Under current Bermuda law, our Bermuda domiciled companies are not required to pay any taxes in Bermuda on income or capital gains. We have received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, we will be exempt from taxation in Bermuda until March 2035. Our primary Bermuda subsidiary has an operating branch in Singapore, which is subject to the relevant taxes in that jurisdiction. The branch is not under examination in this tax jurisdiction, but remains subject to examination for tax years 2013 through 2016.

Our U.S. subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for federal income taxes has been determined under the principles of the consolidated tax provisions of the U.S. Internal Revenue Code and Regulations. Should the U.S. subsidiaries pay a dividend outside the U.S. group, withholding taxes will apply. Our U.S. subsidiaries are not under examination but remain subject to examination in the U.S. for tax years 2013 through 2016.

In Canada, our U.S. reinsurance company operates through a branch and our U.S. service company has an unlimited liability company subsidiary based in Canada. These Canadian operations are subject to the relevant taxes in that jurisdiction and generally remain subject to examination for tax years 2012 through 2016.

We also have subsidiaries in Ireland, the U.K., Australia and Brazil. These subsidiaries and their branches, are not under examination, but generally remain subject to examination in all applicable jurisdictions for tax years 2012 through 2016.

The following table provides an analysis of our income tax expense and net tax assets:




Year ended December 31,	2016			2015			2014

Current income tax expense
U.S.	$	606		$	4,927		$	8,411
Europe	7,451			144			16,582
Other	—			5			1
Deferred income tax expense (benefit)
U.S.	(1,829		)	(267		)	1,313
Europe	112			(1,781		)	(399		)
Other	—			—			—
Total income tax expense	$	6,340		$	3,028		$	25,908

Net current tax receivables (payables)	$	3,540		$	(69	)	$	(11,203	)
Net deferred tax assets	103,313			104,762			89,405

Net tax assets	$	106,853		$	104,693		$	78,202

Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant components of our deferred tax assets and liabilities were as follows:




At December 31,	2016			2015

Deferred tax assets:
Discounting of loss reserves	$	47,258		$	50,928
Unearned premiums	41,797			40,861
Net unrealized losses on investments	—			2,161
Operating and capital loss carryforwards	43,687			36,080
Accruals not currently deductible	59,098			58,042
Other investment adjustments and impairments	84			917
Tax credits	10,139			12,961
Other deferred tax assets	3,684			2,261
Deferred tax assets before valuation allowance	205,747			204,211
Valuation allowance	(41,100		)	(40,331		)
Deferred tax assets net of valuation allowance	164,647			163,880

Deferred tax liabilities:
Deferred acquisition costs	(45,788		)	(41,170		)
Net unrealized gains on investments	(1,168		)	—
Amortization of intangible assets and goodwill	(13,096		)	(11,972		)
Equalization reserves	—			(4,493		)
Other deferred tax liabilities	(1,282		)	(1,483		)
Deferred tax liabilities	(61,334		)	(59,118		)
Net deferred tax assets	$	103,313		$	104,762

As a result of certain realization requirements of ASC 718 "Compensation - Stock Compensation", the table of deferred tax assets and liabilities does not include certain deferred tax assets as of December 31, 2016, that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity will be increased by $2 million if and when such deferred tax assets are ultimately realized.

Below is a summary of our total operating and capital loss carryforwards and tax credits:




At December 31,	2016		2015

Operating and Capital Loss Carryforwards⁽¹⁾
Singapore (branch) operating loss carryforward	$	83,532	$	102,430
Australia (branch) operating loss carryforward	147,193		121,575
Australia capital loss carryforward	4,207		4,207
United Kingdom operating loss carryforward	19,306		22,002
Switzerland (branch) operating loss carryforward	—		378
Ireland operating loss carryforward	—		3,258
Ireland capital loss carryforward	716		716
U.S. operating loss carryforward	14,221		—

Tax Credits⁽¹⁾
Ireland foreign tax credit	$	3,298	$	6,073
U.S. alternative minimum tax credit	6,840		6,888


(1)	All operating and capital loss carryforwards and tax credits can be carried forward indefinitely with the exception of the U.S. net operating loss which will expire in 2036.

The following table provides an analysis of the movement in our valuation allowance:




At December 31,	2016			2015

Income tax expense:
Valuation allowance - beginning of year	$	40,331		$	34,865
Operating loss carryforwards	3,857			6,809
Foreign tax credit	(2,775		)	(1,573		)
Australian CTA and accruals and other foreign rate differentials	(313		)	1,001
Change in investment-related items	—			(771		)
Valuation allowance - end of year	$	41,100		$	40,331

At December 31, 2016 and 2015, we established a full valuation allowance on: (1) operating and capital loss carryforwards relating to operations in Australia and Singapore; (2) unutilized foreign tax credits available in Ireland and (3) certain other deferred tax assets related to branch operations.

Although realization is not assured, management believes it is more likely than not that the tax benefit of the recorded net deferred tax assets will be realized. Other than the items discussed above, the remaining gross deferred tax assets relate substantially to our U.S. operations. In evaluating our ability to recover these tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including historical results, operating loss carryback potential and scheduled reversals of deferred tax liabilities. Our U.S. operations have produced significant taxable income in prior periods and have deferred tax liabilities that will reverse in future periods such that we believe sufficient ordinary taxable income is available to utilize all remaining ordinary deferred tax assets. In 2016 and 2015, there were sufficient net unrealized gains or capital loss carryback potential to offset remaining impairments, therefore a valuation allowance on such impairments in the U.S., was not considered necessary.

There were no unrecognized tax benefits at December 31, 2016 and 2015.

The following table presents the distribution of income before income taxes between domestic and foreign jurisdictions as well as a reconciliation of the actual income tax rate to the amount computed by applying the effective tax rate of 0% under Bermuda law to income before income taxes:




Year ended December 31,	2016			2015			2014

Income before income taxes
Bermuda (domestic)	$	469,306		$	652,235		$	690,517
Foreign	50,402			(7,576		)	139,955
Total income before income taxes	$	519,708		$	644,659		$	830,472

Reconciliation of effective tax rate (% of income before income taxes)
Expected tax rate	0.0		%	0.0		%	0.0		%
Foreign taxes at local expected rates:
U.S.	(0.6		)%	0.8		%	1.8		%
Europe	1.5		%	(0.2		)%	1.5		%
Other	—		%	(0.3		)%	—		%
Valuation allowance	0.2		%	1.2		%	1.1		%
Net tax exempt income	(0.2		)%	(0.1		)%	(0.7		)%
Other	0.3		%	(0.9		)%	(0.6		)%
Actual tax rate	1.2		%	0.5		%	3.1		%