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.