The Company and its Bermuda-domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. In the event there is a change in the current law such that taxes are imposed, the Company and its Bermuda-domiciled subsidiaries would be exempt from such tax until March 31, 2035, pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966. The Company has subsidiaries and branches that operate in various other jurisdictions around the world and are subject to tax in the jurisdictions in which they operate. As of December 31, 2020, the jurisdictions in which the Company’s subsidiaries and branches were subject to tax were Barbados, Ireland, Israel, Luxembourg, the United Kingdom and the United States.


	Year Ended December 31,
Millions	2020		2019		2018
Current income tax (expense):
U.S. federal	$	(10.4)	$	.9	$	(.1)
State	(4.2)		(3.7)		(1.4)
Non-U.S.	(1.1)		(1.7)		(2.9)
Total current income tax (expense)	(15.7)		(4.5)		(4.4)
Deferred income tax benefit (expense):
U.S. federal	23.2		(14.9)		8.3
State	10.3		(10.4)		—
Non-U.S.	2.7		.5		.1
Total deferred income tax benefit (expense)	36.2		(24.8)		8.4
Total income tax benefit (expense)	$	20.5	$	(29.3)	$	4.0

The following table presents a reconciliation of taxes calculated for 2020, 2019 and 2018 using the 21% U.S. federal statutory rate U.S. federal statutory rate (the tax rate at which the majority of White Mountains’s worldwide operations are taxed) to the income tax (expense) benefit on pre-tax income (loss):


	Year Ended December 31,
Millions	2020		2019		2018
Tax (expense) benefit at the U.S. statutory rate	$	(135.5)	$	(85.1)	$	37.4
Differences in taxes resulting from:
Reorganization	130.5		—		—
Non-U.S. earnings, net of foreign taxes	78.4		27.1		(2.9)
Change in valuation allowance	(29.2)		63.6		(31.0)
State taxes	(8.5)		(17.5)		4.0
Withholding tax	(5.0)		(1.6)		(2.7)
Member’s surplus contributions	(4.8)		(3.6)		(2.6)
Tax rate changes	2.7		(5.7)		1.7
Tax reserve adjustments	1.9		(.7)		(.8)
Officer compensation	(1.1)		—		—
Tax exempt interest and dividends	.8		1.1		.6
Other, net	(9.7)		(6.9)		.3


Total income tax benefit (expense) on pre-tax income (loss)	$	20.5	$	(29.3)	$	4.0

The non-U.S. component of pre-tax income (loss) was $327.8 million, $100.4 million and $(30.1) million for the years ended December 31, 2020, 2019 and 2018. The reorganization benefit resulted from the release of a deferred tax liability following an internal reorganization completed in connection with the MediaAlpha IPO.


	December 31,
Millions	2020		2019
Deferred tax assets related to:
U.S. federal and state net operating and capital loss carryforwards	$	79.6	$	92.3
Non-U.S. net operating loss carryforwards	50.5		41.7
Incentive compensation	17.5		15.0


Accrued interest	7.9		5.1
Deferred acquisition costs	5.5		4.3
Tax credit carryforwards	5.5		4.2







Other items	1.3		3.4
Total gross deferred tax assets	167.8		166.0
Less: valuation allowances	97.4		77.9
Total net deferred tax assets	70.4		88.1
Deferred tax liabilities related to:

Member’s surplus contributions	52.9		43.2
Investment basis difference	11.8		6.6
Purchase accounting	5.1		3.1






Net unrealized investment gains	.3		66.3
Other items	2.8		1.5
Total deferred tax liabilities	72.9		120.7
Net deferred tax (liability)	$	(2.5)	$	(32.6)

White Mountains records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. In determining whether or not a valuation allowance, or change therein, is warranted, White Mountains considers factors such as prior earnings history, expected future earnings, carryback and carryforward periods and strategies that if executed would result in the realization of a deferred tax asset. It is possible that certain planning strategies or projected earnings in certain subsidiaries may not be sufficient to utilize the entire deferred tax asset, which could result in material changes to White Mountains’s deferred tax assets and tax expense.

Of the $97.4 million valuation allowance as of December 31, 2020, $46.5 million related to deferred tax assets on net operating losses in U.S. subsidiaries and other federal and state deferred tax benefits, $26.8 million related to deferred tax assets on net operating losses and net investment unrealized gains and losses in Luxembourg subsidiaries, $20.0 million related to net operating losses and other deferred tax benefits in Israeli subsidiaries and $4.1 million related to net operating losses and other deferred tax benefits in U.K. subsidiaries. Of the $77.9 million valuation allowance as of December 31, 2019, $34.9 million related to deferred tax assets on net operating losses in U.S. subsidiaries and other federal and state deferred tax benefits, $22.6 million related to deferred tax assets on net operating losses and net investment unrealized gains and losses in Luxembourg subsidiaries, $17.3 million related to net operating losses in Israeli subsidiaries and $3.1 million related to net operating losses and other deferred tax benefits in U.K. subsidiaries.

In 2020, White Mountains recorded income tax expense of $14.9 million to establish a full valuation allowance on the deferred tax assets of WM Lincoln, Inc. and subsidiaries (“WM Lincoln”) as White Mountains management is unsure they will generate sufficient taxable income to utilize the deferred tax assets. WM Lincoln includes WM Lafayette Holdings, Inc., WM Capital, WM Advisors and certain other entities and investments that are included in the Other Operations segment.

During 2019, White Mountains recorded income tax benefit of $63.2 million to release a valuation allowance against deferred tax assets of Guilford Holdings, Inc. and subsidiaries (“Guilford”), which included Kudu, White Mountains’s investment in MediaAlpha, WM Capital, WM Advisors and certain other entities and investments that are included in the Other Operations segment. Guilford recorded the tax benefit in 2019 due to a release of the full valuation allowance from 2018.

During 2020 and 2019, White Mountains recorded income tax expense (benefit) of $4.5 million and $(4.5) million to reflect the increase and decrease of the valuation allowance on net deferred tax assets of BAM. In the first quarter of 2020, White Mountains adopted ASU 2019-12, simplifying the Accounting for Income Taxes (ASC 740) (“ASU 2019-12”). For periods subsequent to the adoption of ASU 2019-12, White Mountains records both the tax expense related to BAM’s MSC and the related changes in valuation allowance on such taxes directly through non-controlling interest equity. Prior to the adoption of ASU 2019-12, White Mountains recorded the tax expense related to BAM’s MSC to non-controlling interest equity, while the change in valuation allowance on such taxes was recorded through the income statement. During 2020 and 2019, BAM had income included in equity due to MSC that was available to offset its loss from continuing operations. In 2019, BAM recorded an income tax benefit related to MSC of $10.5 million in continuing operations, with an offsetting tax expense in paid-in surplus. In 2020, based on the adoption of ASU 2019-12, BAM recorded both the income tax benefit on MSC of $9.7 million and the offsetting expense in paid-in surplus. During 2020 and 2019, BAM continued to have a full valuation allowance recorded against its net deferred tax assets, as White Mountains management is unsure it will generate sufficient taxable income to utilize the deferred tax assets.

During 2020 and 2019, White Mountains recorded income tax expense of $1.9 million and $0.1 million to establish a valuation allowance against a deferred tax asset related to foreign tax credits at White Mountains Catskill Holdings, Inc., as White Mountains management is unsure it will generate sufficient taxable income to utilize the deferred tax asset.

During 2020 and 2019, White Mountains recorded income tax expense of $4.2 million and $1.1 million to establish a valuation allowance against most of the deferred tax assets which primarily relate to losses on the write-down of foreign subsidiaries and the unrealized losses on investments held in Luxembourg-domiciled subsidiaries.

During 2020 and 2019, White Mountains recorded income tax expense of $2.7 million and $1.6 million to establish a full valuation allowance against deferred tax assets at certain Israel-domiciled subsidiaries, as White Mountains management does not currently anticipate sufficient taxable income to utilize the deferred tax assets.

During 2020 and 2019, White Mountains recorded income tax expense of $1.0 million and $1.3 million to establish a full valuation allowance against deferred tax assets at certain U.K. subsidiaries, as White Mountains management does not currently anticipate sufficient taxable income to utilize the deferred tax assets.


	December 31, 2020
Millions	United States		Luxembourg		United Kingdom		Israel		Total

2020-2024	$	—	$	—	$	—	$	—	$	—
2025-2029	—		—		—		—		—
2030-2039	250.7		73.2		—		—		323.9
No expiration date	118.4		31.0		25.9		85.2		260.5
Total	$	369.1	$	104.2	$	25.9	$	85.2	$	584.4
Gross deferred tax asset	$	77.5	$	26.0	$	4.9	$	19.6	$	128.0
Valuation allowance	(66.8)		(25.9)		(3.3)		(19.6)		(115.6)
Net deferred tax asset	$	10.7	$	.1	$	1.6	$	—	$	12.4

Recognition of the benefit of a given tax position is based upon whether a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. In evaluating the more-likely-than-not recognition threshold, White Mountains must presume that the tax position will be subject to examination by a taxing authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement.


Millions	Permanent Differences (1)		Temporary Differences (2)		Interest and Penalties (3)		Total





Balance at December 31, 2017	$	.3	$	—	$	—	$	.3
Changes in prior year tax positions	.8		—		—		.8


Balance at December 31, 2018	1.1		—		—		1.1
Changes in prior year tax positions	1.3		—		—		1.3



Balance at December 31, 2019	2.4		—		—		2.4

Changes in prior year tax positions	.1		—		—		.1
Tax positions taken during the current year	.1		—		—		.1
Reorganization	(2.6)		—		—		(2.6)
Balance at December 31, 2020	$	—	$	—	$	—	$	—

White Mountains classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. During the years ended December 31, 2020, 2019 and 2018, White Mountains did not recognize any net interest (income) expense. There was no accrued interest as of December 31, 2020 and 2019.