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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
We are incorporated under the laws of Bermuda and, under current Bermuda law, are not obligated to pay any taxes in Bermuda based upon income or capital gains. We have received an undertaking from the Supervisor of Insurance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act, 2011, which exempts us from any Bermuda taxes computed on profits, income or any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, at least until the year 2035.
We do not consider ourselves to be engaged in a trade or business in the U.S. or the U.K. and, accordingly, do not expect to be subject to direct U.S. or U.K. income taxation.
We have subsidiaries based in the U.K. that are subject to the tax laws of that country. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Certain U.K. subsidiaries are deemed to be engaged in business in the U.S., and therefore, are subject to U.S. corporate tax in respect of a proportion of their U.S. underwriting business only. Relief is available against the U.K. tax liabilities in respect of overseas taxes paid that arise from the underwriting business. Our U.K. subsidiaries file separate U.K. income tax returns.
We have subsidiaries based in the U.S. that are subject to U.S. tax laws. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Our U.S. subsidiaries generally file a consolidated U.S. federal income tax return.
We also have operations in Belgium, Brazil, Ireland, Italy, Malta, Spain, and Switzerland, which also are subject to income taxes imposed by the jurisdiction in which they operate. We have operations in Barbados and the United Arab Emirates, which are not subject to income tax under the laws of those countries.
On June 10, 2021, U.K. tax legislation referred to as Finance Act 2021 received Royal Assent and was enacted. The effects of changes in tax laws and tax rates are recognized in the period of enactment. Accordingly, we recorded the impacts of Finance Act 2021 in our June 30, 2021 consolidated financial statements which primarily includes the remeasurement of our deferred tax assets and liabilities for the increased U.K. federal tax rate from 19% to 25% beginning on April 1, 2023. The remeasurement resulted in an increase of net deferred tax assets of $7.4 million. Subsequently, in the three months ended December 31, 2021 an additional increase of $0.9 million of net deferred tax assets were remeasured resulting in a cumulative deferred tax asset increase of $8.3 million for the period ending December 31, 2021.
The following table presents the components of income tax provision (benefit) included in the amounts reported in our consolidated financial statements:
 For the Years Ended December 31,
(in millions)202120202019
Current income tax provision (benefit) related to:
United States (Federal)$35.4 $28.0 $37.3 
United States (State)$2.4 $1.4 $1.7 
United Kingdom(2.2)(0.1)(1.5)
Other jurisdictions1.6 — (1)0.1 
Total current income tax provision37.2 29.3 37.6 
Deferred income tax provision (benefit) related to:
United States(26.3)(5.1)(17.7)
United Kingdom(12.3)(16.6)(5.8)
Other jurisdictions— 0.1 — 
Total deferred income tax (benefit)(38.6)(21.6)(23.5)
Income tax provision (benefit)$(1.4)$7.7 $14.1 
(1) Tax expense for the respective year was less than $0.1 million.
Our expected income tax provision (benefit) computed on pre-tax income (loss) at the weighted average tax rate has been calculated as the sum of the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. For the years ended December 31, 2021, 2020 and 2019, pre-tax income (loss) attributable to our operations and the operations’ effective tax rates were as follows:
(in millions)202120202019
 Pre-Tax
Income (Loss)
 
Effective
Tax
Rate		Pre-Tax
Income (Loss)		 Effective
Tax
Rate		Pre-Tax
Income (Loss)		 Effective
Tax
Rate
Bermuda$(18.0)— %$(56.2)— %$(34.7)— %
United States65.6 18.1 %103.3 22.7 %84.7 24.6 %
United Kingdom(61.1)24.4 %(100.6)15.7 %(45.9)14.9 %
Barbados— (1)— %— (1)— %— (1)— %
Belgium— — %0.2 30.7 %— (1)15.8 %
Brazil15.3 10.4 %3.9 — %5.2 — %
United Arab Emirates1.4 — %2.1 — %0.4 — %
Ireland (0.2)— %1.8 — %(0.1)— %
Italy1.4 — %0.6 — %(7.4)— %
Malta0.9 — %(1.4)— %(2.0)— %
Switzerland— (1)— %(0.1)— %(0.2)(0.2)%
Pre-tax income (loss)$5.3 (26.4)%$(46.4)(16.6)%$— — %(2)
(1) Pre-tax income for the respective year was less than $0.1 million.
(2) Not meaningful.
Our effective tax rate may vary significantly from period to period depending on the jurisdiction generating the pre-tax income (loss) and its corresponding statutory tax rate. The geographic distribution of pre-tax income (loss) can fluctuate significantly between periods given the inherent nature of our business. A reconciliation of the difference between the provision for income taxes and the expected tax provision (benefit) at the weighted average tax rate is as follows:
 For the Years Ended December 31,
(in millions)202120202019
Income tax provision (benefit) at expected rate$9.8 $4.0 $8.9 
Tax effect of:
Nontaxable investment income(0.5)(0.7)(1.2)
Foreign exchange adjustments(0.7)1.6 (0.1)
Impairment of goodwill8.2 1.0 2.9 
Withholding taxes0.1 0.1 0.2 
Change in uncertain tax position liability(4.5)0.7 1.4 
Change in valuation allowance(0.7)0.5 (1.8)
Impact of change in tax rate related to Finance Act 2021(8.3)— — 
Brazil Premiums and Underwriting(5.3)— — 
Other0.5 0.5 3.8 
Income tax provision (benefit) $(1.4)$7.7 $14.1 
The net deferred tax asset (liability) comprises the tax effects of temporary differences related to the following assets and liabilities:
 December 31,
(in millions)20212020
Deferred tax assets:
Losses and loss adjustment expense reserve discounting$35.4 $29.2 
Unearned premiums27.0 25.9 
Net operating loss carryforwards31.6 27.9 
Investment in limited partnership interests21.1 7.8 
Unrealized losses on equity securities8.6 — 
Investments— 2.0 
Right of use assets13.5 12.7 
Accrued bonus5.8 6.3 
Stock option expense1.1 0.7 
United Kingdom underwriting results28.1 21.9 
Other10.6 9.6 
Deferred tax assets, gross182.8 144.0 
Deferred tax liabilities:
Unrealized gains on equity securities— (5.7)
Unrealized gains on fixed maturities and other investment securities(4.8)(22.3)
Unrealized gains on limited partnership interests(26.3)(14.7)
Investments(5.1)— 
Depreciable fixed assets(7.9)(20.5)
Deferred acquisition costs(21.3)(20.4)
Lease liability(12.2)(11.7)
TCJA reserve transitional liability(2.1)(2.7)
Other(1.6)(0.7)
Deferred tax liabilities, gross(81.3)(98.7)
Deferred tax assets, net before valuation allowance$101.5 $45.3 
Valuation allowance(27.9)(28.6)
Deferred tax asset (liabilities), net$73.6 $16.7 
Net deferred tax assets (liabilities) - Other jurisdictions$35.0 $21.4 
Net deferred tax assets (liabilities) - United States38.6 (4.7)
Deferred tax asset (liabilities), net$73.6 $16.7 
Our gross deferred tax assets are supported by taxes paid in previous periods, reversal of taxable temporary differences and recognition of future taxable income. Management regularly evaluates the recoverability of the deferred tax assets and makes any necessary adjustments to them based upon any changes in management’s expectations of future taxable income. Realization of deferred tax assets is dependent upon our generation of future taxable income sufficient to recover tax benefits that cannot be recovered from taxes paid in the carryback period, generally for our U.S. property and casualty insurers two years for net operating losses and for all our U.S. subsidiaries three years for capital losses. If a company determines that any of its deferred tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of these assets that are not expected to be realized. The valuation allowance for deferred tax assets decreased by $(0.7) million in 2021 and primarily related to the following: Internal Revenue Code Section 382 limited net operating loss carryforwards within the U.S., cumulative losses incurred since inception, and valuation allowances acquired through or related to acquisitions. Based upon a review of our available evidence our management concluded that it is more-likely-than-not that the deferred tax assets will be realized.
For tax return purposes, as of December 31, 2021, we had NOL carryforwards in Brazil, Italy, Malta, United Kingdom, and the United States. The amount and timing of realizing the benefits of NOL carryforwards depend on future taxable income and limitations imposed by tax laws. Only a portion of the United States NOL carryforwards has been recognized as mentioned above in the consolidated financial statements and is included in net deferred tax assets. The NOL amounts by jurisdiction and year of expiration are as follows:

(in millions)December 31, 2021Expiration
Net operating loss carryforwards by jurisdiction:
Brazil6.6 Indefinite
Italy48.4 Indefinite
Malta13.7 Indefinite
United Kingdom17.2 Indefinite
United States40.6 2025 - 2037
For any uncertain tax positions not meeting the “more-likely-than-not” recognition threshold, accounting standards require recognition, measurement and disclosure in a company’s financial statements. Included in the balances at December 31, 2021 and 2020 were $3.6 million and $8.2 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. The Company believes it is reasonably possible that $0.6 million of the total amount of uncertain tax benefits will decrease within the next 12 months as a result of a lapse of the statute of limitations or settlement with taxing authorities. A net increase (decrease) of interest in the amount of $(1.0) million, $0.5 million, and $0.5 million has been recorded in the line item “Interest Expense” in our Consolidated Statements of Income (Loss) for the twelve months ended December 31, 2021, 2020, and 2019, respectively. A net increase (decrease) of penalty in the amount of $(0.8) million, $0.1 million, and $0.2 million has been recorded in the line item “Underwriting, acquisition and insurance expenses” in our Consolidated Statements of Income (Loss) for the twelve months ended December 31, 2021, 2020, and 2019, respectively.
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2021 and 2020:
(in millions)20212020
Balance at January 1$8.2 $7.5 
Additions for tax positions of prior years$— — 
Reductions for tax positions of prior years(0.3)— 
Additions based on tax positions related to current year$— 0.7 
Reductions based on tax positions related to current year— — 
Reductions based on settlements with taxing authorities(2.8)— 
Expiration of statute of limitations(1.5)— 
Balance at December 31$3.6 $8.2 
Our U.S. subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2018. Our U.K. subsidiaries are no longer subject to U.K. income tax examinations by Her Majesty’s Revenue and Customs for years before 2019.
As of December 31, 2021, our Texas Sales, Excise, and Use Tax returns for the periods January 1, 2017 through March 31, 2020 are under examination. At this time, the Company cannot reasonably estimate an assessment by the taxing authority. We do not expect the ultimate disposition of these audits to result in a material change in our financial position, results of operations, or liquidity.
Numerous foreign jurisdictions in which we operate have provided or proposed income-tax relief in response to the COVID-19 pandemic. The Company does not anticipate any of the recent legislative initiatives to have a material impact on its financial statements and will continue to analyze these initiatives in response to the COVID-19 pandemic.