Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

6. Income Taxes

The U.S. federal income tax rate was 35% for 2011 and 2010. Actual tax (benefit) expense on (loss) income before income taxes for the six months ended June 30, 2011 and 2010 differs from the expected amount computed by applying the U.S. federal income tax rate because of the following:

	Six Months Ended June 30,
	2011					2010
				Percent of					Percent of
				Loss Before					Income Before
	Amount			Income Taxes		Amount			Income Taxes
	(dollars in thousands)
Expected tax (benefit) expense	$	(79,109	)	35.0	%	$	52,386		35.0	%
Adjustments:
Tax exempt interest	(38,512		)	17.1		(44,421		)	(29.7	)
Dividends received deduction	(1,407		)	0.6		(772		)	(0.5	)
Effective tax rate method adjustment	—			—		15,619			10.5
Other	2,273			(1.0	)	478			0.3
Actual tax (benefit) expense	$	(116,755	)	51.7	%	$	23,290		15.6	%

Due to the size and timing of catastrophe costs in the first six months of 2011, TRH is unable to reliably estimate the annual effective tax rate for 2011 as small changes to the assumptions underlying its full year pre-tax income projections produce large changes in the annual effective tax rate.  As a result, tax benefit in the first six months of 2011 has been calculated on a discrete basis utilizing the actual quarterly effective tax rate.

In 2010, TRH applied the effective tax rate method for interim periods. Under the effective tax rate method, the estimated full year effective tax rate is applied to the interim year-to-date income before income taxes to determine the income tax expense for the year-to-date period.  Tax expense for any quarter represents the difference between the year-to-date amount for the current year-to-date period less such amount for the immediately preceding year-to-date period.  In estimating the full year effective tax rate, management takes into account the estimated impact of all known events.

TRH recorded income tax benefits of $23 million and $214 million in the second quarter and first six months of 2011, respectively, from pre-tax net catastrophe costs incurred in the first six months of 2011.

TRH recorded income tax benefits of $12 million and $40 million in the second quarter and first six months of 2010, respectively, from pre-tax net catastrophe costs incurred in the first six months of 2010.  $15 million of additional tax benefits from pre-tax net catastrophe costs incurred in the first six months of 2010 were recognized in subsequent quarters of 2010 due to the application of the effective tax rate method.