufficient taxable income to utilize its deferred tax assets. Also during 2015 and 2014, 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 $8.7 million and $4.9 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’s common shareholders’ equity, as they are attributable to non-controlling interests. During 2015, Houston General Insurance Exchange (“Houston General Insurance”) recorded a tax benefit of $0.5 million to reduce a valuation allowance, primarily due to the restructuring of a surplus note. During 2014, Houston General Insurance recorded tax expense of $0.1 million as it is uncertain if it will have sufficient taxable income to utilize its deferred tax assets. Houston General Insurance is a reciprocal, which is included in the Company’s consolidated results as a variable interest entity. See Note 18 - “Variable Interest Entities”. During 2015 and 2014, SSIE recorded tax expense of $1.2 million and $3.2 million, as it is uncertain if it will have sufficient taxable income to utilize its deferred tax assets. SSIE is a reciprocal, which is included in the Company’s consolidated results as a variable interest entity. See Note 18 - “Variable Interest Entities”. Net Operating Loss and Capital Loss Carryforwards Net operating loss and capital loss carryforwards as of December 31, 2015, the expiration dates and the deferred tax assets thereon are as follows:
|  | December 31, 2015
Millions |  | United States |  | Luxembourg |  | Netherlands |  | Israel |  | Total
2016 - 2020 |  | $ | .8 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | .8 |
2021 - 2025 |  | 2.0 |  |  | — |  |  | .3 |  |  | — |  |  | 2.3 |
2026 - 2035 |  | 540.6 |  |  | — |  |  | — |  |  | — |  |  | 540.6 |
No expiration date |  | — |  |  | 96.8 |  |  | — |  |  | 21.8 |  |  | 118.6 |
Total |  | $ | 543.4 |  |  | $ | 96.8 |  |  | $ | .3 |  |  | $ | 21.8 |  |  | $ | 662.3 |
Gross deferred tax asset |  | $ | 186.6 |  |  | $ | 28.3 |  |  | $ | .1 |  |  | $ | 5.5 |  |  | $ | 220.5 |
Valuation allowance |  | (121.2 | ) |  | (28.3 | ) |  | (.1 | ) |  | (5.5 | ) |  | (155.1 | )
Net deferred tax asset |  | $ | 65.4 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 65.4 |
Included in the U.S. net operating loss carryforwards are losses of $22.6 million subject to an annual limitation on utilization under Internal Revenue Code Section 382. These loss carryforwards will begin to expire in 2025. Also included in the U.S. net operating loss carryforwards are losses of $9.3 million due to additional deductions related to equity compensation. These loss carryforwards begin to expire in 2030. As of December 31, 2015, there are U.S. foreign tax credit carryforwards available of $0.4 million, which begin to expire in 2023. As of December 31, 2015, there are U.S. alternative minimum tax credit carryforwards of $1.9 million which do not expire. As of December 31, 2015, there are U.S. low income housing credit carryforwards of $14.6 million, which begin to expire in 2031. 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, 2013 |  | $ | 8.4 |  |  | $ | 23.6 |  |  | $ | 8.0 |  |  | $ | 40.0 |
Changes in prior year tax positions |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
Tax positions taken during the current year |  | — |  |  | (7.0 | ) |  | — |  |  | (7.0 | )
Lapse in statute of limitations |  | — |  |  | — |  |  | — |  |  | — |
Settlements with tax authorities |  | — |  |  | — |  |  | (.3 | ) |  | (.3 | )
Balance at December 31, 2013 |  | 8.4 |  |  | 16.6 |  |  | 8.7 |  |  | 33.7 |
Changes in prior year tax positions |  | (2.2 | ) |  | (.8 | ) |  | (1.9 | ) |  | (4.9 | )
Tax positions taken during the current year |  | — |  |  | 7.3 |  |  | — |  |  | 7.3 |
Lapse in statute of limitations |  | (.8 | ) |  | — |  |  | (.3 | ) |  | (1.1 | )
Balance at December 31, 2014 |  | 5.4 |  |  | 23.1 |  |  | 6.5 |  |  | 35.0 |
Changes in prior year tax positions |  | — |  |  | (12.4 | ) |  | 1.7 |  |  | (10.7 | )
Tax positions taken during the current year |  | — |  |  | — |  |  | — |  |  | — |
Lapse in statute of limitations |  | — |  |  | — |  |  | — |  |  | — |
Settlements with tax authorities |  | — |  |  | — |  |  | — |  |  | — |
Balance at December 31, 2015 |  | $ | 5.4 |  |  | $ | 10.7 |  |  | $ | 8.2 |  |  | $ | 24.3 |
(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 $13.6 million of such reserves as of December 31, 2015 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 $10.7 million of such reserves as of December 31, 2015 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’s reserves for unrecognized tax benefits on temporary differences relate to deductions for loss reserves where the timing of the deductions is uncertain. White Mountains classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. During the years ended December 31, 2015, 2014 and 2013, White Mountains recognized $1.7 million, $(2.2) million, $0.7 million in net interest (income) expense. The balance of accrued interest as of December 31, 2015 and 2014 is $8.2 million and $6.5 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 2007. 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 now been agreed to and resolved with the Joint Committee. The total assessment, including interest, is $3.3 million. As the receipt of the Form 870-AD described above represents formal settlement, White Mountains recorded 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 for 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. Subsequent to the year end 2015, White Mountains received Form 870-AD (Offer to Waive Restrictions on Assessment and Collection Tax Deficiency and to Accept Overassessment) from the IRS Appeals Office relating to the examination of tax years 2007, 2008 and 2009. All disputed items have now been agreed to and resolved with the Joint Committee on Taxation. The estimated total overpayment, including interest, utilization of alternative minimum and foreign tax credit carryovers and capital loss carrybacks, is $4.0 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 would 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 $12 million in the first quarter of 2016 related to the tax settlement of the IRS examination for tax years 2007, 2008 and 2009. On September 2, 2013, the IRS commenced an examination of the income tax returns for 2010, 2011 and 2012 for certain U.S. subsidiaries of OneBeacon. On November 18, 2015, White Mountains received Form 4549-A (Income Tax Discrepancy Adjustments) from the IRS relating to the examination of tax years 2010, 2011 and 2012. The estimated total overpayment is $1.1 million. 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. On December 18, 2014, the IRS commenced an examination of the 2012 income tax return for Guilford Holdings, Inc. and subsidiaries. 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 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 2: 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 3: 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 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 + Details
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