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Income Taxes | 12 Months Ended
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Dec. 31, 2017
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, Israel, Luxembourg, the Netherlands, the United Kingdom and the United States. The following table presents the total income tax benefit for the years ended December 31, 2017, 2016 and 2015:
|  | Year Ended December 31,
Millions |  | 2017 |  | 2016 |  | 2015
Current tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (.3 | ) |  | $ | 21.4 |  |  | $ | — |
State |  | (1.3 | ) |  | (.7 | ) |  | (.6 | )
Non-U.S. |  | (2.0 | ) |  | (.3 | ) |  | (.8 | )
Total current tax (expense) benefit |  | (3.6 | ) |  | 20.4 |  |  | (1.4 | )
Deferred tax benefit (expense): |  |  |  |  |  |  |  |  |
U.S. federal |  | 11.4 |  |  | 12.5 |  |  | (11.3 | )
Total deferred tax benefit (expense) |  | 11.4 |  |  | 12.5 |  |  | (11.3 | )
Total income tax benefit (expense) |  | $ | 7.8 |  |  | $ | 32.9 |  |  | $ | (12.7 | )
Effective Rate Reconciliation The following table presents 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:
|  | Year Ended December 31,
Millions |  | 2017 |  | 2016 |  | 2015
Tax (expense) benefit at the U.S. statutory rate |  | $ | (2.7 | ) |  | $ | 51.6 |  |  | $ | (45.2 | )
Differences in taxes resulting from: |  |  |  |  |  |  |  |  |
Tax rate changes |  | (44.3 | ) |  | (3.9 | ) |  | (.5 | )
Change in valuation allowance |  | 42.6 |  |  | 6.9 |  |  | (21.8 | )
Non-U.S. earnings, net of foreign taxes |  | 21.5 |  |  | (19.2 | ) |  | 58.5 |
Officer compensation |  | (4.1 | ) |  | — |  |  | — |
Member surplus contributions |  | (3.0 | ) |  | (2.3 | ) |  | (1.5 | )
Withholding tax |  | (2.0 | ) |  | (.2 | ) |  | (.5 | )
Tax exempt interest and dividends |  | .5 |  |  | .1 |  |  | — |
Tax reserve adjustments |  | (.3 | ) |  | — |  |  | — |
Other, net |  | (.4 | ) |  | (.1 | ) |  | (1.7 | )
Total income tax benefit (expense) on pre-tax income (loss) |  | $ | 7.8 |  |  | $ | 32.9 |  |  | $ | (12.7 | )
The non-U.S. component of pre-tax income (loss) was $71.3 million, $(66.3) million and $149.5 million for the years ended December 31, 2017, 2016 and 2015. Tax Payments and Receipts Net income tax payments to national governments (primarily the United States) totaled $2.0 million, $0.3 million, and $0.7 million for the years ended December 31, 2017, 2016 and 2015. 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. The following table presents an outline of the significant components of White Mountains’s U.S. federal, state (net of federal benefit) and non-U.S. deferred tax assets and liabilities:
|  | December 31,
Millions |  | 2017 |  | 2016
Deferred income tax assets related to: |  |  |  |  |  |
U.S. federal and state net operating and capital loss carryforwards |  | $ | 73.0 |  |  | $ | 104.3 |
Non-U.S. net operating loss carryforwards |  | 33.9 |  |  | 34.0 |
Incentive compensation |  | 20.4 |  |  | 26.5 |
Investment basis difference |  | 4.9 |  |  | 5.6 |
Other items |  | 4.9 |  |  | 8.5 |
Total gross deferred income tax assets |  | 137.1 |  |  | 178.9 |
Less: valuation allowances |  | 109.6 |  |  | 146.2 |
Total net deferred income tax assets |  | 27.5 |  |  | 32.7 |
Deferred income tax liabilities related to: |  |  |  |  |  |
Member surplus contributions |  | 24.1 |  |  | 30.0 |
Other items |  | 2.1 |  |  | 2.7 |
Total deferred income tax liabilities |  | 26.2 |  |  | 32.7 |
Net deferred tax asset |  | $ | 1.3 |  |  | $ | — |
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. Tax Cuts and Jobs Act of 2017 On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) was enacted. Substantially all of the provisions of the TCJA are effective for taxable years beginning after December 31, 2017. The TCJA includes significant changes to the Internal Revenue Code of 1986 (the “Code”), including amendments which significantly change the taxation of individuals and business entities. The more significant changes in the TCJA that impact White Mountains are reductions in the corporate federal income tax rate from 35% to 21% and several technical provisions including, among others, limiting the utilization of net operating losses arising after December 31, 2017 to 80% of taxable income with an indefinite carryforward. The TCJA did not have a material impact on White Mountains’s financial statements in 2017 due to a full valuation allowance previously having been recorded against its U.S. deferred tax assets. Under U.S. GAAP, specifically ASC Topic 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017 for the TCJA. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, White Mountains’s deferred taxes were re-measured based upon the new tax rate. For White Mountains, a change in deferred taxes was recorded as an adjustment to our deferred tax provision for $43.1 million of federal tax expense, which was offset by a change in the valuation allowance. The staff of the U.S. Securities and Exchange Commission has recognized the complexity of reflecting the impacts of the TCJA and on December 22, 2017 issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting (the measurement period). SAB 118 describes three scenarios associated with a company’s status of accounting for income tax reform: (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply ASC 740, based on the provisions of the tax laws that were in effect immediately prior to the TCJA being enacted. White Mountains completed its accounting for the effects of the TCJA, which have been reflected in the December 31, 2017 financial statements. 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 $109.6 million valuation allowance as of December 31, 2017, $74.8 million relates to deferred tax assets on net operating losses in the United States and other federal and state deferred tax benefits, $20.3 million relates to deferred tax assets on net operating losses and net investment unrealized gains and losses in Luxembourg subsidiaries, $13.5 million relates to net operating losses and other deferred tax benefits in Israeli subsidiaries and $1.0 million relates to net operating losses in a U.K. subsidiary. Of the $146.2 million valuation allowance as of December 31, 2016, $112.5 million relates to deferred tax assets on net operating losses in the United States and other federal and state deferred tax benefits, $24.0 million relates to deferred tax assets on net operating losses in Luxembourg subsidiaries, $9.4 million relates to net operating losses in Israeli subsidiaries and $0.3 million relates to net operating losses in a U.K. subsidiary. United States During 2017 and 2016, White Mountains recorded tax (benefit) expense of $(21.5) million and $17.1 million to release or establish a valuation allowance against deferred tax assets of Guilford Holdings, Inc. and subsidiaries (“Guilford”). Guilford consists of MediaAlpha, various service companies and certain other investments that are included in the Other Operations segment. The TCJA reduced the corporate income tax from 35% to 21%, which reduced the deferred tax assets of Guilford by $20.4 million. White Mountains recorded a $20.4 million tax expense for the reduction, which was offset with a tax benefit due to the release in the valuation allowance against the deferred tax assets. During 2016, Guilford had income in discontinued operations that was 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 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 losses within continuing operations in 2016, White Mountains recorded a tax benefit of $21.4 million in continuing operations, with an offsetting tax expense in discontinued operations. During 2017 and 2016, Guilford continued to have a full valuation allowance recorded against its deferred tax assets as White Mountains management is unsure it will generate sufficient taxable income to utilize the deferred tax assets. During 2017 and 2016, White Mountains recorded tax (benefit) expense of $(18.4) million and $3.6 million to release or establish valuation allowances against deferred tax assets of BAM. The reduction in the corporate tax rate under the TCJA reduced the deferred tax assets of BAM by $22.7 million. White Mountains recorded a $22.7 million tax expense for the reduction, which was offset with a tax benefit due to the release in the valuation allowance against the deferred tax assets. Also during 2017 and 2016, BAM had income in other comprehensive income that was available to offset its loss from continuing operations. As a result, BAM recorded a tax benefit of $10.1 million and $11.0 million, in continuing operations, with an offsetting tax expense in paid-in surplus. During 2017 and 2016, BAM continued to have a full valuation allowance recorded against its deferred tax assets as White Mountains management is unsure it will generate sufficient taxable income to utilize the deferred tax assets. 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. Non-U.S. Jurisdictions During 2017, White Mountains recorded tax expense of $6.4 million for a reduction to deferred tax assets, and a corresponding reduction to the valuation allowance, which primarily related to the recapture of previously deducted losses due to the intra-group distribution of Guilford offset by the tax deduction for the write down on the investment in Wobi in Luxembourg-domiciled subsidiaries. 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 2017 and 2016, White Mountains recorded tax expense of $3.0 million and $3.4 million to establish a valuation allowance against deferred tax assets at certain Israel-domiciled subsidiaries, as White Mountains management does not currently anticipate sufficient taxable income to utilize the deferred tax assets. During 2017 and 2016, White Mountains recorded tax expense of $0.7 million and $0.1 million to establish a valuation allowance against deferred tax assets at its U.K. subsidiaries, as White Mountains management does not currently anticipate sufficient taxable income to utilize the deferred tax assets. Net Operating Loss and Capital Loss Carryforwards The following table presents net operating loss and capital loss carryforwards as of December 31, 2017, the expiration dates and the deferred tax assets thereon:
|  | December 31, 2017
Millions |  | United States |  | Luxembourg |  | United Kingdom |  | Israel |  | Total
2018-2022 |  | $ | .3 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | .3 |
2023-2027 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
2028-2037 |  | 332.0 |  |  | 46.4 |  |  | — |  |  | — |  |  | 378.4 |
No expiration date |  | — |  |  | 31.3 |  |  | 6.7 |  |  | 54.7 |  |  | 92.7 |
Total |  | $ | 332.3 |  |  | $ | 77.7 |  |  | $ | 6.7 |  |  | $ | 54.7 |  |  | $ | 471.4 |
Gross deferred tax asset |  | 73.0 |  |  | 20.2 |  |  | 1.1 |  |  | 12.6 |  |  | 106.9 |
Valuation allowance |  | (73.0 | ) |  | (20.2 | ) |  | (1.1 | ) |  | (12.6 | ) |  | (106.9 | )
Net deferred tax asset |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Included in the U.S. net operating loss carryforwards are losses of $3.1 million subject to an annual limitation on utilization under Internal Revenue Code Section 382. These loss carryforwards will begin to expire in 2032. Also included in the U.S. net operating loss carryforwards are losses of $6.7 million due to additional deductions related to equity compensation. These loss carryforwards will begin to expire in 2032. As of December 31, 2017, there are U.S. alternative minimum tax credit carryforwards of $1.3 million, which are refundable under provisions of the TCJA. 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. There were no uncertain tax positions for the years ended December 31, 2016 and 2015. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for 2017:
Millions |  | Permanent Differences (1) |  | Temporary Differences (2) |  | Interest and Penalties (3) |  | Total
Balance at January 1, 2017 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Changes in prior year tax positions |  | .1 |  |  | — |  |  | — |  |  | .1 |
Tax positions taken during the current year |  | .2 |  |  | — |  |  | — |  |  | .2 |
Balance at December 31, 2017 |  | $ | .3 |  |  | $ | — |  |  | $ | — |  |  | $ | .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 White Mountains’s Consolidated Balance Sheet and its tax basis.
(3) | Net of tax benefit.
White Mountains classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. During the years ended December 31, 2017, 2016 and 2015, White Mountains did not recognize any net interest (income) expense. There was no accrued interest as of December 31, 2017 and December 31, 2016. 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 2013. In the second quarter of 2016, White Mountains recorded an increase in deferred tax assets of $0.6 million and a corresponding increase in valuation allowance of $0.6 million related to the settlement of the IRS audit of Guilford for tax year 2012. In the first quarter of 2018, the Israeli Tax Authority commenced an examination of the 2013 to 2016 income tax returns for Wobi. 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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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