Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company was incorporated under the laws of Bermuda until November 30, 2023. Under Bermuda law, the Company was not obligated to pay any taxes in Bermuda based upon income or capital gains. We previously received an undertaking from the Supervisor of Insurance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act, 2011, which exempted 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. As of November 30, 2023, the Company redomiciled from Bermuda to the United States. In connection with redomiciling from Bermuda to the United States, the Company’s pre-tax loss is reported in Bermuda for the predecessor period. No tax is associated with this entity during the predecessor period. Subsequent to redomiciling, the Company pre-tax loss and tax benefit is reported in the United States for the successor period. Separately, Argo Re is in the process of completing an Internal Revenue Code Section 953(d) election to treat the entity as a U.S. taxpayer. The election is deemed retroactive to the period beginning January 1, 2023. Argo Re pre-tax loss for the predecessor period is reported in Bermuda. The retroactive United States tax benefit incurred for the predecessor period is reflected in purchase accounting. Argo Re pre-tax loss and tax benefit is reported in the United States for the successor period.

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. Beginning January 1, 2024, our U.S. subsidiaries file a consolidated U.S. federal income tax return with BAMR US Holdings LLC, a subsidiary of Brookfield Wealth Solutions Ltd.

We also have operations in United Kingdom, Ireland, and Italy which are subject to income taxes imposed by the jurisdiction in which they operate. In addition, we have an operation in Barbados which is not subject to income tax under the laws of that country.

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. tax rate from 19% to 25% beginning on April 1, 2023.

On August 16, 2022, U.S. legislation referred to as the Inflation Reduction Act of 2022 was enacted. This legislation enacted a new Corporate Alternative Minimum Tax (“CAMT”) and Excise Tax on Repurchases of Corporate Stock. The Company has determined as of the period ending December 31, 2024, that it is not a CAMT taxpayer or subject to Excise Tax on Repurchases of Corporate Stock.

The following table presents the components of income tax provision (benefit) included in the amounts reported in our consolidated financial statements:

	Successor				Predecessor
	For the Year Ended		Period from		Period from		For the Year Ended
(in millions)	December 31, 2024		November 16, 2023 through December 31, 2023		January 1, 2023 through November 15, 2023		December 31, 2022
Current income tax provision (benefit) related to:
United States (Federal)	$	(0.2)	$	4.2	$	15.1	$	(21.0)
United States (State)	(0.2)		(4.2)		0.1		0.1
United Kingdom	—		—		(0.1)		(0.8)
Other jurisdictions	—		—		0.1		(1.7)
Total current income tax provision	(0.4)		—		15.2		(23.4)
Deferred income tax provision (benefit) related to:
United States	(41.8)		1.3		(7.9)		6.0
United Kingdom	—		—		(7.0)		7.3
Other jurisdictions	—		—		—		2.1
Total deferred income tax (benefit)	(41.8)		1.3		(14.9)		15.4
Income tax provision (benefit)	$	(42.2)	$	1.3	$	0.3	$	(8.0)

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 year ended December 31, 2024, for the periods of November 16, 2023 through December 31, 2023 (successor), January 1, 2023 through November 15, 2023 (Predecessor), and year ended December 31, 2022, pre-tax income (loss) attributable to our operations and the operations’ effective tax rates were as follows:

	Successor									Predecessor
	For the Year Ended				Period from					Period from					For the Year Ended
	December 31, 2024				November 16, 2023 through December 31, 2023					January 1, 2023 through November 15, 2023					December 31, 2022
(in millions)	Pre-Tax Income (Loss)		Effective Tax Rate		Pre-Tax Income (Loss)			Effective Tax Rate		Pre-Tax Income (Loss)			Effective Tax Rate		Pre-Tax Income (Loss)		Effective Tax Rate
Bermuda	$	—	—	%	$	(11.3)		—	%	$	(90.3)		—	%	$	(76.0)	—	%
United States	(183.6)		23.0	%	14.3			9.0	%	(96.9)			(7.5)	%	(83.2)		17.9	%
United Kingdom	(3.1)		—	%	(1.3)			—	%	(23.2)			30.4	%	23.4		27.9	%
Barbados	—		—	%	—		(1)	—	%	—		(1)	—	%	(4.5)		—	%
Brazil	—		—	%	—			—	%	—			—	%	(0.1)		(422.4)	%
United Arab Emirates	—		—	%	—			—	%	0.3			—	%	1.4		—	%
Ireland	—		—	%	0.5			—	%	(0.1)			—	%	(39.1)		—	%
Italy	(3.6)		(1.0)	%	—		(1)	2.1	%	0.1			50.3	%	(0.9)		(4.8)	%
Malta	—		—	%	—			—	%	—			—	%	(4.2)		—	%
Pre-tax income (loss)	$	(190.3)	22.2	%	$	2.2		59.1	%	$	(210.1)		0.1	%	$	(183.2)	4.3	%

(1) Pre-tax income 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 (benefit) at the weighted average tax rate is as follows:

	Successor				Predecessor
	For the Year Ended		Period from		Period from		For the Year Ended
	December 31, 2024		November 16, 2023 through December 31, 2023		January 1, 2023 through November 15, 2023		December 31, 2022
(in millions)
Income tax provision (benefit) at expected rate	$	(40.2)	$	2.9	$	(24.7)	$	(14.7)
Tax effect of:
Nontaxable investment income	(0.2)		—		(0.1)		(0.4)
Foreign exchange adjustments	—		—		(2.6)		(2.1)
Impairment of goodwill	—		—		—		5.4
Base erosion and anti-abuse tax	—		—		23.5		—
Withholding taxes	—		—		0.1		2.7
Ireland capital loss	3.3		—		—		—
U.S. state tax expense, net of federal income tax effect	(0.2)		0.1		(1.2)		—
Change in uncertain tax position liability	—		(3.4)		1.2		(1.4)
Change in valuation allowance	(2.8)		1.8		(1.4)		(7.6)
Impact of change in tax rate related to Finance Act 2021	—		(0.2)		(0.2)		1.7
Brazil premiums and underwriting	—		—		—		0.3
Sale of Brazil and Malta operations	—		—		—		6.6
Excess executive compensation	0.9		—		2.0		—
United Kingdom debt forgiveness	—		—		—		1.1
Prior period adjustment	(4.5)		—		—		—
Other	1.5		0.1		3.7		0.4
Income tax provision (benefit)	$	(42.2)	$	1.3	$	0.3	$	(8.0)

The net deferred tax asset (liability) comprises the tax effects of temporary differences related to the following assets and liabilities:

	As of December 31,
(in millions)	2024		2023
Deferred tax assets:
Losses and loss adjustment expense reserve discounting	$	50.1	$	45.5
Unearned premiums	18.0		23.9
Net operating loss carryforwards	64.5		36.3
Investment in limited partnership interests	0.2		9.3
Unrealized losses on equity securities	3.4		6.9
Unrealized losses on fixed maturities and other investment securities	33.3		42.3
Investments	4.3		4.9
Lease liability	10.2		10.6
Accrued bonus	6.0		5.5
Bad debt	5.0		3.2
Other	3.1		2.6
Deferred tax assets, gross	198.1		191.0
Deferred tax liabilities:
Debt obligations	(5.9)		(6.4)
Unrealized gains on limited partnership interests	(15.2)		(24.8)
Depreciable fixed assets	(5.0)		(7.3)
Deferred acquisition costs	(10.9)		(0.5)
Right of use assets	(11.8)		(12.1)
TCJA reserve transitional liability	(0.5)		(1.1)
Value of business acquired	(2.7)		(32.2)
Other intangible assets	(27.2)		(37.1)
Underwriting results	(8.6)		(9.1)
Other	(0.9)		(0.6)
Deferred tax liabilities, gross	(88.7)		(131.2)
Deferred tax assets, net before valuation allowance	$	109.4	$	59.8
Valuation allowance	(17.9)		(20.7)
Deferred tax asset (liabilities), net	$	91.5	$	39.1
Net deferred tax assets (liabilities) - United States	91.5		39.1
Deferred tax asset (liabilities), net	$	91.5	$	39.1

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 $2.8 million in 2024 and primarily related to the following: $0.8 million of losses incurred in the United Kingdom, $3.3 million valuation allowance release related to Ireland capital losses that will not be recognized due to the planned Ireland entity dissolution. Based upon a review of all positive and negative evidence, our management concluded that it is more-likely-than-not that $91.5 million of our deferred tax assets will be realized. Should our future income deviate from our present income estimates, the Company’s realization assessment may differ from our current conclusion.

For tax return purposes, as of December 31, 2024, we had NOL carryforwards in Italy, United States, and United Kingdom. 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 have 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, 2024		Expiration
Net operating loss carryforwards by jurisdiction:
Italy	$	48.2	Indefinite
United Kingdom	$	10.0	Indefinite
United States	$	240.1	2025-2044

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. The balances at December 31, 2024 and 2023 included no unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. A net increase (decrease) of interest in the amount of $0.0 million, $0.0 million, $(0.4) million, and $0.6 million has been recorded in the line item Interest Expense in our Consolidated Statements of Income (Loss) for the year ended December 31, 2024, for the periods ended November 16, 2023 through December 31, 2023 (successor), January 1, 2023 through November 15, 2023 (Predecessor), and for the year ended December 31, 2022, respectively. A net increase (decrease) of penalty in the amount of $0.0 million, $0.0 million, $0.0 million, and $0.1 million has been recorded in the line item Underwriting, acquisition and general expenses in our Consolidated Statements of Income (Loss) for the year ended December 31, 2024, for the periods ended November 16, 2023 through December 31, 2023 (successor), January 1, 2023 through November 15, 2023 (Predecessor), and for the year ended December 31, 2022, respectively.

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2024 and 2023:

(in millions)	2024		2023
Balance at January 1	$	—	$	4.6
Additions for tax positions of prior years	—		—
Reductions for tax positions of prior years	—		(1.0)
Reductions based on settlements with taxing authorities	—		(2.4)
Expiration of statute of limitations	—		(1.2)
Balance at December 31	$	—	$	—

Our U.S. subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2021. Our U.K. subsidiary is no longer subject to U.K. income tax examinations by His Majesty’s Revenue and Customs for years before 2023. Our Ireland subsidiary is no longer subject to Ireland income tax examinations by tax authorities for years before 2020. Our Italy subsidiary is no longer subject to Italy income tax examinations by tax authorities for years before 2019.

As of December 31, 2024, our Texas Sales, Excise, and Use Tax returns for the periods April 1, 2020 through July 31, 2023 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.