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Income Taxes
 3 Months Ended
Mar. 31, 2023
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 Amendment 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.
Argo Group International Holdings, Ltd. does not consider itself to be engaged in a trade or business in the U.S. or the U.K. and, accordingly, does 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 of the 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. On February 2, 2023, Argo completed the sale of the entire issued share capital of AUA. Refer to the sale of AUA in Note 1, “Business and Significant Accounting Policies” for additional information.
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 file a consolidated U.S. federal income tax return.
We also have operations in Ireland and Italy which also are subject to income taxes imposed by the jurisdiction in which they operate. Additionally, we have operations in Barbados which is not subject to income tax under the laws of those countries.
Our expected income tax provision 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 three months ended March 31, 2023 and 2022, pre-tax income (loss) attributable to our operations and the corresponding operations’ effective tax rates were as follows: 
For the Three Months Ended March 31,
20232022
(in millions)Pre-Tax
Income (Loss)		Effective
Tax
Rate		Pre-Tax
Income (Loss)		Effective
Tax
Rate
Bermuda$(15.2)— %$(0.2)— %
United States(7.3)19.7 %38.8 21.9 %
United Kingdom(20.1)35.4 %5.0 80.8 %
Barbados— 
(1)
— %— — %
Brazil— — %(0.1)(422.4)%
United Arab Emirates0.3 — %0.6 — %
Ireland— 
(1)
— %(33.3)— %
Italy— 
(1)
— %0.1 138.1 %
Malta— — %1.1 — %
Pre-tax income (loss)$(42.3)20.1 %$12.0 109.7 %
(1)Pre-tax income (loss) for the respective year was less than $0.1 million.
Our effective tax rate may vary significantly from period to period depending on the jurisdiction generating the pre-tax income (loss) and its corresponding statutory tax rate. The geographic distribution of pre-tax income (loss) can fluctuate significantly between periods given the inherent nature of our business.
A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate is as follows:
For the Three Months Ended
March 31,
(in millions)20232022
Income tax provision at expected rate$(5.4)$9.4 
Tax effect of:
Nontaxable investment income— 
(1)
(0.1)
Foreign exchange adjustments(2.6)0.1 
Sale of Brazil and Malta Operations— 1.6 
Change in uncertain tax position liability— 0.1 
Change in valuation allowance— (1.8)
Impact of change in tax rate related to Finance Act 2021(0.5)0.5 
Prior period adjustment— 2.0 
Other— 1.2 
Income tax provision (benefit)$(8.5)$13.0 
(1)Rate impact for the respective year was less than $0.1 million.
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. For the three months ended March 31, 2023, the net change in valuation allowance for deferred tax assets was $0.0 million. Existing valuation allowances pertain to the following: Internal Revenue Code Section 382 limited net operating loss carryforwards within the United States, cumulative losses incurred since inception, and valuation allowances acquired through or related to acquisitions or disposals. Based upon a review of our available evidence, both positive and negative discussed above, our management concluded that it is more-likely-than-not that the other deferred tax assets will be realized.
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. For the three months ended March 31, 2023, the Company had no change to uncertain tax positions related to federal or state income tax liability. A net increase of interest in the amount of $0.1 million has been recorded in the line item Interest expense in our Consolidated Statements of Income (Loss) for the three months ended March 31, 2023. No change to penalties were recorded for the three months ended March 31, 2023.
Our U.S. subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2019. Our U.K. subsidiaries are no longer subject to U.K. income tax examinations by His Majesty’s Revenue and Customs for years before 2014 (in respect of Ariel Corporate Member Limited), and 2020 (in respect of Argo International Holdings Limited).