Taxation (Tables)

12 Months Ended

Dec. 31, 2013

The following table details the years that are the subject of open examinations, by major tax jurisdiction. While the Company cannot estimate with certainty the outcome of these examinations, the Company does not believe that adjustments from open tax years will result in a significant change to the Company's results from operations.



Jurisdiction	Tax Years
U.S.	2010
Ireland	2006 - 2009
U.K.	2007 - 2010
Germany	2006 - 2009
Switzerland	2009 - 2010

The following table details open tax years that are potentially subject to examinations by local tax authorities, in the following major tax jurisdictions.



Jurisdiction	Tax Years
U.S.	2011 - 2013
Ireland	2009 - 2013
U.K.	2012 - 2013
Germany	2010 - 2013
Switzerland	2009 - 2013
France	2011 - 2013

Distribution of income (loss) before income tax, by jurisdiction

The Company’s income (loss) before income tax was distributed for the years ended December 31, 2013, 2012 and 2011 as follows:



Income (loss) before income tax: (U.S. dollars in thousands)	2013		2012		2011
U.S.	$	188,941	$	52,285	$	(99,309	)
Non U.S.	1,025,211		712,126		(244,867		)
Total	$	1,214,152	$	764,411	$	(344,176	)

Components of income tax expense

The income tax provisions for the years ended December 31, 2013, 2012 and 2011 are as follows:



(U.S. dollars in thousands)	2013			2012			2011
Current expense:
U.S.	$	48,776		$	13,106		$	9,138
Non U.S.	42,711			44,474			87,220
Total current expense	$	91,487		$	57,580		$	96,358
Deferred expense (benefit):
U.S.	$	703		$	(56,646	)	$	(5,550	)
Non U.S.	(14,685		)	33,094			(31,101		)
Total deferred expense (benefit)	$	(13,982	)	$	(23,552	)	$	(36,651	)
Total tax expense	$	77,505		$	34,028		$	59,707

Applicable statutory tax rates by jurisdiction

The applicable statutory tax rates of the most significant jurisdictions contributing to the overall taxation of the Company are:



Jurisdiction	Applicable Statutory Taxation Rates
Ireland (1)	12.50	%
Ireland (1)	25.00	%
Bermuda	—	%
U.S.	35.00	%
U.K.	23.25	%
Switzerland (2)	7.83	%
Switzerland (2)	21.20	%
Germany	15.00	%
France	38.00	%

____________


(1)	The different applicable statutory taxation rates in Ireland relate to entities classified as trading or non-trading companies.


(2)	The different applicable statutory taxation rates in Switzerland relate to entities classified as trading or holding companies

Reconciliation of effective tax rate

Reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the years ended December 31, 2013, 2012 and 2011 is provided below:



(U.S. dollars in thousands)	2013			2012			2011
Expected tax provision at weighted average rate	$	43,092		$	53,358		$	(66,493	)
Permanent differences:
Non-taxable investment (income) loss	(9,847		)	(16,717		)	(14,246		)
Non-taxable (income) loss	(40,898		)	(25,711		)	(3,265		)
Prior year adjustments	6,067			(622		)	(9,206		)
Prior year adjustments on completion of IRS examinations	—			(19,192		)	—
State, local and foreign taxes	12,225			18,312			42,581
Valuation allowance	5,754			(16,644		)	24,990
Allocated investment income	5,949			41,727			21,483
Stock options	1,501			4,749			5,840
Non-deductible expenses	23,662			16,145			12,901
Realized capital loss carry-forward valuation allowance reduction	—			(24,473		)	—
Non-deductible goodwill impairment	—			—			57,069
Non-taxable reserve release	—			3,096			(11,947		)
Uncertain tax positions	30,000			—			—
Total tax expense	$	77,505		$	34,028		$	59,707

Components of net deferred tax assets

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2013 and 2012 were as follows:



(U.S. dollars in thousands)	2013		2012
Deferred tax asset:
Net unpaid loss reserve discount	$	105,511	$	108,285
Net unearned premiums	69,811		70,071
Compensation liabilities	62,710		56,245
Net operating losses	89,233		83,061
Investment adjustments	12,573		12,927
Pension	5,695		11,976
Bad debt reserve	7,337		14,901
Amortizable goodwill	7,976		8,958
Net unrealized depreciation on investments	9,984		38,652
Stock options	12,171		13,035
Depreciation	3,501		1,910
Net realized capital losses	140,993		98,971
Deferred intercompany capital losses	69,500		97,566
Untaxed Lloyd's result	2,533		—
Other	9,638		9,392
Deferred tax asset, gross of valuation allowance	$	609,166	$	625,950
Valuation allowance	261,924		297,637
Deferred tax asset, net of valuation allowance	$	347,242	$	328,313
Deferred tax liability:
Net unrealized appreciation on investments	$	28,843	$	106,520
Unremitted earnings	$	6,717	$	—
Deferred acquisition costs	7,057		16,135
Currency translation adjustments	7,195		11,225
Regulatory reserves	131,750		146,101
Investment adjustment	6,112		—
Untaxed Lloyd’s result	—		10,155
Other	8,014		13,837
Deferred tax liability	$	195,688	$	303,973
Net Deferred Tax Asset	$	151,554	$	24,340

Summary of valuation allowance

At December 31, 2013 and 2012, the valuation allowance of $261.9 million and $297.6 million, respectively, related primarily to net operating loss carry forwards and realized capital loss carry forwards as follows:



Jurisdiction (U.S. dollars in thousands)	2013		2012
Switzerland	$	11,457	$	9,864
Ireland	60,133		59,210
U.S.	175,372		196,555
Other	14,962		32,008
Valuation Allowance Total	$	261,924	$	297,637

Reconciliation of unrecognized tax benefits

The following table presents a reconciliation of the Company’s unrecognized tax benefits:



(U.S. dollars in thousands)	2013		2012
Unrecognized tax benefits, beginning of the year	$	—	$	—
Increases for tax positions taken during the year	9,591		—
Increases for tax positions taken in prior years	20,409		—
Decreases for tax positions taken during the year	—		—
Decreases for tax positions taken in prior years	—		—
Settlement with taxing authorities	—		—
Lapse of statute of limitations	—		—
Unrecognized tax benefits, end of year	$	30,000	$	—