Income taxes (Tables)

12 Months Ended

Dec. 31, 2017

The Company’s (loss) income before income taxes for the years ended December 31, 2017, 2016 and 2015 was generated in the following domestic and foreign jurisdictions:



	Years Ended December 31,
	2017			2016			2015
Domestic
Bermuda	$	(419,890	)	$	447,257		$	470,454
Foreign
U.K.	11,368			4,308			13,621
U.S.	(61,914		)	4,038			(4,176		)
Switzerland	8,989			(1,084		)	2,276
Canada	1,251			2,599			493
Other	30,785			33,736			(2,074		)
Total (loss) income before income taxes	$	(429,411	)	$	490,854		$	480,594

Components of income tax expense

Income tax (benefit) expense is composed of both current and deferred tax attributable to U.S. and Non-U.S. jurisdictions as follows:



	Years Ended December 31,
	2017			2016			2015
Current income tax (benefit) expense
U.S.	$	(629	)	$	2,042		$	739
Non-U.S.	(298		)	711			6,028
Total current income tax (benefit) expense	$	(927	)	$	2,753		$	6,767

Deferred income tax (benefit) expense
U.S.	$	(4,295	)	$	(3,487	)	$	1,360
Non-U.S.	(2,358		)	(18,995		)	(1,751		)
Total deferred income tax benefit	$	(6,653	)	$	(22,482	)	$	(391	)

Total income tax (benefit) expense
U.S.	$	(4,924	)	$	(1,445	)	$	2,099
Non-U.S.	(2,656		)	(18,284		)	4,277
Total income tax (benefit) expense	$	(7,580	)	$	(19,729	)	$	6,376

Effective tax rate reconciliation

The table below is a reconciliation of the actual income tax (benefit) expense for the years ended December 31, 2017, 2016 and 2015 to the amount computed by applying the effective tax rate of 0% under Bermuda law to income before taxes:



	Years Ended December 31,
	2017			2016			2015
Expected tax expense at Bermuda statutory rate of 0%	$	—		$	—		$	—
Foreign tax rate differential	(9,795		)	11,394			6,462
Changes in valuation allowance	(7,997		)	(36,990		)	9,830
Tax exempt income and expenses not deductible	(1,034		)	(757		)	1,299
Impact of enacted changes in tax rates	13,008			8,931			69
Prior years tax adjustments	(1,892		)	(5,199		)	(12,272		)
Other	130			2,892			988
Actual income tax (benefit) expense	$	(7,580	)	$	(19,729	)	$	6,376

Components of deferred tax assets and liabilities

Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2017 and 2016 were as follows:



	December 31, 2017			December 31, 2016
Deferred income tax assets related to:
Tax losses carried forward	$	115,579		$	116,416
Deferred compensation	4,924			6,915
Deferred interest expense	1,226			2,039
Tax credits carried forward	5,755			5,469
Discounting of loss reserves	5,137			9,938
Unearned premiums reserve	8,622			6,647
Pension	2,511			5,943
Lloyd’s underwriting loss deductible in future periods	—			581
Other	6,463			4,943
Total gross deferred income tax assets	150,217			158,891
Less: Valuation allowances	(86,272		)	(98,065		)
Total net deferred income tax assets	$	63,945		$	60,826

Deferred income tax liabilities related to:
Deferred acquisition costs	5,962			4,633
Intangibles	4,230			7,583
Unrealized appreciation on investments	1,477			3,179
Properties and fixed assets	2,387			2,593
Other	2,022			2,640
Total deferred income tax liabilities	16,078			20,628
Net deferred tax asset	$	47,867		$	40,198

Movement in deferred tax asset and related valuation allowance

The movement in the deferred tax asset on tax losses carried forward and related valuation allowance from December 31, 2016 to December 31, 2017 can be explained as follows:



	Deferred Tax Asset on Tax Losses Carried Forward			Valuation Allowance
Balance, beginning of year	$	116,416		$	(98,065	)
Movement due to creation of tax losses carried forward	14,327			(2,242		)
Movement due to use of tax losses carried forward	(8,765		)	2,456
Movement due to provision to return adjustments	1,521			(1,521		)
Movement due to changes in enacted tax rates	(7,319		)	3,195
Movement due to change in assessment of deferred tax asset recoverability	—			9,304
Forfeiture of tax losses carried forward	(2,576		)	2,576
Foreign exchange	1,975			(1,975		)
Balance, end of year	$	115,579		$	(86,272	)

Net operating loss and capital loss carryforwards

As at December 31, 2017, the Company had net operating and capital losses carried forward, inclusive of cumulative currency translation adjustments, as follows:



	Luxembourg			Switzerland			United States			United Kingdom		Singapore			Total
2018-2020	$	—		$	145,669		$	—		$	—	$	—		$	145,669
2029-2038	—			—			22,827			—		—			22,827
No expiration date	276,819			—			29,281			9,543		2,323			317,966
Total	276,819			145,669			52,108			9,543		2,323			486,462

Gross deferred tax asset	72,001			30,590			10,943			1,813		232			115,579
Valuation allowance	(53,899		)	(27,347		)	(4,794		)	—		(232		)	(86,272		)
Net deferred tax asset	$	18,102		$	3,243		$	6,149		$	1,813	$	—		$	29,307