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Taxation
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Taxation 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 Hong Kong, Canada, France, Ireland, Singapore, Switzerland and the U.S.
Income tax returns are open for examination for the tax years 2013-2021 in the U.S., 2016-2021 in Hong Kong, 2017-2021 in Canada, Singapore and Ireland, 2018-2021 in France and 2019-2021 in Switzerland. 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 (benefit) for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands of U.S. dollars): 
202120202019
Current income tax expense (benefit)
U.S.$31,216 $(97,155)$12,899 
Non U.S.18,293 44,764 64,069 
Total current income tax expense (benefit)$49,509 $(52,391)$76,968 
Deferred income tax (benefit) expense
U.S.$(9,404)$60,932 $(25,850)
Non U.S.(1,687)(25,560)4,268 
Total deferred income tax (benefit) expense$(11,091)$35,372 $(21,582)
Unrecognized tax (benefit) expense
U.S.$— $— $— 
Non U.S.(199)3,928 (2,850)
Total unrecognized tax (benefit) expense$(199)$3,928 $(2,850)
Total income tax expense (benefit)
U.S.$21,812 $(36,223)$(12,951)
Non U.S.16,407 23,132 65,487 
Total income tax expense (benefit)$38,219 $(13,091)$52,536 
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, 2021, 2020 and 2019 (in thousands of U.S. dollars):
202120202019
Domestic (Bermuda)$636,043 $3,894 $715,912 
Foreign125,580 237,204 273,372 
Income before taxes$761,623 $241,098 $989,284 
Reconciliation of effective tax rate (% of income before taxes)
Expected tax rate0.0 %0.0 %0.0 %
Foreign taxes at local expected tax rates5.7 15.5 6.5 
Impact of foreign exchange gains or losses(0.1)(8.1)(0.5)
Unrecognized tax expense (benefit)— 1.6 0.2 
Tax-exempt income and expenses not deductible(0.4)(1.4)(0.6)
Foreign branch tax0.1 (3.3)(1.2)
Valuation allowance0.6 3.4 0.7 
Other(0.9)(13.1)0.2 
Actual tax rate5.0 %(5.4)%5.3 %
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The Company did not make use of any direct support measures. It was only the Company’s U.S. subsidiaries that benefited from the CARES Act through the passage of modified tax loss carry-back rules that allow losses to be carried back to years with a higher tax rate. As a result, the Company’s U.S. subsidiaries realized a tax benefit of $35 million (or a reduction of 14.4 points on the effective tax rate) for the year ended December 31, 2020, which is included in Other in the table above.
On September 1, 2019, the Canton of Zurich, Switzerland enacted legislation to reduce the current corporate income tax rate from 21.15% to 19.7% in 2021. As a result, deferred tax assets and liabilities in Switzerland were revalued at December 31, 2019, resulting in an income tax benefit of $6 million (or a reduction of 0.6 points on the effective tax rate) for the year ended December 31, 2019, which is included in Other in the table above.
The components of net tax assets and liabilities at December 31, 2021 and 2020 were as follows (in thousands of U.S. dollars):
December 31, 2021December 31, 2020
Net tax assets$154,472 $182,077 
Net tax liabilities(90,974)(131,621)
Net tax assets$63,498 $50,456 
 
December 31, 2021December 31, 2020
Net current tax assets$117,872 $112,992 
Net deferred tax liabilities(45,098)(52,263)
Net unrecognized tax benefit(9,276)(10,273)
Net tax assets$63,498 $50,456 
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, 2021 and 2020 were as follows (in thousands of U.S. dollars):
December 31, 2021December 31, 2020
Deferred tax assets
Discounting of loss reserves and adjustment to life policy reserves$18,340 $11,741 
Foreign tax credit carryforwards180,510 198,263 
Tax loss carryforwards106,555 57,485 
Unearned premiums36,421 34,760 
Statutory basis funds held58,899 — 
Unrealized appreciation and timing differences on foreign exchange revaluations
3,838 20,493 
Other deferred tax assets47,034 42,754 
$451,597 $365,496 
Valuation allowance(211,798)(211,167)
Deferred tax assets$239,799 $154,329 
Deferred tax liabilities
Deferred acquisition costs$75,924 $67,850 
Goodwill and other intangibles56,870 58,224 
Statutory basis reserves114,240 — 
Equalization reserves7,192 7,366 
Unrealized appreciation and timing differences on investments4,877 46,389 
Other deferred tax liabilities25,794 26,763 
Deferred tax liabilities$284,897 $206,592 
Net deferred tax liabilities$(45,098)$(52,263)
Realization of 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, 2021 relates to a foreign tax credit carryforward of $181 million in Ireland, and net deferred tax assets of $6 million in Canada, $12 million in the United Kingdom and $13 million in the United States. The valuation allowance recorded at December 31, 2020 related to a foreign tax credit carryforward of $198 million in Ireland, and net deferred tax assets of $3 million in Canada, $3 million in the United Kingdom and $7 million in the United States.
At December 31, 2021, the deferred tax assets included tax loss carryforwards (after valuation allowance) of $44 million in the United States, $19 million in Singapore, $6 million in Switzerland, $5 million in Canada and $2 million in Hong Kong. These can be carried forward for an unlimited period of time except Canada which is limited to twenty years and Switzerland which is limited to seven years. At December 31, 2020, the deferred tax assets included tax loss carryforwards (after valuation allowance) of $23 million in Singapore, $2 million in Hong Kong and $13 million in France that can be carried forward for an unlimited period of time.
The total amount of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands of U.S. dollars): 
202120202019
Balance at January 1$10,273 $5,689 $8,743 
Changes in tax positions taken during a prior year(199)3,870 (4,229)
Tax positions taken during the current year— — 1,379 
Impact of the change in foreign currency exchange rates(798)714 (204)
Balance at December 31$9,276 $10,273 $5,689 
For the years ended December 31, 2021, 2020 and 2019, 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 (benefit) in the Consolidated Statements of Operations.
At December 31, 2021, an unrecognized tax benefit of $3 million is reasonably expected to reverse within twelve months.