v2.4.0.6

Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes | ## 16. Income Taxes The provision for income taxes consists of the following for the years ended December 31, 2011, 2010 and 2009:
(Amounts in Thousands) Income Tax Provision (Benefit) |  | 2011 |  | 2010 |  | 2009
Current expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 11,147 |  |  | $ | 20,693 |  |  | $ | 11,856 |
Foreign |  |  | 21,345 |  |  |  | 9,165 |  |  |  | 3,321 |
Total current tax expense |  |  | 32,492 |  |  |  | 29,858 |  |  |  | 15,177 |
Deferred expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 40,462 |  |  | $ | 35,623 |  |  | $ | 19,683 |
Foreign |  |  | (30,582 | ) |  |  | (18,428 | ) |  |  | (7,401 | )
Total deferred tax expense |  |  | 9,880 |  |  |  | 17,195 |  |  |  | 12,282 |
Total income tax expense |  | $ | 42,372 |  |  | $ | 47,053 |  |  | $ | 27,459 |
The following table is a reconciliation of the Company’s statutory income tax expense to its effective tax rate for the years ended December 31, 2011, 2010 and 2009:
(Amounts in Thousands) |  | 2011 |  | 2010 |  | 2009
Effective tax rate |  |  |  |  |  |  |  |  |  |  |  |
Income before equity in earnings (loss) of unconsolidated subsidiaries |  | $ | 228,654 |  |  | $ | 171,401 |  |  | $ | 131,504 |
Tax at federal statutory rate of 35% |  | $ | 80,029 |  |  | $ | 59,990 |  |  | $ | 46,026 |
Tax effects resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Net income of non-includible foreign subsidiaries |  |  | (29,063 | ) |  |  | (19,483 | ) |  |  | (12,905 | )
Foreign currency gain |  |  | 861 |  |  |  | (247 | ) |  |  | (864 | )
Other, net |  |  | (9,455 | ) |  |  | 6,793 |  |  |  | (4,798 | )
|  | $ | 42,372 |  |  | $ | 47,053 |  |  | $ | 27,459 |
Effective tax rate |  |  | 18.5 | % |  |  | 27.5 | % |  |  | 20.9 | %
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, 2011 and 2010 are shown below:
(Amounts in Thousands) |  | 2011 |  | 2010
Deferred tax assets: |  |  |  |  |  |  |  |
Unearned premiums |  | $ | 55,140 |  |  | $ | 37,930 |
Ceding commission |  |  | 49,882 |  |  |  | 31,749 |
Other |  |  | 15,164 |  |  |  | 12,195 |
Carryforward loss |  |  | 14,579 |  |  |  | 20,990 |
Bad debt |  |  | 4,904 |  |  |  | 4,628 |
Deferred compensation |  |  | 4,837 |  |  |  | 4,132 |
Losses and LAE reserves |  |  | — |  |  |  | 6,718 |
|  | $ | 144,506 |  |  | $ | 118,342 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Deferred acquisition costs |  | $ | (147,819 | ) |  | $ | (110,384 | )
Losses and LAE reserves |  |  | (56,869 | ) |  |  | — |
Intangible assets |  |  | (17,175 | ) |  |  | — |
Depreciation |  |  | (12,379 | ) |  |  | (5,501 | )
Equity results which cannot be liquidated tax free |  |  | (8,796 | ) |  |  | (4,179 | )
Other |  |  | (6,299 | ) |  |  | (4,610 | )
Accrual market discount |  |  | (2,062 | ) |  |  | (1,674 | )
Cash surrender value on insurance |  |  | (1,882 | ) |  |  | (1,877 | )
|  |  | (253,281 | ) |  |  | (128,225 | )
Deferred tax liability, net |  | $ | (108,775 | ) |  | $ | (9,883 | )
The Company’s management believes that it will realize the benefits of its deferred tax asset and, accordingly, no valuation allowance has been recorded for the periods presented. A provision has not been made for the U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries, which have been, and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were loaned to the parent entity or a U.S. affiliate, or if the Company should sell its stock in its foreign subsidiaries. It is not practicable to determine the amount of additional tax, if any, that might be payable on foreign earnings. The deferred tax liability related to loss and LAE reserves of $56,869 includes a deferred tax liability of $88,576 for equalization reserves that were acquired as part of the AmTrust Re 2007, AmTrust Re Alpha, AmTrust Re Kappa, and AmTrust Re Zeta acquisitions. The Company’s major taxing jurisdictions include the U.S. (federal and state), the United Kingdom and Ireland. The years subject to potential audit vary depending on the tax jurisdiction. Generally, the Company’s statute of limitation is open for tax years ended December 31, 2007 and forward. As permitted by FASB ASC 740-10, the Company adopted an accounting policy to prospectively classify accrued interest and penalties related to any unrecognized tax benefits in its income tax provision. Previously, the Company’s policy was to classify interest and penalties as an operating expense in arriving at pre-tax income. At December 31, 2011, the Company does not have any accrued interest and penalties related to unrecognized tax benefits in accordance with FASB ASC 740-10. The earnings of certain of the Company’s foreign subsidiaries have been indefinitely reinvested in foreign operations. Therefore, no provision has been made for any U.S. taxes or foreign withholding taxes that may be applicable upon any repatriation or sale. The determination of any unrecognized deferred tax liability for temporary differences related to investments in certain of the Company’s foreign subsidiaries is not practicable. At December 31, 2011 and 2010, the financial reporting basis in excess of the tax basis for which no deferred taxes have been recognized was approximately $223,000 and $163,400, respectively. A reconciliation of the total amounts of gross unrecognized tax benefits is as follows:
(Amounts in Thousands) |  | 2011 |  | 2010
Gross unrecognized tax benefit as of January 1 |  | $ | 1,017 |  |  | $ | 5,293 |
Decreases in tax positions for prior years |  |  | (1,017 | ) |  |  | (4,325 | )
Increases in tax positions for prior years |  |  | — |  |  |  | 49 |
Decreases in tax positions for current year |  |  | — |  |  |  | — |
Increases in tax positions for current year |  |  | — |  |  |  | — |
Lapse in statute of limitations |  |  | — |  |  |  | — |
Settlements |  |  | — |  |  |  | — |
Gross unrecognized tax benefits as of December 31 |  | $ | — |  |  | $ | 1,017 |
Listed below are the tax years that remain subject to examination by major tax jurisdictions:
|  | Open Tax Years
Major tax jurisdictions: |  |  |  |
United States |  |  | 2008 – 2011 |
United Kingdom |  |  | 2009 – 2011 |
Ireland |  |  | 2007 – 2011

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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 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 6: 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 7: 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 8: 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=6881521&loc=d3e23780-122690 + Details
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