6. Income Taxes

The statutory income tax rates of the countries where the Company does business are 35% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25% on non-trading income, 33% 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. Generally, during interim periods, the Company will divide total estimated annual income tax expense by total estimated annual pre-tax income to determine the expected annual income tax rate used to compute the income tax provision. The expected annual income tax rate is then applied against interim pre-tax income, excluding net realized gains and losses and limited partnership distributions, and that amount is then added to the actual income taxes on net realized gains and losses, discrete items and limited partnership distributions. However, when there is significant volatility in the expected effective tax rate, the Company records its actual income tax provision in lieu of the estimated effective income tax rate. In 2015, the Company recorded its income tax provision using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

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 six months ended June 30, 2015 and 2014 were as follows:


Quarter Ended June 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	83,601		$	148,038		$	(65,124	)	$	166,515

Net premiums written	$	83,601		$	62,404		$	—		$	146,005

Net premiums earned	$	72,471		$	56,406		$	—		$	128,877
Net investment income		11,320			4,325			(6,504	)		9,141
Net realized investment gains (losses)		(118	)		6,650			—			6,532
Other income		13			564			—			577

Total revenues		83,686			67,945			(6,504	)		145,127
Losses and Expenses:
Net losses and loss adjustment expenses		39,621			39,939			—			79,560
Acquisition costs and other underwriting expenses		31,570			19,356			—			50,926
Corporate and other operating expenses		(334	)		4,668			—			4,334
Interest expense		430			6,609			(6,504	)		535

Income (loss) before income taxes	$	12,399		$	(2,627	)	$	—		$	9,772


Quarter Ended June 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross premiums written	$	51,328		$	60,555	$	(28,978	)	$	82,905

Net premiums written	$	50,312		$	26,060	$	—		$	76,372

Net premiums earned	$	40,959		$	25,058	$	—		$	66,017
Net investment income		7,583			4,905		(4,811	)		7,677
Net realized investment gains (losses)		(225	)		40,106		—			39,881
Other income (loss)		(5	)		160		—			155

Total revenues		48,312			70,229		(4,811	)		113,730
Losses and Expenses:
Net losses and loss adjustment expenses		12,921			25,349		—			38,270
Acquisition costs and other underwriting expenses		17,081			10,090		—			27,171
Corporate and other operating expenses		1,511			1,661		—			3,172
Interest expense		214			4,916		(4,811	)		319

Income before income taxes	$	16,585		$	28,213	$	—		$	44,798


Six Months Ended June 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	222,397		$	271,042		$	(184,055	)	$	309,384

Net premiums written	$	222,358		$	49,751		$	—		$	272,109

Net premiums earned	$	144,135		$	112,079		$	—		$	256,214
Net investment income		21,502			8,811			(12,931	)		17,382
Net realized investment gains (losses)		(387	)		3,949			—			3,562
Other income (loss)		(66	)		1,195			—			1,129

Total revenues		165,184			126,034			(12,931	)		278,287
Losses and Expenses:
Net losses and loss adjustment expenses		75,805			73,374			—			149,179
Acquisition costs and other underwriting expenses		61,864			37,320			—			99,184
Corporate and other operating expenses		1,747			14,127			—			15,874
Interest expense		824			13,147			(12,931	)		1,040

Income (loss) before income taxes	$	24,944		$	(11,934	)	$	—		$	13,010


Six Months Ended June 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	101,327		$	113,547		$	(54,772	)	$	160,102

Net premiums written	$	100,311		$	48,922		$	—		$	149,233

Net premiums earned	$	83,313		$	50,248		$	—		$	133,561
Net investment income		15,234			10,325			(9,598	)		15,961
Net realized investment gains		1,027			38,041			—			39,068
Other income (loss)		(3	)		326			—			323

Total revenues		99,571			98,940			(9,598	)		188,913
Losses and Expenses:
Net losses and loss adjustment expenses		32,879			43,963			—			76,842
Acquisition costs and other underwriting expenses		34,875			18,781			—			53,656
Corporate and other operating expenses		2,878			3,255			—			6,133
Interest expense		454			9,654			(9,598	)		510

Income before income taxes	$	28,485		$	23,287		$	—		$	51,772

The following table summarizes the components of income tax expense (benefit):


	Quarters Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2015			2014		2015			2014
Current income tax expense:
Foreign	$	70		$	61	$	161		$	125
U.S. Federal		(2,657	)		7,821		(1,547	)		7,551

Total current income tax expense (benefit)		(2,587	)		7,882		(1,386	)		7,676

Deferred income tax expense (benefit):
U.S. Federal		1,242			3,708		(3,515	)		2,065

Total deferred income tax expense (benefit)		1,242			3,708		(3,515	)		2,065

Total income tax expense (benefit)	$	(1,345	)	$	11,590	$	(4,901	)	$	9,741

The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:


	Quarters Ended June 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(848	)		(8.7	%)	$	9,925			22.2	%
Adjustments:
Tax exempt interest		(83	)		(0.8	)		(155	)		(0.3	)
Dividend exclusion		(258	)		(2.6	)		(479	)		(1.1	)
Effective tax rate adjustment		—			—			1,811			4.0
Other		(156	)		(1.6	)		488			1.1

Actual tax on continuing operations	$	(1,345	)		(13.7	%)	$	11,590			25.9	%

The effective income tax benefit rate for the quarter ended June 30, 2015 was 13.7%, compared to an effective income tax expense rate of 25.9%, for the quarter ended June 30, 2014. The decrease in the effective tax rate is primarily due to large capital gains in the quarter ended June 30, 2014. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.


	Six Months Ended June 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(4,015	)		(30.9	%)	$	8,263			16.0	%
Adjustments:
Tax exempt interest		(219	)		(1.7	)		(370	)		(0.7	)
Dividend exclusion		(413	)		(3.2	)		(957	)		(1.9	)
Effective tax rate adjustment		—			—			2,312			4.5
Other		(254	)		(2.0	)		493			0.9

Income tax expense (benefit)	$	(4,901	)		(37.8	%)	$	9,741			18.8	%

The effective income tax benefit rate for the six months ended June 30, 2015 was 37.8%, compared to an effective income tax expense rate of 18.8% for the six months ended June 30, 2014. The decrease in the effective tax rate is primarily due to expenses related to the acquisition of American Reliable Insurance Company in 2015 and large capital gains in 2014. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at June 30, 2015 and December 31, 2014 are presented below:


(Dollars in thousands)	June 30, 2015		December 31, 2014
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses	$	8,351	$	7,492
Unearned premiums		8,061		3,409
Alternative minimum tax credit carryover		10,473		10,473
Partnership K1 basis differences		145		145
Capital gain on derivative instruments		4,130		4,786
Investment impairments		1,097		379
Stock options		2,306		2,048
Deferred acquisition costs		1,606		187
Stat-to-GAAP reinsurance reserve		1,424		1,424
Intercompany transfers		1,807		1,919
Other		4,082		3,050

Total deferred tax assets		43,482		35,312

Deferred tax liabilities:
Intangible assets		6,218		3,220
Unrealized gain on securities available-for-sale and investments in limited partnerships included in accumulated other comprehensive income		8,390		10,263
Investment basis differences		979		692
Depreciation and amortization		129		16
Other		882		871

Total deferred tax liabilities		16,598		15,062

Total net deferred tax assets	$	26,884	$	20,250

Management believes it is more likely than not that the deferred tax assets will be fully utilized in future years. As a result, the Company has not recorded a valuation allowance at June 30, 2015 and December 31, 2014.

The Company has an alternative minimum tax credit carry forward of $10.5 million and $10.5 million as of June 30, 2015 and December 31, 2014, respectively, which can be carried forward indefinitely. The company has no net operating loss (“NOL”) carryforward as of June 30, 2015 or December 31, 2014.