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Income Taxes (Tables) | 9 Months Ended
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Sep. 30, 2015
Income before Income Taxes from its Non-U.S. Subsidiaries and U.S. Subsidiaries | 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, 2015 and 2014 were as follows:
Quarter Ended September 30, 2015: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 67,543 |  |  | $ | 140,268 |  |  | $ | (57,663 | ) |  | $ | 150,148 |
Net premiums written |  | $ | 67,534 |  |  | $ | 54,963 |  |  | $ | — |  |  | $ | 122,497 |
Net premiums earned |  | $ | 70,532 |  |  | $ | 54,175 |  |  | $ | — |  |  | $ | 124,707 |
Net investment income |  |  | 10,644 |  |  |  | 4,783 |  |  |  | (6,575 | ) |  |  | 8,852 |
Net realized investment losses |  |  | (1,256 | ) |  |  | (9,522 | ) |  |  | — |  |  |  | (10,778 | )
Other income |  |  | (11 | ) |  |  | 1,290 |  |  |  | — |  |  |  | 1,279 |
Total revenues |  |  | 79,909 |  |  |  | 50,726 |  |  |  | (6,575 | ) |  |  | 124,060 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 39,849 |  |  |  | 37,842 |  |  |  | — |  |  |  | 77,691 |
Acquisition costs and other underwriting expenses |  |  | 30,504 |  |  |  | 20,430 |  |  |  | — |  |  |  | 50,934 |
Corporate and other operating expenses |  |  | 1,648 |  |  |  | 1,919 |  |  |  | — |  |  |  | 3,567 |
Interest expense |  |  | 1,501 |  |  |  | 6,669 |  |  |  | (6,575 | ) |  |  | 1,595 |
Income (loss) before income taxes |  | $ | 6,407 |  |  | $ | (16,134 | ) |  | $ | — |  |  | $ | (9,727 | )
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 before income taxes |  | $ | 12,853 |  |  | $ | (4,725 | ) |  | $ | — |  |  | $ | 8,128 |
Nine Months Ended September 30, 2015: (Dollars in thousands) |  | Non-U.S. Subsidiaries |  |  | U.S. Subsidiaries |  |  | Eliminations |  |  | Total |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 289,940 |  |  | $ | 411,310 |  |  | $ | (241,718 | ) |  | $ | 459,532 |
Net premiums written |  | $ | 289,892 |  |  | $ | 104,714 |  |  | $ | — |  |  | $ | 394,606 |
Net premiums earned |  | $ | 214,667 |  |  | $ | 166,254 |  |  | $ | — |  |  | $ | 380,921 |
Net investment income |  |  | 32,146 |  |  |  | 13,594 |  |  |  | (19,506 | ) |  |  | 26,234 |
Net realized investment losses |  |  | (1,643 | ) |  |  | (5,573 | ) |  |  | — |  |  |  | (7,216 | )
Other income (loss) |  |  | (77 | ) |  |  | 2,485 |  |  |  | — |  |  |  | 2,408 |
Total revenues |  |  | 245,093 |  |  |  | 176,760 |  |  |  | (19,506 | ) |  |  | 402,347 |
Losses and Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net losses and loss adjustment expenses |  |  | 115,654 |  |  |  | 111,216 |  |  |  | — |  |  |  | 226,870 |
Acquisition costs and other underwriting expenses |  |  | 92,368 |  |  |  | 57,750 |  |  |  | — |  |  |  | 150,118 |
Corporate and other operating expenses |  |  | 3,395 |  |  |  | 16,046 |  |  |  | — |  |  |  | 19,441 |
Interest expense |  |  | 2,325 |  |  |  | 19,816 |  |  |  | (19,506 | ) |  |  | 2,635 |
Income (loss) before income taxes |  | $ | 31,351 |  |  | $ | (28,068 | ) |  | $ | — |  |  | $ | 3,283 |
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 |
Components of Income Tax Expense (Benefit) | The following table summarizes the components of income tax expense (benefit):
|  | Quarters Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in thousands) |  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign |  | $ | 67 |  |  | $ | 39 |  |  | $ | 228 |  |  | $ | 164 |
U.S. Federal |  |  | (579 | ) |  |  | (1,571 | ) |  |  | (2,126 | ) |  |  | 5,980 |
Total current income tax expense (benefit) |  |  | (512 | ) |  |  | (1,532 | ) |  |  | (1,898 | ) |  |  | 6,144 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (5,469 | ) |  |  | (101 | ) |  |  | (8,984 | ) |  |  | 1,964 |
Total deferred income tax expense (benefit) |  |  | (5,469 | ) |  |  | (101 | ) |  |  | (8,984 | ) |  |  | 1,964 |
Total income tax expense (benefit) |  | $ | (5,981 | ) |  | $ | (1,633 | ) |  | $ | (10,882 | ) |  | $ | 8,108 |
Differences in Tax and Estimated Tax Provisions at Weighted Average Tax Rate | 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 September 30, |
|  | 2015 |  |  | 2014 |
(Dollars in thousands) |  | Amount |  |  | % of Pre- Tax Income |  |  | Amount |  |  | % of Pre- Tax Income |
Expected tax provision at weighted average rate |  | $ | (5,580 | ) |  |  | (57.4 | %) |  | $ | (1,614 | ) |  |  | (19.9 | %)
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt interest |  |  | (107 | ) |  |  | (1.1 | ) |  |  | (120 | ) |  |  | (1.5 | )
Dividend exclusion |  |  | (175 | ) |  |  | (1.8 | ) |  |  | (229 | ) |  |  | (2.8 | )
Effective tax rate adjustment |  |  | — |  |  |  | 0.0 |  |  |  | 288 |  |  |  | 3.5 |
Other |  |  | (119 | ) |  |  | (1.2 | ) |  |  | 42 |  |  |  | 0.6 |
Actual tax on continuing operations |  | $ | (5,981 | ) |  |  | (61.5 | %) |  | $ | (1,633 | ) |  |  | (20.1 | %)
The effective income tax benefit rate for the quarter ended September 30, 2015 was 61.5%, compared to an effective income tax benefit rate of 20.1%, for the quarter ended September 30, 2014. The increase in the effective tax benefit rate is primarily due to capital losses in the quarter ended September 30, 2015. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.
|  | Nine Months Ended September 30, |
|  | 2015 |  |  | 2014 |
(Dollars in thousands) |  | Amount |  |  | % of Pre- Tax Income |  |  | Amount |  |  | % of Pre- Tax Income |
Expected tax provision at weighted average rate |  | $ | (9,595 | ) |  |  | (292.3 | %) |  | $ | 6,649 |  |  |  | 11.1 | %
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt interest |  |  | (326 | ) |  |  | (9.9 | ) |  |  | (490 | ) |  |  | (0.8 | )
Dividend exclusion |  |  | (588 | ) |  |  | (17.9 | ) |  |  | (1,186 | ) |  |  | (2.0 | )
Effective tax rate adjustment |  |  | — |  |  |  | 0.0 |  |  |  | 2,600 |  |  |  | 4.3 |
Other |  |  | (373 | ) |  |  | (11.4 | ) |  |  | 535 |  |  |  | 0.9 |
Actual tax on continuing operations |  | $ | (10,882 | ) |  |  | (331.5 | %) |  | $ | 8,108 |  |  |  | 13.5 | %
Tax Effects of Temporary Differences That Give Rise to Significant Portions of Net Deferred Tax Assets | The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at September 30, 2015 and December 31, 2014 are presented below:
(Dollars in thousands) |  | September 30, 2015 |  |  | December 31, 2014 |
Deferred tax assets: |  |  |  |  |  |  |  |
Discounted unpaid losses and loss adjustment expenses |  | $ | 8,739 |  |  | $ | 7,492 |
Unearned premiums |  |  | 8,117 |  |  |  | 3,409 |
Alternative minimum tax credit carryover |  |  | 10,587 |  |  |  | 10,473 |
Net operating loss carryforward |  |  | 6,264 |  |  |  | — |
Partnership K1 basis differences |  |  | 245 |  |  |  | 145 |
Capital gain on derivative instruments |  |  | 6,483 |  |  |  | 4,786 |
Investment impairments |  |  | 2,709 |  |  |  | 379 |
Stock options |  |  | 2,578 |  |  |  | 2,048 |
Deferred acquisition costs |  |  | 149 |  |  |  | 187 |
Stat-to-GAAP reinsurance reserve |  |  | 1,364 |  |  |  | 1,424 |
Intercompany transfers |  |  | 1,738 |  |  |  | 1,919 |
Depreciation and amortization |  |  | 93 |  |  |  | — |
Other |  |  | 4,115 |  |  |  | 3,050 |
Total deferred tax assets |  |  | 53,181 |  |  |  | 35,312 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
PGAAP adjustment for American Reliable |  |  | 6,095 |  |  |  | — |
Intangible assets |  |  | 4,615 |  |  |  | 3,220 |
Unrealized gain on securities available-for-sale and investments in limited partnerships included in accumulated other comprehensive income |  |  | 4,827 |  |  |  | 10,263 |
Investment basis differences |  |  | 1,066 |  |  |  | 692 |
Depreciation and amortization |  |  | — |  |  |  | 16 |
Other |  |  | 769 |  |  |  | 871 |
Total deferred tax liabilities |  |  | 17,372 |  |  |  | 15,062 |
Total net deferred tax assets |  | $ | 35,809 |  |  | $ | 20,250 |

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- Definition Tabular disclosure of the components of income tax expense attributable to continuing operations for each year presented including, but not limited to: current tax expense (benefit), deferred tax expense (benefit), investment tax credits, government grants, the benefits of operating loss carryforwards, tax expense that results from allocating certain tax benefits either directly to contributed capital or to reduce goodwill or other noncurrent intangible assets of an acquired entity, adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the entity, and adjustments of the beginning-of-the-year balances of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years. + References Reference 1: 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 + Details
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- Definition Tabular disclosure of the components of net deferred tax asset or liability recognized in an entity's statement of financial position, including the following: the total of all deferred tax liabilities, the total of all deferred tax assets, the total valuation allowance recognized for deferred tax assets. + References Reference 1: 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 + Details
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- Definition Tabular disclosure of the reconciliation using percentage or dollar amounts of the reported amount of income tax expense attributable to continuing operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32687-109319 + Details
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- Definition Tabular disclosure of income before income tax between domestic and foreign jurisdictions. + References Reference 1: 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)(1)(i)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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