INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

SCHEDULE OF INCOME TAX EXPENSE AND NET TAX ASSETS

An analysis of income tax expense and net tax assets is shown in the following table:




Year ended December 31,	2018			2017			2016

Current income tax expense (benefit)
U.S.	$	(5,401	)	$	(6,207	)	$	606
Europe	10,409			10,249			7,451
Other	51			—			—
Deferred income tax expense (benefit)
U.S.	15,288			18,495			(1,829		)
Europe	(49,833		)	(30,079		)	112
Total income tax expense (benefit)	$	(29,486	)	$	(7,542	)	$	6,340

Net current tax receivables (payables)	$	9,683		$	(639	)	$	3,540
Net deferred tax assets	39,775			4,438			103,313

Net tax assets	$	49,458		$	3,799		$	106,853

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

The significant components of deferred tax assets and liabilities were as follows:




At December 31,	2018			2017

Deferred tax assets:
Discounting of net reserves for losses and loss expenses	$	37,440		$	27,804
Unearned premiums	40,447			25,188
Net unrealized investments losses	11,438			—
Operating and capital loss carryforwards⁽¹⁾	83,850			53,095
Accruals not currently deductible	32,589			31,560
Tax credits	8,672			29,929
Other deferred tax assets	9,195			15,047
Deferred tax assets before valuation allowance	223,631			182,623
Valuation allowance	(18,955		)	(16,157		)
Deferred tax assets net of valuation allowance	204,676			166,466

Deferred tax liabilities:
Deferred acquisition costs	(39,745		)	(24,249		)
Net unrealized investments gains	—			(8,033		)
Amortization of VOBA, intangible assets and goodwill	(49,097		)	(85,296		)
Equalization reserves	(22,069		)	(23,274		)
Other deferred tax liabilities	(53,990		)	(21,176		)
Deferred tax liabilities	(164,901		)	(162,028		)
Net deferred tax assets	$	39,775		$	4,438


(1)	At December 31, 2018 and 2017, the total operating loss carryforwards includes Lloyd's deferred year of account losses of $68 million and $19 million, respectively.

SUMMARY OF TAX CREDITS

Total operating and capital loss carryforwards and tax credits are summarized in the following table:




At December 31,	2018		2017

Operating and Capital Loss Carryforwards⁽¹⁾
Singapore (branch) operating loss carryforward	$	79,445	$	77,467
U.K. operating loss carryforward⁽²⁾	413,504		126,839
Ireland operating loss carryforward	12,756		—
U.S. operating loss carryforward	15,062		115,236
Ireland capital loss carryforward	716		716

Tax Credits⁽¹⁾
Ireland foreign tax credit	$	2,248	$	3,566
U.S. alternative minimum tax credit⁽³⁾	6,026		12,052
U.K. tax credit	398		14,310


(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 2037.


(2)	At December 31, 2018 and 2017, the U.K. operating loss carryforward includes Lloyd's deferred year of account losses of $403 million and $113 million, respectively.


(3)	As a result of U.S. tax reform, all alternative minimum tax credits will be refunded by tax year 2021.

SUMMARY OF OPERATING AND CAPITAL LOSS CARRYFORWARDS

Total operating and capital loss carryforwards and tax credits are summarized in the following table:




At December 31,	2018		2017

Operating and Capital Loss Carryforwards⁽¹⁾
Singapore (branch) operating loss carryforward	$	79,445	$	77,467
U.K. operating loss carryforward⁽²⁾	413,504		126,839
Ireland operating loss carryforward	12,756		—
U.S. operating loss carryforward	15,062		115,236
Ireland capital loss carryforward	716		716

Tax Credits⁽¹⁾
Ireland foreign tax credit	$	2,248	$	3,566
U.S. alternative minimum tax credit⁽³⁾	6,026		12,052
U.K. tax credit	398		14,310


(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 2037.


(2)	At December 31, 2018 and 2017, the U.K. operating loss carryforward includes Lloyd's deferred year of account losses of $403 million and $113 million, respectively.


(3)	As a result of U.S. tax reform, all alternative minimum tax credits will be refunded by tax year 2021.

VALUATION ALLOWANCE ROLL FORWARD

An analysis of the movement in the Company's valuation allowance is shown in the following table:




At December 31,	2018			2017

Income tax expense:
Valuation allowance - beginning of year	$	16,157		$	41,100
Operating loss carryforwards	198			(27,116		)
Foreign tax credit	(1,359		)	267
U.K. branch assets and other foreign rate differentials	(205		)	1,006
U.S. alternative minimum tax credits	(900		)	900
Valuation allowance - end of year	$	13,891		$	16,157

Accumulated other comprehensive income:
Valuation allowance - beginning of year	—			—
Change in investment - related items	5,064			—
Valuation allowance - end of year	5,064			—

Total valuation allowance - end of year	$	18,955		$	16,157

EFFECTIVE TAX RATE RECONCILIATION

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,	2018			2017			2016

Income (loss) before income taxes
Bermuda (domestic)	$	181,597		$	(188,420	)	$	469,306
Foreign	(168,062		)	(188,091		)	50,402
Total income before income taxes	$	13,535		$	(376,511	)	$	519,708

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.	65.7		%	6.6		%	(0.6		)%
Europe	(289.7		)%	5.8		%	1.5		%
Other	—		%	0.3		%	—		%
Valuation allowance	(13.4		)%	—		%	0.2		%
Net tax exempt income	(3.3		)%	0.1		%	(0.2		)%
Change in U.S. enacted tax rate	—		%	(11.1		)%	—		%
Change in European enacted tax rate	16.9		%	—		%	—		%
Other	5.9		%	0.3		%	0.3		%
Actual tax rate	(217.9		)%	2.0		%	1.2		%