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Income Taxes | 6 Months Ended
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Jun. 30, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | 22. Income Taxes We file consolidated federal income tax returns that include all of our wholly-owned subsidiaries. Our income tax expense as presented in the consolidated financial statements is summarized as follows:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
|  | (Dollars in millions)
Consolidated Statements of Operations: |  |  |  |  |  |  |  |
Current income tax |  | $ | 43 |  |  | $ | 8 |  |  | $ | 45 |  |  | $ | 14 |
Deferred income tax |  | (332) |  |  | 13 |  |  | (305) |  |  | 5 |
Total income tax expense included in Consolidated Statements of Operations |  | (289) |  |  | 21 |  |  | (260) |  |  | 19 |
Stockholders’ equity: |  |  |  |  |  |  |  |
Expense (benefit) relating to: |  |  |  |  |  |  |  |
Changes in other comprehensive income |  | 137 |  |  | (43) |  |  | 147 |  |  | (101) |
Total income tax expense included in consolidated financial statements |  | $ | (152) |  |  | $ | (22) |  |  | $ | (113) |  |  | $ | (82) |
Income tax expense in the Consolidated Statements of Operations differed from the amount computed at the applicable statutory federal income tax rates of 21% for the three and six months ended June 30, 2024 and 2023 as follows:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
|  | (Dollars in millions)
Net income (loss) before income taxes |  | $ | (42) |  |  | $ | 119 |  |  | $ | 101 |  |  | $ | 130 |
Total expected income tax expense at the statutory rate |  | $ | (9) |  |  | $ | 25 |  |  | $ | 21 |  |  | $ | 27 |
Tax effect of: |  |  |  |  |  |  |  |
Impact of Bermuda corporate income tax |  | (292) |  |  | — |  |  | (292) |  |  | — |
Tax exempt net investment income |  | — |  |  | (1) |  |  | (1) |  |  | (2) |
Non-deductible compensation |  | 16 |  |  | 1 |  |  | 17 |  |  | 1 |
Other |  | (4) |  |  | (4) |  |  | (5) |  |  | (7) |
Total income tax expense (recovery) |  | $ | (289) |  |  | $ | 21 |  |  | $ | (260) |  |  | $ | 19 |
The following table presents a reconciliation of income tax rate from statutory rate to effective rate:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (reduction) in rate resulting from: |  |  |  |  |  |  |  |
Impact of Bermuda corporate income tax |  | 702.2 | % |  | — | % |  | (287.9) | % |  | — | %
Tax exempt net investment income |  | 1.2 | % |  | (0.7) | % |  | (1.0) | % |  | (1.2) | %
Non-deductible compensation |  | (39.6) | % |  | 0.5 | % |  | 16.7 | % |  | 1.0 | %
Other |  | 10.4 | % |  | (3.3) | % |  | (5.4) | % |  | (6.6) | %
Effective income tax rate |  | 695.2 | % |  | 17.5 | % |  | (256.6) | % |  | 14.2 | %
Deferred income tax assets or liabilities are established for temporary differences between the financial reporting amounts and tax bases of assets and liabilities that will result in deductible of taxable amounts, respectively, in future years. The gross movement on the deferred tax asset is as follows:
|  | June 30, 2024 |  | December 31, 2023
|  | (Dollars in millions)
Deferred tax asset, beginning of year |  | $ | 291 |  |  | $ | 439 |
Recognized in net (income) loss |  | 305 |  |  | (56) |
Acquisition from business combination |  | (212) |  |  | — |
Recognized in equity |  | (147) |  |  | (90) |
Other |  | (4) |  |  | (2) |
Deferred tax asset, end of period |  | $ | 233 |  |  | $ | 291 |
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at June 30, 2024 and December 31, 2023 are as follows:
|  | June 30, 2024 |  | December 31, 2023
|  | (Dollars in millions)
Deferred income tax assets: |  |  |  |
Investments |  | $ | 1,452 |  |  | $ | 260 |
Amounts due reinsurer |  | 1,113 |  |  | — |
Policy benefit reserves |  | — |  |  | 138 |
Net operating loss carryforwards |  | 309 |  |  | 31 |
Bermuda tax asset |  | 377 |  |  | 35 |
Other |  | 29 |  |  | — |
Gross deferred tax assets before valuation allowance |  | 3,280 |  |  | 464 |
Valuation allowance |  | (5) |  |  | (5) |
Gross deferred tax assets after valuation allowance |  | 3,275 |  |  | 459 |
Deferred income tax liabilities: |  |  |  |
VOBA/Intangibles |  | 1,810 |  |  | — |
Deferred policy acquisition costs |  | 89 |  |  | 81 |
Policy benefit reserves |  | 1,086 |  |  | — |
Pension and liability for retirement benefits |  | 57 |  |  | 49 |
Other |  | — |  |  | 38 |
Gross deferred tax liabilities |  | 3,042 |  |  | 168 |
Net deferred income tax asset |  | $ | 233 |  |  | $ | 291 |
The Company, excluding certain of its life company subsidiaries which file a separate tax return, are a party to a tax sharing agreement with a US parent entity, BAMR US Holdings, LLC. In accordance with the agreement, if the Company has taxable income, it pays its share of the consolidated federal income tax liability to its parent. However, if the Company incurs a tax loss, the tax benefit is recovered by decreasing subsequent year’s federal income tax payments to its parent. The Company evaluates its deferred tax asset based on, among other factors, historical operating results, expectation of future profitability, and the duration of the applicable statutory carryforward periods for tax attributes. Based on the evaluation of the deferred tax asset as of June 30, 2024, the Company determined that the deferred tax asset would be realized within the applicable statutory carryforward. There were no material income tax contingencies requiring recognition in our consolidated financial statements as of June 30, 2024. Our tax returns are subject to audit by various federal, state and local tax authorities. The Company's income tax returns are subject to examination by the IRS and state tax authorities, generally for three years after they are due or filed, whichever is later. At June 30, 2024 and December 31, 2023, we had federal net operating losses of $1.5 billion and $134 million, respectively. Federal net operating losses can be carried forward indefinitely. Additionally, at June 30, 2024 and December 31, 2023, we had $3 million and $3 million, respectively, of tax credit carryforwards for federal income tax purposes that can be carried forward for 10 years. On August 16, 2022, the Inflation Reduction Act (the "Act") was signed into law. The Act included several tax provisions including a corporate alternative minimum tax ("CAMT"). For the year ended December 31, 2024, the Company expects to meet the requirements under which it will be subject to the CAMT. For the six months ended June 30, 2024, current tax expense of $43 million includes a $9 million provision CAMT liability. Under the CAMT, the liability, can be credited against future ordinary income tax liabilities. As such, we recorded an offsetting deferred tax benefit. Introduction of Pillar Two The Organization for Economic Cooperation and Development (“OECD”) and its member countries with support from the G20, have proposed the enactment of a global minimum tax of 15% for Multinational Enterprise (“MNE”) groups with global annual revenue of €750 million or more (“Pillar Two”). The Company may become subject to additional income taxes as a result of these proposals, as enacted locally across jurisdictions. The Company’s wholly owned subsidiary, Freestone, is incorporated under the laws of Bermuda and is not required to pay any taxes in Bermuda based upon income or capital gains. However, in December 2023, the Government of Bermuda enacted a corporate income tax (“CIT”) regime, designed to align with the OECD’s global minimum tax rules. Effective January 1, 2025, the regime applies a 15% CIT to Bermuda businesses that are part of MNE groups with annual revenue of €750 million or more. As a result of this new regime, the Company recognized a deferred tax benefit of $35 million as of December 31, 2023. In 2024, the Government of Bermuda released further guidance on the calculation and formulation of the CIT. As a result, in 2024, we recorded deferred tax benefits of $292 million (through deferred tax expense) and $50 million (via acquisition accounting for AEL) which increased our Bermuda CIT related deferred tax asset to $377 million. We will continue to monitor developments prior to the commencement of this regime.

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