INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

Under current Bermuda law, AXIS Capital's Bermuda subsidiaries are not required to pay any taxes in Bermuda on income or capital gains. The Company has received assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, it will be exempt from taxation in Bermuda until March 2035. The Company's primary Bermuda subsidiary has an operating branch in Singapore, which is subject to the relevant taxes in that jurisdiction. The Singapore branch is not under examination in that tax jurisdiction but remains subject to examination for tax years 2019 through 2022.

AXIS Capital's 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. The Company's U.S. subsidiaries are currently under examination for the 2019 and 2020 tax years and remain subject to examination for tax years 2019 through 2022.

In Canada, AXIS Capital's U.S. reinsurance company operates through a branch and its U.S. service company has an unlimited liability company subsidiary based in Canada. The Canadian operations are subject to the relevant taxes in that jurisdiction and remain subject to examination for tax years 2018 through 2022.

AXIS Capital had subsidiaries in Ireland, the U.K., and Brazil in 2022 and AXIS Capital's subsidiaries had branches in the U.K., Switzerland, and Belgium. The Company ceased operations in Dubai in March 2021 and in the Netherlands in December 2021.

A number of tax audits have been completed during 2022, namely Ireland, with respect to the tax years 2016 and 2017, Belgium, with respect to the tax years, 2018 and 2019 and Switzerland, with respect to the tax years, 2019 and 2020. There are no other ongoing audits of AXIS Capital's subsidiaries or branches, but they remain subject to examination in all applicable jurisdictions for tax years 2018 through 2022.

In the U.K., the Company operates through Lloyd’s syndicates whose income is subject to tax in the U.K., payable by its corporate members. The income from operations at Lloyd’s is also subject to taxes in other jurisdictions in which Lloyd's operates, including the U.S. Under a Closing Agreement between Lloyd’s and the IRS, Lloyd's corporate members pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. To the extent that the Lloyd’s syndicates incur taxes outside the U.K., they may claim a credit for foreign taxes incurred, limited to the U.K. equivalent tax on the same income.

The following table provides an analysis of income tax expense (benefit) and net tax assets:

Year ended December 31,	2022		2021		2020
Current income tax expense (benefit)
U.S.	$	11,491	$	35,229	$	(1,122)
Europe	2,366		(6,082)		365
Other	(147)		—		—
Deferred income tax expense (benefit)
U.S.	(8,147)		(3,369)		(3,098)
Europe	16,474		36,606		(8,466)
Total income tax expense (benefit)	$	22,037	$	62,384	$	(12,321)
Net current tax receivables	$	46,704	$	27,883	$	12,205
Net deferred tax assets (liabilities)	108,220		12,860		(1,625)
Net tax assets	$	154,924	$	40,743	$	10,580

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 following table provides details of the significant components of deferred tax assets and liabilities:

At December 31,	2022		2021
Deferred tax assets:
Discounting of net reserves for losses and loss expenses	$	52,992	$	53,415
Unearned premiums	56,146		53,342
Net unrealized investments losses	71,251		—
Operating and capital loss carryforwards(1)	152,896		85,358
Accruals not currently deductible	42,045		38,294
Tax credits	7,619		2,709
Other deferred tax assets	8,590		5,040
Deferred tax assets before valuation allowance	391,539		238,158
Valuation allowance	(60,069)		(16,918)
Deferred tax assets net of valuation allowance	331,470		221,240
Deferred tax liabilities:
Deferred acquisition costs	(35,211)		(34,845)
Net unrealized investments gains	—		(5,732)
Other investment adjustments and impairments	(20,068)		(18,134)
Intangible assets	(51,993)		(52,722)
Equalization reserves	(2,530)		(2,365)
Acquisition adjustments	(72,351)		(79,464)
Lloyd’s deferred year of account results	(34,068)		(5,114)
Other deferred tax liabilities	(7,029)		(10,004)
Deferred tax liabilities	(223,250)		(208,380)
Net deferred tax assets (liabilities)	$	108,220	$	12,860

(1)    At December 31, 2022 and 2021, the total operating loss carryforwards does not include any Lloyd's deferred year of account losses.

The following table summarizes total operating and capital loss carryforwards and tax credits:

At December 31,	2022		2021
Operating and Capital Loss Carryforwards(1)
Singapore (branch) operating loss carryforward	$	73,769	$	76,287
U.K. operating loss carryforward(2)	415,274		308,491
Ireland operating loss carryforward	200,822		11,850
Ireland capital loss carryforward	716		716
Switzerland operating loss carryforward(3)	187,057		15,989
Tax Credits(1)
Ireland foreign tax credit	$	655	$	338
U.K. foreign tax credit	2,372		2,372
U.S. foreign tax credit(4)	4,592		—

(1)    At December 31, 2022, the Singapore, U.K., and Ireland operating and capital loss carryforwards and tax credits can be carried forward indefinitely.

(2)    At December 31, 2022 and 2021, the U.K. operating loss carryforward does not include any Lloyd's deferred year of account losses.

(3)    At December 31, 2022, the Swiss net operating losses can be carried forward 7 years of which $15,989 expires 2028 and $171,068 expires 2029.

(4)    At December 31, 2022, the U.S. foreign tax credit can be carried back 1 year and carried forward 10 years.

The following table shows an analysis of the movement in the Company's valuation allowance:

At December 31,	2022		2021
Income tax expense (benefit):
Valuation allowance - beginning of year	$	16,918	$	20,778
Operating loss carryforwards	21,724		(3,422)
Foreign tax credit	2,401		(2,048)
U.K. branch assets and other foreign rate differentials	(1,261)		1,610
Valuation allowance - end of year	$	39,782	$	16,918
Accumulated other comprehensive income (loss):
Valuation allowance - beginning of year	$	—	$	—
Change in investment - related items	20,287		—
Valuation allowance - end of year	20,287		—
Total valuation allowance - end of year	$	60,069	$	16,918

At December 31, 2022 and 2021, the Company had a full valuation allowance on operating loss carryforwards relating to operations in Singapore, foreign tax credits available in Ireland and certain other deferred tax assets related to branch operations.

In 2022, the valuation allowance increased by $43 million. The net loss incurred by the AXIS Re SE, the Irish reinsurance company, resulted in the recognition of a valuation allowance of $41 million against the net deferred tax assets of AXIS Re SE and AXIS Re Europe, the Swiss branch of the Irish reinsurance company, of which $22 million was recorded in net income (loss) and $19 million was recorded in other comprehensive income (loss). A partial valuation allowance of $2 million was also recorded against the U.S. foreign tax credits.

At December 31, 2022, the Company's U.S. operations had a deferred tax asset of $71 million for the unrealized losses on its fixed maturity securities that were recorded in other comprehensive income (loss). The Company examined the need for a valuation allowance and after considering all positive and negative evidence concluded a valuation allowance against its net unrealized investment losses in the U.S was not required.

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. In evaluating the Company's ability to recover these tax assets within the jurisdiction from which they arise, it considered all available positive and negative evidence, including historical results, operating loss carry-back potential and scheduled reversals of deferred tax liabilities. The Company believes its U.S. and U.K. operations will produce significant taxable income in future periods and have deferred tax liabilities that will reverse in future periods, such that the Company believes sufficient ordinary taxable income is available to utilize all remaining ordinary deferred tax assets.

A deferred tax liability has not been recorded on undistributed earnings as the U.S. group satisfies the indefinite reversal criteria.

At December 31, 2022 and 2021, there were no unrecognized tax benefits.

The following table presents the distribution of income before income taxes between domestic and foreign jurisdictions and 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,	2022			2021			2020
Income (loss) before income taxes
Bermuda (domestic)	$	236,781		$	431,310		$	(45,951)
Foreign	8,340			249,686			(86,794)
Total income (loss) before income taxes	$	245,121		$	680,996		$	(132,745)
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.	0.2		%	4.8		%	5.6		%
Europe	1.9		%	2.0		%	9.2		%
Valuation allowance	9.5		%	(0.5		%)	(1.7		%)
Change in enacted tax rate(1)	(2.2		%)	1.5		%	(1.7		%)
Other	(0.4		%)	1.4		%	(2.1		%)
Actual tax rate	9.0		%	9.2		%	9.3		%

(1)    At December 31, 2021, the change in enacted tax rate included a change in the UK tax rate from 19% to 25% and in Belgium from 29.58% to 25%.