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Income Taxes | 12 Months Ended
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Dec. 31, 2016
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, Gibraltar, Ireland, Israel, Luxembourg, the Netherlands, the United Kingdom and the United States. The total income tax benefit for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
|  | Year Ended December 31,
Millions |  | 2016 |  | 2015 |  | 2014
Current tax benefit (expense): |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 50.7 |  |  | $ | 9.1 |  |  | $ | (4.3 | )
State |  | (1.6 | ) |  | (1.8 | ) |  | (2.0 | )
Non-U.S. |  | (.8 | ) |  | (1.5 | ) |  | (1.4 | )
Total current tax benefit (expense) |  | 48.3 |  |  | 5.8 |  |  | (7.7 | )
Deferred tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | (2.3 | ) |  | (6.7 | ) |  | 22.8 |
State |  | (.6 | ) |  | 1.1 |  |  | (.3 | )
Total deferred tax (expense) benefit |  | (2.9 | ) |  | (5.6 | ) |  | 22.5 |
Total income tax benefit |  | $ | 45.4 |  |  | $ | .2 |  |  | $ | 14.8 |
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 |  | 2016 |  | 2015 |  | 2014
Tax benefit (expense) at the U.S. statutory rate |  | $ | 14.1 |  |  | $ | (55.1 | ) |  | $ | 10.3 |
Differences in taxes resulting from: |  |  |  |  |  |  |  |  |
Tax reserve adjustments |  | 13.7 |  |  | (1.7 | ) |  | 5.2 |
Change in valuation allowance |  | 9.1 |  |  | (19.4 | ) |  | (35.7 | )
Non-U.S. earnings, net of foreign taxes |  | 6.9 |  |  | 76.7 |  |  | 37.8 |
Tax rate changes |  | (3.5 | ) |  | — |  |  | — |
Tax exempt interest and dividends |  | 2.5 |  |  | 2.6 |  |  | 2.5 |
Withholding tax |  | (.5 | ) |  | (1.2 | ) |  | (2.4 | )
Other, net |  | 3.1 |  |  | (1.7 | ) |  | (2.9 | )
Total income tax benefit on pre-tax income |  | $ | 45.4 |  |  | $ | .2 |  |  | $ | 14.8 |
The non-U.S. component of pre-tax income was $16.3 million, $208.5 million and $60.4 million for the years ended December 31, 2016, 2015 and 2014. Tax Payments and Receipts Net income (receipts from) tax payments to national governments (primarily the United States) totaled $(12.8) million, $(6.5) million, and $2.7 million for the years ended December 31, 2016, 2015 and 2014. 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 |  | 2016 |  | 2015
Deferred income tax assets related to: |  |  |  |  |  |
U.S. federal net operating and capital loss carryforwards |  | $ | 189.3 |  |  | $ | 191.0 |
Incentive compensation |  | 42.5 |  |  | 49.0 |
Unearned premiums |  | 37.8 |  |  | 37.5 |
Non-U.S. net operating loss carryforwards |  | 29.5 |  |  | 33.8 |
Tax credit carryforwards |  | 20.7 |  |  | 16.9 |
Loss reserve discount |  | 18.1 |  |  | 26.8 |
Runoff Transaction |  | 12.6 |  |  | 12.6 |
Deferred compensation |  | 5.7 |  |  | 6.2 |
Accrued interest |  | 2.2 |  |  | 1.3 |
Other items |  | 4.0 |  |  | 8.6 |
Total gross deferred income tax assets |  | 362.4 |  |  | 383.7 |
Less: valuation allowances |  | (146.6 | ) |  | (165.4 | )
Total net deferred income tax assets |  | 215.8 |  |  | 218.3 |
Deferred income tax liabilities related to: |  |  |  |  |  |
Deferred acquisition costs |  | 33.6 |  |  | 34.9 |
Members surplus contributions |  | 30.0 |  |  | 19.0 |
SSIE Surplus Notes |  | 7.1 |  |  | — |
Pension and benefit accruals |  | 6.4 |  |  | 3.5 |
Capitalized software |  | 4.7 |  |  | 4.5 |
Investment basis difference |  | 4.1 |  |  | 15.2 |
Net unrealized investment gains |  | 2.9 |  |  | 28.4 |
Other items |  | .3 |  |  | — |
Total deferred income tax liabilities |  | 89.1 |  |  | 105.5 |
Net deferred tax asset |  | $ | 126.7 |  |  | $ | 112.8 |
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 $146.6 million valuation allowance as of December 31, 2016, $117.3 million relates to deferred tax assets on net operating losses in the United States and other federal and state deferred tax benefits, $24.4 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries, $4.6 million relates to net operating losses in the Israel subsidiaries and $0.3 million relates to net operating losses in the United Kingdom subsidiary. Of the $165.4 million valuation allowance as of December 31, 2015, $131.5 million relates to deferred tax assets on U.S. losses and other federal and state deferred tax benefits, $28.3 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries, $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. United States During 2016 and 2015, White Mountains recorded tax expense of $17.1 million and $9.1 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. Also during 2016, Guilford has income in discontinued operations that is available to offset its loss from continuing operations. However, ASC 740 includes an exception to the general principle of intra-period tax allocations that requires a consolidated tax group, such as Guilford, with a current period loss within continuing operations to consider income recorded in other categories, including discontinued operations, in determining the tax benefit that is allocated to continuing operations. As a result of Guilford’s current period losses within continuing operations, White Mountains recorded a tax benefit of $21.4 million in continuing operations, with an offsetting tax expense in discontinued operations. During 2016 and 2015, White Mountains recorded tax expense of $3.6 million and $6.3 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 2016 and 2015, 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 $11.0 million and $8.7 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 2016, Houston General Insurance Exchange (“HGIE”) recorded tax expense of $0.1 million as it is uncertain if it will have sufficient taxable income to utilize its deferred tax assets. During 2015, HGIE recorded a tax benefit of $0.5 million to reduce a valuation allowance, primarily due to the restructuring of the surplus note issued by HGIE (“HGIE Surplus Notes”). During 2016, SSIE recorded a tax benefit of $6.9 million to reduce a valuation allowance, primarily due to the write down of the SSIE Surplus Notes. During 2015, SSIE recorded tax expense of $1.2 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 White Mountains’s consolidated results as a variable interest entity. See Note 18 — “Variable Interest Entities”. Non-U.S. jurisdictions During 2016, White Mountains recorded tax expense of $2.8 million for a reduction to deferred tax assets, and a corresponding reduction to the valuation allowance, which primarily related to a decrease in the corporate income tax rate for Luxembourg-domiciled subsidiaries. During 2015, White Mountains recorded tax expense of $0.3 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 2016 and 2015, White Mountains recorded tax expense of $1.1 million and $3.0 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. During 2016, White Mountains recorded tax expense of $0.1 million to establish a valuation allowance against deferred tax assets at certain United Kingdom-domiciled subsidiaries, as White Mountains management does not anticipate sufficient taxable income to utilize the deferred tax assets. Net Operating Loss and Capital Loss Carryforwards Net operating loss and capital loss carryforwards as of December 31, 2016, the expiration dates and the deferred tax assets thereon are as follows:
|  | December 31, 2016
Millions |  | United States |  | Luxembourg |  | United Kingdom |  | Israel |  | Total
2017-2021 |  | $ | .8 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | .8 |
2022-2026 |  | 1.6 |  |  | — |  |  | — |  |  | — |  |  | 1.6 |
2027-2036 |  | 556.3 |  |  | — |  |  | — |  |  | — |  |  | 556.3 |
No expiration date |  | — |  |  | 93.8 |  |  | 3.2 |  |  | 19.8 |  |  | 116.8 |
Total |  | $ | 558.7 |  |  | $ | 93.8 |  |  | $ | 3.2 |  |  | $ | 19.8 |  |  | $ | 675.5 |
Gross deferred tax asset |  | 189.3 |  |  | 24.4 |  |  | .5 |  |  | 4.6 |  |  | 218.8 |
Valuation allowance |  | (115.4 | ) |  | (24.4 | ) |  | (.5 | ) |  | (4.6 | ) |  | (144.9 | )
Net deferred tax asset |  | $ | 73.9 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 73.9 |
Included in the U.S. net operating loss carryforwards are losses of $4.2 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 $9.9 million due to additional deductions related to equity compensation. These loss carryforwards begin to expire in 2030. As of December 31, 2016, there are U.S. foreign tax credit carryforwards available of $0.4 million, which begin to expire in 2023. As of December 31, 2016, there are U.S. alternative minimum tax credit carryforwards of $2.3 million which do not expire. As of December 31, 2016, there are U.S. low income housing credit carryforwards of $18.0 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, 2014 |  | $ | 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 | )
Balance at December 31, 2015 |  | 5.4 |  |  | 10.7 |  |  | 8.2 |  |  | 24.3 |
Changes in prior year tax positions |  | — |  |  | (5.5 | ) |  | .1 |  |  | (5.4 | )
Settlements with tax authorities |  | (5.4 | ) |  | — |  |  | (8.3 | ) |  | (13.7 | )
Balance at December 31, 2016 |  | $ | — |  |  | $ | 5.2 |  |  | $ | — |  |  | $ | 5.2 |
(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 White Mountains’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 temporary differences are not needed, the reversal of $5.2 million of such reserves as of December 31, 2016 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, 2016, 2015 and 2014, White Mountains recognized $(8.2) million, $1.7 million, $(2.2) million in net interest (income) expense. There was no accrued interest as of December 31, 2016. The accrued interest as of December 31, 2015 is $8.2 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 2012. On May 27, 2016, White Mountains received the Closing Letter (Letter 1156) from the IRS Revenue Agent relating to the examination of tax years 2010, 2011 and 2012 for certain U.S. subsidiaries of OneBeacon. All disputed items have now been agreed to and resolved. As the receipt of the Closing Letter described above represents formal settlement, White Mountains recorded a tax benefit of $3.5 million in the second quarter of 2016 related to tax years 2010, 2011 and 2012. On January 19, 2016, 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 for certain U.S. subsidiaries of OneBeacon. All disputed items have now been agreed to and resolved with the Joint Committee on Taxation. As the receipt of the Form 870-AD described above represents formal settlement, White Mountains recorded a tax benefit of $12.8 million in the first quarter of 2016 related to tax years 2007, 2008 and 2009. White Mountains recorded a tax benefit of $5.0 million in the first quarter of 2014 relating to the examination of tax years 2005 and 2006 for certain U.S. subsidiaries of OneBeacon. On June 22, 2016, White Mountains received the Closing Letter (Letter 1156) from the IRS Revenue Agent relating to the examination of tax year 2012 for Guilford Holdings, Inc. and subsidiaries. All disputed items have now been agreed to and resolved. As the receipt of the Closing Letter described above represents formal settlement, White Mountains recorded an increase to the deferred tax asset on net operating loss carryforwards of $0.6 million, and a corresponding increase to the valuation allowance, related to tax year 2012.

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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=65882285&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=65882285&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=65882285&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=65882285&loc=d3e32537-109319 + Details
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