Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Total income tax (benefit)/expense for the twelve months ended December 31, 2018, 2017 and 2016 was allocated as follows:



	Twelve Months Ended December 31,
	2018			2017			2016
	($ in millions)
Income tax (benefit)/expense allocated to net income	$	(10.2	)	$	(15.4	)	$	6.1
Income tax expense/(benefit) allocated to other comprehensive income	4.1			(17.4		)	(1.7		)
Income tax (benefit) allocated directly to shareholders’ equity	—			—			(1.0		)
Total income tax (benefit)/expense	$	(6.1	)	$	(32.8	)	$	3.4

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, 2018, 2017 and 2016 is provided in the tables below:



	Twelve Months Ended December 31, 2018
	(Loss)/income before tax			Current income tax (benefit)/expense			Deferred income tax (benefit)/expense			Total income tax (benefit)/expense
	($ in millions)
Bermuda	$	(72.1	)	$	—		$	—		$	—
U.S. ⁽¹⁾	(81.0		)	6.1			(8.1		)	(2.0		)
U.K.⁽²⁾	(4.7		)	(12.2		)	(0.1		)	(12.3		)
Other^{(3) (4)}	1.8			4.4			(0.3		)	4.1
Total	$	(156.0	)	$	(1.7	)	$	(8.5	)	$	(10.2	)

	Twelve Months Ended December 31, 2017
	(Loss)/income before tax			Current income tax (benefit)/expense			Deferred income tax (benefit)/expense			Total income tax (benefit)/expense
	($ in millions)
Bermuda	$	(130.0	)	$	—		$	—		$	—
U.S.	(140.3		)	—			1.1			1.1
U.K.	15.3			14.1			(33.3		)	(19.2		)
Other^{(3) (4)}	(26.8		)	3.0			(0.3		)	2.7
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 (benefit)/expense			Total income tax (benefit)/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⁽³⁾	(23.5		)	1.1			0.3			1.4
Total	$	209.5		$	(2.1	)	$	8.2		$	6.1

______________


⁽¹⁾	The $6.1 million current income tax expense relates to the base erosion and anti-abuse tax (“BEAT”) which applies to premiums ceded by U.S. subsidiaries to non-U.S. related parties.


⁽²⁾	In 2018, the current income tax benefit includes the release of a $12.8 million provision held against the potential disallowance of a prior period adjustment following the successful conclusion of a U.K. tax inquiry.


⁽³⁾	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.


⁽⁴⁾	Included within “Other” is $4.4 million (December 31, 2017 — $0.9 million) withholding tax payable in Australia in respect of reinsurance premiums payable to Aspen Bermuda by the Australian branch of Aspen U.K.

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, 2018, 2017 and 2016 is provided in the table below:



	Twelve Months Ended December 31,
	2018			2017			2016
Income Tax Reconciliation	($ in millions)
Expected tax (benefit)/expense	$	—		$	—		$	—
Overseas statutory tax rates differential	(17.1		)	(41.5		)	(19.3		)
Base erosion and anti-abuse tax expense	6.0			—			—
Prior year adjustments ⁽¹⁾	1.4			1.3			3.3
Valuation allowance	7.1			(37.9		)	21.0
Impact of unrecognized tax benefits⁽²⁾	(12.8		)	0.1			(1.9		)
Restricted foreign tax credits	—			0.7			1.9
Australian non-resident withholding tax	4.4			0.9			—
Share-based payments	0.2			(0.9		)	—
Foreign exchange	0.1			(2.1		)	0.2
Non-deductible expenses	0.7			0.4			0.8
Non-taxable items	(0.3		)	(0.9		)	(0.9		)
Impact of changes in statutory tax rates	0.1			64.5			1.0
Total income tax (benefit)/expense	$	(10.2	)	$	(15.4	)	$	6.1

________________

⁽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 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, 2018, 2017 and 2016 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 ultimately determined on an accurate basis after this report is filed.

⁽²⁾ For 2018, the $12.8 million benefit relates to the successful conclusion of a U.K. tax inquiry which enabled the release of a provision we had been holding against the potential disallowance of a prior period adjustment. For 2017, the $0.1 million charge relates to a $0.3 million benefit following the conclusion of a tax examination in respect of tax deductions for certain interest payments and accrued interest of $0.4 million in respect of the adjustment to equity reserves. For 2016, there was a $1.9 million credit primarily relating to the conclusion of a tax examination in respect of tax deductions for certain interest payments.

Schedule of Unrecognized Tax Benefits

As illustrated in the table below, unrecognized tax benefits were $Nil as at December 31, 2018. An unrecognized tax benefit of $11.0 million relating to U.K. prior period tax positions for the year 2011 was released during the year ended December 31, 2018 following the successful conclusion of a U.K. tax inquiry. 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.



	Twelve Months Ended December 31,
	2018			2017
	($ in millions)
Unrecognized tax benefits balance at January 1	$	11.2		$	10.5
Foreign exchange re-translation	(0.2		)	1.0
Prior year reductions	$	(11.0	)	(0.3		)
Unrecognized tax benefits balance at December 31	$	—		$	11.2

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, 2018 and 2017:



	As at December 31,
	2018			2017
	($ in millions)
Deferred tax assets:
Share-based payments	$	2.2		$	4.0
Operating loss carryforwards	126.4			102.5
Loss reserves	5.0			4.3
Unrealized losses on investments	0.8			—
Accrued expenses	7.9			7.9
Foreign tax credit carryforwards	3.8			4.0
Unearned premiums	15.5			11.8
Deferred policy acquisition costs	—			5.9
Office properties and equipment	11.1			8.0
Other temporary differences	3.3			2.9
Total gross deferred tax assets	176.0			151.3
Less valuation allowance	(111.9		)	(104.8		)
Net deferred tax assets	$	64.1		$	46.5

Deferred tax liabilities:
Intangible assets (other)	(2.5		)	(2.0		)
Deferred policy acquisition costs	(18.5		)	(14.5		)
Quota share losses	(0.6		)	—
Loss portfolio transfer costs	(6.1		)	—
Other temporary differences	(1.0		)	(1.7		)
Total gross deferred tax (liabilities)	(28.7		)	(18.2		)

Net deferred tax assets	$	35.4		$	28.3