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Income Taxes | 9 Months Ended
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Sep. 30, 2014
Income Taxes |
5. | Income Taxes
The statutory income tax rates of the countries where the Company does business are 35.0% in the United States, 0.0% in Bermuda, 0.0% in the Cayman Islands, 0.0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25.0% on non-trading income, 33.0% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the expected annual taxable income of the Company in each country to estimate the annual income tax expense. Total estimated annual income tax expense is divided by total estimated annual pre-tax income to determine the expected annual income tax rate used to compute the income tax provision. On an interim basis, the expected annual income tax rate is applied against interim pre-tax income, excluding net realized gains and losses and discrete items such as limited partnership distributions and make whole provisions, and then that amount is added to income taxes on net realized gains and losses and discrete items. The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share and stop-loss agreements between Global Indemnity Reinsurance and the Insurance Operations, for the quarters and nine months ended September 30, 2014 and 2013 were as follows:
Quarter Ended September 30, 2014: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 38,387 |  |  | $ | 56,491 |  |  | $ | (27,780 | ) |  | $ | 67,098 |
Net premiums written |  | $ | 38,366 |  |  | $ | 24,896 |  |  | $ | — |  |  | $ | 63,262 |
Net premiums earned |  | $ | 43,238 |  |  | $ | 24,790 |  |  | $ | — |  |  | $ | 68,028 |
Net investment income |  |  | 7,713 |  |  |  | 3,655 |  |  |  | (4,841 | ) |  |  | 6,527 |
Net realized investment gains (losses) |  |  | (10 | ) |  |  | 1,168 |  |  |  | — |  |  |  | 1,158 |
Other income (loss) |  |  | (38 | ) |  |  | 164 |  |  |  | — |  |  |  | 126 |
Total revenues |  |  | 50,903 |  |  |  | 29,777 |  |  |  | (4,841 | ) |  |  | 75,839 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 18,939 |  |  |  | 17,715 |  |  |  | — |  |  |  | 36,654 |
Acquisition costs and other underwriting expenses |  |  | 17,762 |  |  |  | 9,696 |  |  |  | — |  |  |  | 27,458 |
Corporate and other operating expenses |  |  | 1,156 |  |  |  | 2,325 |  |  |  | — |  |  |  | 3,481 |
Interest expense |  |  | 193 |  |  |  | 4,766 |  |  |  | (4,841 | ) |  |  | 118 |
Income (loss) before income taxes |  | $ | 12,853 |  |  | $ | (4,725 | ) |  | $ | — |  |  | $ | 8,128 |
Quarter Ended September 30, 2013: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 37,676 |  |  | $ | 59,746 |  |  | $ | (28,637 | ) |  | $ | 68,785 |
Net premiums written |  | $ | 37,673 |  |  | $ | 26,357 |  |  | $ | — |  |  | $ | 64,030 |
Net premiums earned |  | $ | 40,282 |  |  | $ | 24,187 |  |  | $ | — |  |  | $ | 64,469 |
Net investment income |  |  | 8,443 |  |  |  | 4,983 |  |  |  | (4,940 | ) |  |  | 8,486 |
Net realized investment gains (losses) |  |  | (180 | ) |  |  | 1,821 |  |  |  | — |  |  |  | 1,641 |
Other income |  |  | 21 |  |  |  | 162 |  |  |  | — |  |  |  | 183 |
Total revenues |  |  | 48,566 |  |  |  | 31,153 |  |  |  | (4,940 | ) |  |  | 74,779 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 18,300 |  |  |  | 17,183 |  |  |  | — |  |  |  | 35,483 |
Acquisition costs and other underwriting expenses |  |  | 17,009 |  |  |  | 11,019 |  |  |  | — |  |  |  | 28,028 |
Corporate and other operating expenses |  |  | 663 |  |  |  | 1,964 |  |  |  | — |  |  |  | 2,627 |
Interest expense |  |  | 292 |  |  |  | 8,233 |  |  |  | (4,940 | ) |  |  | 3,585 |
Income (loss) before income taxes |  | $ | 12,302 |  |  | $ | (7,246 | ) |  | $ | — |  |  | $ | 5,056 |
Nine Months Ended September 30, 2014: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 139,714 |  |  | $ | 170,038 |  |  | $ | (82,552 | ) |  | $ | 227,200 |
Net premiums written |  | $ | 138,677 |  |  | $ | 73,818 |  |  | $ | — |  |  | $ | 212,495 |
Net premiums earned |  | $ | 126,551 |  |  | $ | 75,038 |  |  | $ | — |  |  | $ | 201,589 |
Net investment income |  |  | 22,947 |  |  |  | 13,980 |  |  |  | (14,439 | ) |  |  | 22,488 |
Net realized investment gains |  |  | 1,017 |  |  |  | 39,209 |  |  |  | — |  |  |  | 40,226 |
Other income (loss) |  |  | (41 | ) |  |  | 490 |  |  |  | — |  |  |  | 449 |
Total revenues |  |  | 150,474 |  |  |  | 128,717 |  |  |  | (14,439 | ) |  |  | 264,752 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 51,818 |  |  |  | 61,678 |  |  |  | — |  |  |  | 113,496 |
Acquisition costs and other underwriting expenses |  |  | 52,637 |  |  |  | 28,477 |  |  |  | — |  |  |  | 81,114 |
Corporate and other operating expenses |  |  | 4,034 |  |  |  | 5,580 |  |  |  | — |  |  |  | 9,614 |
Interest expense |  |  | 647 |  |  |  | 14,420 |  |  |  | (14,439 | ) |  |  | 628 |
Income before income taxes |  | $ | 41,338 |  |  | $ | 18,562 |  |  | $ | — |  |  | $ | 59,900 |
Nine Months Ended September 30, 2013: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 137,974 |  |  | $ | 172,713 |  |  | $ | (82,718 | ) |  | $ | 227,969 |
Net premiums written |  | $ | 137,563 |  |  | $ | 76,291 |  |  | $ | — |  |  | $ | 213,854 |
Net premiums earned |  | $ | 110,944 |  |  | $ | 68,192 |  |  | $ | — |  |  | $ | 179,136 |
Net investment income |  |  | 27,217 |  |  |  | 15,778 |  |  |  | (14,710 | ) |  |  | 28,285 |
Net realized investment gains |  |  | 66 |  |  |  | 10,138 |  |  |  | — |  |  |  | 10,204 |
Other income (loss) |  |  | (7 | ) |  |  | 491 |  |  |  | — |  |  |  | 484 |
Total revenues |  |  | 138,220 |  |  |  | 94,599 |  |  |  | (14,710 | ) |  |  | 218,109 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 51,709 |  |  |  | 50,486 |  |  |  | — |  |  |  | 102,195 |
Acquisition costs and other underwriting expenses |  |  | 46,600 |  |  |  | 30,377 |  |  |  | — |  |  |  | 76,977 |
Corporate and other operating expenses |  |  | 3,268 |  |  |  | 4,176 |  |  |  | — |  |  |  | 7,444 |
Interest expense |  |  | 918 |  |  |  | 19,731 |  |  |  | (14,710 | ) |  |  | 5,939 |
Income (loss) before income taxes |  | $ | 35,725 |  |  | $ | (10,171 | ) |  | $ | — |  |  | $ | 25,554 |
The following table summarizes the components of income tax expense (benefit):
|  | Quarters Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Current income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign |  | $ | 39 |  |  | $ | 51 |  |  | $ | 164 |  |  | $ | 125 |
U.S. Federal |  |  | (1,571 | ) |  |  | (2,461 | ) |  |  | 5,980 |  |  |  | (851 | )
Total current income tax expense (benefit) |  |  | (1,532 | ) |  |  | (2,410 | ) |  |  | 6,144 |  |  |  | (726 | )
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (101 | ) |  |  | 518 |  |  |  | 1,964 |  |  |  | (1,697 | )
Total deferred income tax expense (benefit) |  |  | (101 | ) |  |  | 518 |  |  |  | 1,964 |  |  |  | (1,697 | )
Total income tax expense (benefit) |  | $ | (1,633 | ) |  | $ | (1,892 | ) |  | $ | 8,108 |  |  | $ | (2,423 | )
The weighted average expected tax provision has been calculated using income before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. The following tables summarize the differences between the effective income tax provisions under accounting guidance applicable to interim financial statement periods and the expected tax provision at the weighted average tax rate:
|  | Quarters Ended September 30, |
|  | 2014 |  |  | 2013 |
(Dollars in thousands) |  | Amount |  |  | % of Pre- Tax Income |  |  | Amount |  |  | % of Pre- Tax Income |
Expected tax provision at weighted average rate |  | $ | (1,614 | ) |  |  | (19.9 | %) |  | $ | (2,500 | ) |  |  | (49.5 | %)
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt interest |  |  | (120 | ) |  |  | (1.5 | ) |  |  | (248 | ) |  |  | (4.9 | )
Dividend exclusion |  |  | (229 | ) |  |  | (2.8 | ) |  |  | (292 | ) |  |  | (5.8 | )
Effective tax rate adjustment |  |  | 288 |  |  |  | 3.5 |  |  |  | 1,033 |  |  |  | 20.4 |
Other |  |  | 42 |  |  |  | 0.6 |  |  |  | 115 |  |  |  | 2.4 |
Effective income tax benefit |  | $ | (1,633 | ) |  |  | (20.1 | %) |  | $ | (1,892 | ) |  |  | (37.4 | %)
The effective income tax benefit rate for the quarter ended September 30, 2014 was 20.1%, compared to an effective income tax benefit rate of 37.4% for the quarter ended September 30, 2013. The increase in the effective tax rate is primarily due to a make-whole payment of $2.9 million related to the early prepayment of the guaranteed senior notes during the quarter ended September 30, 2013. Any difference between the actual tax rate on an interim basis compared to the expected annual tax rate is reflected in the effective tax rate adjustment. The effective income tax benefit rate of 20.1% and 37.4% for the quarters ended September 30, 2014 and 2013, respectively, differed from the weighted average expected income tax benefit rate of 19.9% and 49.5% for the quarters ended September 30, 2014 and 2013, respectively, due to the fact that the Company records income tax expense on an interim basis using the projected annual effective tax rate, net of tax-exempt interest and dividends.
|  | Nine Months Ended September 30, |
|  | 2014 |  |  | 2013 |
(Dollars in thousands) |  | Amount |  |  | % of Pre- Tax Income |  |  | Amount |  |  | % of Pre- Tax Income |
Expected tax provision at weighted average rate |  | $ | 6,649 |  |  |  | 11.1 | % |  | $ | (3,450 | ) |  |  | (13.5 | %)
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt interest |  |  | (490 | ) |  |  | (0.8 | ) |  |  | (804 | ) |  |  | (3.1 | )
Dividend exclusion |  |  | (1,186 | ) |  |  | (2.0 | ) |  |  | (880 | ) |  |  | (3.4 | )
Effective tax rate adjustment |  |  | 2,600 |  |  |  | 4.3 |  |  |  | 2,565 |  |  |  | 10.0 |
Other |  |  | 535 |  |  |  | 0.9 |  |  |  | 146 |  |  |  | 0.5 |
Effective income tax expense (benefit) |  | $ | 8,108 |  |  |  | 13.5 | % |  | $ | (2,423 | ) |  |  | (9.5 | %)
The effective income tax expense rate for the nine months ended September 30, 2014 was 13.5%, compared to an effective income tax benefit rate of 9.5% for the nine months ended September 30, 2013. The increase in the effective tax rate is primarily due to an increase in capital gains in 2014. Any difference between the actual tax rate on an interim basis compared to the expected annual tax rate is reflected in the effective tax rate adjustment. The effective income tax expense rate of 13.5% and the effective income tax benefit rate of 9.5% for the nine months ended September 30, 2014 and 2013, respectively, differed from the weighted average expected income tax expense rate of 11.1% and weighted average expected income tax benefit rate of 13.5% for the nine months ended September 30, 2014 and 2013, respectively, due to the fact that the Company records income tax expense on an interim basis using the projected annual effective tax rate, net of tax-exempt interest and dividends. The Company has an alternative minimum tax credit carry forward of $9.9 million as of September 30, 2014 and December 31, 2013 which can be carried forward indefinitely. The company no longer has a net operating loss (“NOL”) carryforward as of September 30, 2014. The NOL carryforward was $1.2 million at December 31, 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://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=6907707&loc=d3e32718-109319 Reference 2: 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 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 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=6907707&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=6907707&loc=d3e32537-109319 Reference 6: 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=6907707&loc=d3e32559-109319 + Details
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