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Income Taxes | 12 Months Ended
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Dec. 31, 2019
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 and 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, Ireland, Israel, Luxembourg, the United Kingdom and the United States. The following table presents the total income tax (expense) benefit for the years ended December 31, 2019, 2018 and 2017:
|  | Year Ended December 31,
Millions |  | 2019 |  | 2018 |  | 2017
Current income tax benefit (expense): |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | .9 |  |  | $ | (.1 | ) |  | $ | (.3 | )
State |  | (3.7 | ) |  | (1.4 | ) |  | (1.3 | )
Non-U.S. |  | (1.7 | ) |  | (2.9 | ) |  | (2.0 | )
Total current income tax (expense) benefit |  | (4.5 | ) |  | (4.4 | ) |  | (3.6 | )
Deferred income tax (expense) benefit: |  |  |  |  |  |  |  |  |
U.S. federal |  | (14.9 | ) |  | 8.3 |  |  | 11.4 |
State |  | (10.4 | ) |  | — |  |  | — |
Non-U.S. |  | .5 |  |  | .1 |  |  | — |
Total deferred income tax (expense) benefit |  | (24.8 | ) |  | 8.4 |  |  | 11.4 |
Total income tax (expense) benefit |  | $ | (29.3 | ) |  | $ | 4.0 |  |  | $ | 7.8 |
Effective Rate Reconciliation The following table presents a reconciliation of taxes calculated for 2019 and 2018 using the 21% U.S. federal statutory rate and for 2017 using the 35% U.S. federal 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 (loss):
|  | Year Ended December 31,
Millions |  | 2019 |  | 2018 |  | 2017
Tax (expense) benefit at the U.S. statutory rate |  | $ | (85.1 | ) |  | $ | 37.4 |  |  | $ | (2.7 | )
Differences in taxes resulting from: |  |  |  |  |  |  |  |  |
Change in valuation allowance |  | 63.6 |  |  | (31.0 | ) |  | 42.6 |
Non-U.S. earnings, net of foreign taxes |  | 27.1 |  |  | (2.9 | ) |  | 21.5 |
State taxes |  | (17.5 | ) |  | 4.0 |  |  | .6 |
Tax rate changes |  | (5.7 | ) |  | 1.7 |  |  | (44.3 | )
Member’s surplus contributions |  | (3.6 | ) |  | (2.6 | ) |  | (3.0 | )
Withholding tax |  | (1.6 | ) |  | (2.7 | ) |  | (2.0 | )
Tax exempt interest and dividends |  | 1.1 |  |  | .6 |  |  | .5 |
Tax reserve adjustments |  | (.7 | ) |  | (.8 | ) |  | (.3 | )
Officer compensation |  | — |  |  | — |  |  | (4.1 | )
Other, net |  | (6.9 | ) |  | .3 |  |  | (1.0 | )
Total income tax (expense) benefit on pre-tax income (loss) |  | $ | (29.3 | ) |  | $ | 4.0 |  |  | $ | 7.8 |
The non-U.S. component of pre-tax income (loss) was $100.4 million, $(30.1) million and $71.3 million for the years ended December 31, 2019, 2018 and 2017. Tax Payments and Receipts Net income tax payments (primarily to the United States) totaled $3.7 million, $3.5 million, and $2.0 million for the years ended December 31, 2019, 2018 and 2017. Deferred Tax Assets and Liabilities Deferred 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 and non-U.S. deferred tax assets and liabilities:
|  | December 31,
Millions |  | 2019 |  | 2018
Deferred tax assets related to: |  |  |  |  |  |
U.S. federal and state net operating and capital loss carryforwards |  | $ | 92.3 |  |  | $ | 95.5 |
Non-U.S. net operating loss carryforwards |  | 41.7 |  |  | 36.6 |
Incentive compensation |  | 15.0 |  |  | 14.1 |
Investment basis difference |  | — |  |  | 11.1 |
Net unrealized investment losses |  | — |  |  | 9.5 |
Accrued interest |  | 5.1 |  |  | — |
Deferred acquisition costs |  | 4.3 |  |  | 3.5 |
Tax credit carryforwards |  | 4.2 |  |  | 4.2 |
Other items |  | 3.4 |  |  | 5.8 |
Total gross deferred tax assets |  | 166.0 |  |  | 180.3 |
Less: valuation allowances |  | 77.9 |  |  | 139.9 |
Total net deferred tax assets |  | 88.1 |  |  | 40.4 |
Deferred tax liabilities related to: |  |  |  |  |  |
Net unrealized investment gains |  | 66.3 |  |  | — |
Member’s surplus contributions |  | 43.2 |  |  | 32.8 |
Investment basis difference |  | 6.6 |  |  | — |
Other items |  | 4.6 |  |  | 5.4 |
Total deferred tax liabilities |  | 120.7 |  |  | 38.2 |
Net deferred tax (liability) asset |  | $ | (32.6 | ) |  | $ | 2.2 |
White Mountains’s deferred tax (liabilities) 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 sufficient 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 $77.9 million valuation allowance as of December 31, 2019, $34.9 million related to deferred tax assets on net operating losses in U.S. subsidiaries and other federal and state deferred tax benefits, $22.6 million related to deferred tax assets on net operating losses and net investment unrealized gains and losses in Luxembourg subsidiaries, $17.3 million related to net operating losses and other deferred tax benefits in Israeli subsidiaries and $3.1 million related to net operating losses and other deferred tax benefits in U.K. subsidiaries. Of the $139.9 million valuation allowance as of December 31, 2018, $102.6 million related to deferred tax assets on net operating losses in U.S. subsidiaries and other federal and state deferred tax benefits, $21.1 million related to deferred tax assets on net operating losses and net investment unrealized gains and losses in Luxembourg subsidiaries, $14.5 million related to net operating losses in Israeli subsidiaries and $1.7 million related to net operating losses and other deferred tax benefits in U.K. subsidiaries. United States During 2019 and 2018, White Mountains recorded income tax (benefit) expense of $(63.2) million to release and $22.7 million to establish a valuation allowance against deferred tax assets of Guilford Holdings, Inc. and subsidiaries (“Guilford”), which includes Kudu, White Mountains’s investment in MediaAlpha, WM Capital, WM Advisors and certain other entities and investments that are included in the Other Operations segment. During 2019, Guilford was in a net deferred tax liability position due to unrealized gains. Guilford recorded a tax benefit due to a release in the full valuation allowance from 2018. During 2018, Guilford had a full valuation allowance recorded against its deferred tax assets, as White Mountains management was unsure it would generate sufficient taxable income to utilize the deferred tax assets. During 2019 and 2018, White Mountains recorded income tax (benefit) expense of $(4.5) million to release and $1.5 million to establish a valuation allowance against deferred tax assets of BAM. During 2019 and 2018, BAM had income in equity that was available to offset its loss from continuing operations. As a result, BAM recorded an income tax benefit of $10.5 million and $8.7 million, in continuing operations, with an offsetting tax expense in paid-in surplus. Also, during 2019 and 2018, 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 2019 and 2018, White Mountains recorded income tax expense of $0.1 million and $2.8 million to establish a valuation allowance against a deferred tax asset related to foreign tax credits at White Mountains Catskill Holdings, Inc., as White Mountains management is unsure it will generate sufficient taxable income to utilize the deferred tax asset. Non-U.S. Jurisdictions During 2019 and 2018, White Mountains recorded income tax expense of $1.1 million and $1.2 million to establish a valuation allowance against most of the deferred tax assets which primarily relate to losses on the write-down of foreign subsidiaries and the unrealized losses on investments held in Luxembourg-domiciled subsidiaries. During 2019 and 2018, White Mountains recorded income tax expense of $1.6 million and $2.1 million to establish a full 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 2019 and 2018, White Mountains recorded income tax expense of $1.3 million and $0.7 million to establish a full valuation allowance against deferred tax assets at certain U.K.-domiciled 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, 2019, the expiration dates and the deferred tax assets thereon:
|  | December 31, 2019
Millions |  | United States |  | Luxembourg |  | United Kingdom |  | Israel |  | Total
2019-2023 |  | $ | .1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | .1 |
2024-2028 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
2029-2038 |  | 302.6 |  |  | 58.0 |  |  | — |  |  | — |  |  | 360.6 |
No expiration date |  | 117.4 |  |  | 28.5 |  |  | 18.7 |  |  | 73.6 |  |  | 238.2 |
Total |  | $ | 420.1 |  |  | $ | 86.5 |  |  | $ | 18.7 |  |  | $ | 73.6 |  |  | $ | 598.9 |
Gross deferred tax asset |  | $ | 88.0 |  |  | $ | 21.6 |  |  | $ | 3.2 |  |  | $ | 16.9 |  |  | $ | 129.7 |
Valuation allowance |  | (63.5 | ) |  | (21.5 | ) |  | (3.0 | ) |  | (16.9 | ) |  | (104.9 | )
Net deferred tax asset |  | $ | 24.5 |  |  | $ | .1 |  |  | $ | .2 |  |  | $ | — |  |  | $ | 24.8 |
As of December 31, 2019, there are U.S. foreign tax credit carryforwards available of $3.8 million, which begin to expire in 2028. As of December 31, 2019, there are U.S. alternative minimum tax credit carryforwards of $0.4 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. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits from 2017 to 2019:
Millions |  | Permanent Differences (1) |  | Temporary Differences (2) |  | Interest and Penalties (3) |  | Total
Balance at December 31, 2016 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Changes in prior year tax positions |  | .1 |  |  | — |  |  | — |  |  | .1 |
Tax positions taken during the current year |  | .2 |  |  | — |  |  | — |  |  | .2 |
Balance at December 31, 2017 |  | .3 |  |  | — |  |  | — |  |  | .3 |
Changes in prior year tax positions |  | .8 |  |  | — |  |  | — |  |  | .8 |
Balance at December 31, 2018 |  | 1.1 |  |  | — |  |  | — |  |  | 1.1 |
Tax positions taken during the current year |  | 1.3 |  |  | — |  |  | — |  |  | 1.3 |
Balance at December 31, 2019 |  | $ | 2.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 2.4 |
(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, 2019, 2018 and 2017, White Mountains did not recognize any net interest (income) expense. There was no accrued interest as of December 31, 2019 and 2018. 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.

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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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