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Income Taxes | 9 Months Ended
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Sep. 30, 2015
Income Taxes | 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 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 |
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 |
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 | %
The effective income tax benefit rate for the nine months ended September 30, 2015 was 331.5%, compared to an effective income tax expense rate of 13.5% for the nine months ended September 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 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 |
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 September 30, 2015 and December 31, 2014. The Company has an alternative minimum tax credit carry forward of $10.6 million and $10.5 million as of September 30, 2015 and December 31, 2014, respectively, which can be carried forward indefinitely. The company has a net operating loss (“NOL”) carryforward of $6.3 million as of September 30, 2015. The company has no NOL carryforward as of December 31, 2014.

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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 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 2: 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 Reference 3: 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 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 + Details
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