Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Total income tax (benefit)/expense for the twelve months ended December 31, 2017, 2016 and 2015 was allocated as follows:



	Twelve Months Ended December 31,
	2017			2016			2015
	($ in millions)
Income tax (benefit)/expense allocated to net income	$	(15.4	)	$	6.1		$	14.4
Income tax (benefit) allocated to other comprehensive income	(17.4		)	(1.7		)	(15.3		)
Income tax (benefit) allocated directly to shareholders’ equity	—			(1.0		)	(1.9		)
Total income tax (benefit)/expense	$	(32.8	)	$	3.4		$	(2.8	)

Schedule of Income Tax by Taxing Authority

(Loss)/income from operations before income tax and income tax expense/(benefit) attributable to that income/(loss) for the twelve months ended December 31, 2017, 2016 and 2015 is provided in the tables below:



	Twelve Months Ended December 31, 2017
	(Loss)/income before tax			Current income tax expense/(benefit)			Deferred income tax (benefit)/expense			Total income tax (benefit)/expense
	($ in millions)
Bermuda ⁽¹⁾	$	(130.0	)	$	0.9		$	—		$	0.9
U.S.	(140.3		)	—			1.1			1.1
U.K.	15.3			14.1			(33.3		)	(19.2		)
Other⁽²⁾	(26.8		)	2.1			(0.3		)	1.8
Total	$	(281.8	)	$	17.1		$	(32.5	)	$	(15.4	)

	Twelve Months Ended December 31, 2016
	(Loss)/income before tax			Current income tax (benefit)/expense			Deferred income tax expense			Total income tax expense
	($ in millions)
Bermuda	$	259.5		$	—		$	—		$	—
U.S.	(70.2		)	—			2.5			2.5
U.K.	43.7			(3.2		)	5.4			2.2
Other⁽²⁾	(23.5		)	1.1			0.3			1.4
Total	$	209.5		$	(2.1	)	$	8.2		$	6.1

	Twelve Months Ended December 31, 2015
	(Loss)/income before tax			Current income tax expense			Deferred income tax (benefit)			Total income tax expense/(benefit)
	($ in millions)
Bermuda ⁽¹⁾	$	283.9		$	1.4		$	—		$	1.4
U.S.	(32.7		)	1.6			(4.1		)	(2.5		)
U.K.	79.9			15.5			(4.2		)	11.3
Other⁽²⁾	6.4			4.8			(0.6		)	4.2
Total	$	337.5		$	23.3		$	(8.9	)	$	14.4

______________


⁽¹⁾	Under Australian law, Aspen Bermuda is subject to tax on reinsurance premium it receives from the Australian branch of Aspen U.K.


⁽²⁾	Beginning from the twelve months ended December 31, 2017, the total income tax (benefit)/expense allocation table has been re-presented to show the branches of Aspen U.K. under the “Other” category with the exception of the U.S. branch which is reported under the “U.S.” category.

Income Tax Reconciliation

The reconciliation between the income tax (benefit)/expense and the statutory rate for the Company for the twelve months ended December 31, 2017 is provided in the table below:



	Twelve Months Ended December 31,
	2017			2016			2015
Income Tax Reconciliation	($ in millions)
Expected tax (benefit)/expense	$	—		$	—		$	—
Overseas statutory tax rates differential	(41.5		)	(19.3		)	6.4
Prior year adjustments ⁽¹⁾	1.3			3.3			(4.5		)
Valuation allowance	(37.9		)	21.0			11.8
Impact of unrecognized tax benefits⁽²⁾	0.1			(1.9		)	—
Restricted foreign tax credits	1.6			1.9			0.6
Share-based payments	(0.9		)	—			—
Foreign exchange	(2.1		)	0.2			(0.4		)
Non-deductible expenses	0.4			0.8			1.7
Non-taxable items	(0.9		)	(0.9		)	(1.3		)
Impact of changes in statutory tax rates	64.5			1.0			0.1
Total income tax (benefit)/expense	$	(15.4	)	$	6.1		$	14.4

________________

⁽¹⁾The submission dates for filing income tax returns for the Company’s U.S. and U.K. operating subsidiaries are after the submission date of the Company’s Annual Report on Form 10-K (this “report”). Accordingly, the final tax liabilities may differ from the estimated tax expense included in this report and may result in prior year adjustments being reported. The prior period adjustments for the twelve months ended December 31, 2017, 2016 and 2015 predominantly relate to the determination of results under U.K. GAAP, upon which the U.K. tax returns are based. These items can only be reasonably determined on an accurate basis after this report has been filed.

⁽²⁾ For 2017, the $0.1 million charge relates to a $0.3 million credit following the conclusion of a tax examination in respect of tax deductions for certain expenses and accrued interest of $0.4 million in respect of the adjustment of equity reserves. For 2016, the $1.9 million credit relates to a $3.2 million credit following the conclusion of a tax examination in respect of tax deductions for certain interest payments and accrued interest of $1.3 million in respect of the adjustment to equity reserves. For 2015, there was $Nil impact.

Schedule of Unrecognized Tax Benefits

As illustrated in the table below, unrecognized tax benefits totaled $11.2 million as at December 31, 2017 and relate to U.K. prior period tax positions for the year 2011. An unrecognized tax benefit of $0.3 million relating to tax deductions for certain expenses was released during the year ended December 31, 2017 following the completion of the U.K. tax authority review. If they are recognized, the unrecognized tax benefits would reduce the Company’s effective tax rate. It is possible that the unrecognized tax benefits could be eliminated following completion of tax examinations into these matters.



	Twelve Months Ended December 31,
	2017			2016
	($ in millions)
Unrecognized tax benefits balance at January 1	$	10.5		$	29.2
Foreign exchange re-translation	$	1.0		(3.4		)
Settlement in respect of tax position of prior years	$	(0.3	)	(15.3		)
Unrecognized tax benefits balance at December 31	$	11.2		$	10.5

Tax Effects of Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences and carryforwards that give rise to deferred tax assets and deferred tax liabilities are presented in the following table as at December 31, 2017 and 2016:



	As at December 31,
	2017			2016
	($ in millions)
Deferred tax assets:
Share-based payments	$	4.0		$	5.6
Operating loss carryforwards	102.5			124.5
Loss reserves	4.3			7.8
Accrued expenses	7.9			14.4
Foreign tax credit carryforwards	4.0			2.5
Unearned premiums	11.8			20.0
Deferred policy acquisition costs	5.9			2.1
Office properties and equipment	8.0			5.6
Other temporary differences	2.9			3.8
Total gross deferred tax assets	151.3			186.3
Less valuation allowance	(104.8		)	(142.5		)
Net deferred tax assets	$	46.5		$	43.8

Deferred tax liabilities:
Equalization provision reserves	$	—		$	(23.0	)
Intangible assets (other)	(2.0		)	(2.8		)
Deferred policy acquisition costs	(14.5		)	(22.4		)
Other temporary differences	(1.7		)	(1.7		)
Total gross deferred tax (liabilities)	(18.2		)	(49.9		)

Net deferred tax asset/(liability)	$	28.3		$	(6.1	)