15. Taxation

The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income or capital gains tax under current Bermuda law. In the event that there is a change in current law such that taxes on income or capital gains are imposed, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 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 that are subject to tax in the jurisdictions in which they operate. The significant jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Canada, France, Ireland, Singapore, Switzerland and the United States.

Income tax returns are open for examination for the tax years 2009-2014 in Canada and Ireland, 2010-2014 in Switzerland, 2011-2014 in the United States, 2012-2014 in Singapore and 2013-2014 in France. As a global organization, the Company may be subject to a variety of transfer pricing or permanent establishment challenges by taxing authorities in various jurisdictions. While management believes that adequate provision has been made in the Consolidated Financial Statements for any potential assessments that may result from tax examinations for all open tax years, the completion of tax examinations for open years may result in changes to the amounts recognized in the Consolidated Financial Statements.

Income tax expense for the years ended December 31, 2014, 2013 and 2012 was as follows (in thousands of U.S. dollars):



	2014			2013			2012
Current income tax expense
U.S.	$	51,615		$	55,993		$	29,196
Non U.S.	184,367			73,599			115,669
Total current income tax expense	$	235,982		$	129,592		$	144,865
Deferred income tax expense (benefit)
U.S.	$	20,410		$	(13,693	)	$	48,740
Non U.S.	(17,636		)	(70,886		)	6,717
Total deferred income tax expense (benefit)	$	2,774		$	(84,579	)	$	55,457
Unrecognized tax expense (benefit)
U.S.	$	—		$	(335	)	$	(623	)
Non U.S.	750			3,738			4,585
Total unrecognized tax expense	$	750		$	3,403		$	3,962
Total income tax expense
U.S.	$	72,025		$	41,965		$	77,313
Non U.S.	167,481			6,451			126,971
Total income tax expense	$	239,506		$	48,416		$	204,284

Income before taxes attributable to the Company’s domestic and foreign operations and a reconciliation of the actual income tax rate to the amount computed by applying the effective tax rate of 0% under Bermuda (the Company’s domicile) law to income before taxes was as follows for the years ended December 31, 2014, 2013 and 2012 (in thousands of U.S. dollars):



	2014		2013		2012
Domestic (Bermuda)	$	686,538	$	611,900	$	661,648
Foreign	621,081		109,958		677,150
Income before taxes	$	1,307,619	$	721,858	$	1,338,798



Reconciliation of effective tax rate (% of income before taxes)
Expected tax rate	0.0	%	0.0	%	0.0	%
Foreign taxes at local expected tax rates	15.8		5.1		14.6
Impact of foreign exchange gains (losses)	2.2		(1.1	)	(0.4	)
Unrecognized tax benefit	0.1		0.5		0.3
Tax-exempt income and expenses not deductible	(2.2	)	(0.9	)	(0.3	)
Impact of enacted changes in tax laws	—		1.8		0.7
Foreign branch tax	1.4		(1.4	)	(0.7	)
Ceding commissions	1.8		(0.4	)	0.7
Valuation allowance	(0.6	)	1.3		1.2
Other	(0.2	)	1.8		(0.8	)
Actual tax rate	18.3	%	6.7	%	15.3	%

Deferred tax assets and liabilities reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the net deferred tax assets and liabilities at December 31, 2014 and 2013 were as follows (in thousands of U.S. dollars):



	2014			2013
Deferred tax assets
Discounting of loss reserves and adjustment to life policy reserves	$	77,117		$	78,999
Foreign tax credit carryforwards	57,186			42,620
Tax loss carryforwards	35,384			23,940
Unearned premiums	23,230			23,022
Other deferred tax assets	32,431			33,648
	225,348			202,229
Valuation allowance	(68,115		)	(46,111		)
Deferred tax assets	157,233			156,118
Deferred tax liabilities
Deferred acquisition costs	54,718			52,165
Goodwill and other intangibles	93,416			102,619
Equalization reserves	77,383			128,132
Unrealized appreciation and timing differences on investments	85,873			72,769
Other deferred tax liabilities	51,385			23,866
Deferred tax liabilities	362,775			379,551
Net deferred tax liabilities	$	(205,542	)	$	(223,433	)

The components of net tax assets and liabilities at December 31, 2014 and 2013 were as follows (in thousands of U.S. dollars):



	2014			2013
Net tax assets	$	6,876		$	14,133
Net tax liabilities	(240,989		)	(284,442		)
Net tax liabilities	$	(234,113	)	$	(270,309	)



	2014			2013
Net current tax liabilities	$	(9,739	)	$	(26,308	)
Net deferred tax liabilities	(205,542		)	(223,433		)
Net unrecognized tax benefit	(18,832		)	(20,568		)
Net tax liabilities	$	(234,113	)	$	(270,309	)

Realization of the deferred tax assets is dependent on generating sufficient taxable income in future periods. Although realization is not assured, Management believes that it is more likely than not that the deferred tax assets will be realized. The valuation allowance recorded at December 31, 2014 related to a foreign tax credit carryforward of $47.0 million in Ireland and to tax loss carryforwards of $20.0 million and $1.1 million in Singapore and Canada, respectively. The valuation allowance recorded at December 31, 2013 related to a foreign tax credit carryforward of $24.7 million in Ireland and to a tax loss carryforward of $21.4 million in Singapore.

At December 31, 2014, the deferred tax assets (after valuation allowance) included foreign tax credit carryforwards of $10.1 million in Ireland, which can be carried forward for an unlimited period of time, tax loss carryforwards of $10.3 million in Switzerland, which can be carried forward for 7 years, and $3.1 million in Ireland, which can be carried forward for an unlimited period of time. At December 31, 2013, the deferred tax assets (after valuation allowance) included foreign tax credit carryforwards of $14.4 million in Ireland, which can be carried forward for an unlimited period of time, and $3.6 million in the United States, which can be carried forward for 10 years and also included tax loss carryforwards of $1.7 million in Ireland, which can be carried forward for an unlimited period of time.

The total amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 was as follows (in thousands of U.S. dollars):



	January 1, 2014		Changes in tax positions taken during a prior period		Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates			December 31, 2014
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	19,353	$	1,338	$	5,142	$	(5,197	)	$	(2,370	)	$	18,266
Interest and penalties recognized on the above	1,215		259		—		(792		)	(116		)	566
Total unrecognized tax benefits, including interest and penalties	$	20,568	$	1,597	$	5,142	$	(5,989	)	$	(2,486	)	$	18,832



	January 1, 2013		Changes in tax positions taken during a prior period			Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates		December 31, 2013
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	15,784	$	(5,038	)	$	10,164	$	(2,102	)	$	545	$	19,353
Interest and penalties recognized on the above	800		507			51		(179		)	36		1,215
Total unrecognized tax benefits, including interest and penalties	$	16,584	$	(4,531	)	$	10,215	$	(2,281	)	$	581	$	20,568



	January 1, 2012		Changes in tax positions taken during a prior period		Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates		December 31, 2012
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	11,879	$	1,571	$	3,080	$	(1,057	)	$	311	$	15,784
Interest and penalties recognized on the above	411		504		8		(144		)	21		800
Total unrecognized tax benefits, including interest and penalties	$	12,290	$	2,075	$	3,088	$	(1,201	)	$	332	$	16,584

For the years ended December 31, 2014, 2013 and 2012, there were no unrecognized tax benefits that, if recognized, would create a temporary difference between the reported amount of an item in the Company’s Consolidated Balance Sheets and its tax basis. The Company recognizes interest and penalties as income tax expense in its Consolidated Statements of Operations.

At December 31, 2014, there is no unrecognized tax benefit which is reasonably possible to change within twelve months.