Taxation

12 Months Ended

Dec. 31, 2012

Disclosure - Taxation [Abstract]

Taxation

14. 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 2007-2012 in Canada and Switzerland, 2008-2012 in Ireland, 2009-2012 in the United States and 2010-2012 in Singapore and 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, 2012, 2011 and 2010 was as follows (in thousands of U.S. dollars):

		2012		2011		2010
Current income tax expense
U.S.	$	29,196	$	82,065	$	28,180
Non U.S.		115,669		72,268		36,706
Total current income tax expense	$	144,865	$	154,333	$	64,886
Deferred income tax expense (benefit)
U.S.	$	48,740	$	(36,780)	$	46,988
Non U.S.		6,717		(8,112)		4,738
Total deferred income tax expense (benefit)	$	55,457	$	(44,892)	$	51,726
Unrecognized tax expense (benefit)
U.S.	$	(623)	$	81	$	0
Non U.S.		4,585		(40,550)		12,172
Total unrecognized tax expense (benefit)	$	3,962	$	(40,469)	$	12,172
Total income tax expense
U.S.	$	77,313	$	45,366	$	75,168
Non U.S.		126,971		23,606		53,616
Total income tax expense	$	204,284	$	68,972	$	128,784

Income (loss) 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 (loss) before taxes was as followsfor the years ended December 31, 2012, 2011 and 2010 (in thousands of U.S. dollars):

		2012		2011		2010
Domestic (Bermuda)	$	661,648	$	(634,310)	$	441,074
Foreign		677,150		182,991		540,262
Income (loss) before taxes	$	1,338,798	$	(451,319)	$	981,336

Reconciliation of effective tax rate (% of income (loss) before taxes)
Expected tax rate	0.0	%	0.0	%	0.0	%
Foreign taxes at local expected tax rates	14.6		(7.2)		14.9
Impact of foreign exchange (losses) gains	(0.4)		0.4		(3.4)
Unrecognized tax benefit	0.3		9.0		1.2
Tax-exempt income and expenses not deductible	(0.3)		(11.6)		(0.7)
Impact of enacted changes in tax laws	0.7		0.0		(1.9)
Foreign branch tax	(0.7)		(5.7)		(0.2)
Valuation allowance	1.2		(1.9)		2.0
Other	(0.1)		1.7		1.2
Actual tax rate	15.3	%	(15.3)	%	13.1	%

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, 2012 and 2011 were as follows (in thousands of U.S. dollars):

		2012		2011
Deferred tax assets
Discounting of loss reserves and adjustment to life policy reserves	$	50,341	$	84,977
Foreign tax credit carryforwards		37,569		15,005
Tax loss carryforwards		47,373		31,823
Unearned premiums		17,856		19,152
Other deferred tax assets		36,424		35,040
		189,563		185,997
Valuation allowance		(47,412)		(29,201)
Deferred tax assets		142,151		156,796
Deferred tax liabilities
Deferred acquisition costs		46,311		42,913
Goodwill and other intangibles		106,445		71,000
Equalization reserves		122,930		104,884
Unrealized appreciation and timing differences on investments		141,856		105,817
Other deferred tax liabilities		24,968		32,397
Deferred tax liabilities		442,510		357,011
Net deferred tax liabilities	$	(300,359)	$	(200,215)

The components of net tax assets and liabilities at December 31, 2012 and 2011 were as follows (in thousands of U.S. dollars):

		2012		2011
Net tax assets	$	25,098	$	66,574
Net tax liabilities		(387,647)		(297,153)
Net tax liabilities	$	(362,549)	$	(230,579)
		2012		2011
Net current tax liabilities	$	(45,606)	$	(18,074)
Net deferred tax liabilities		(300,359)		(200,215)
Net unrecognized tax benefit		(16,584)		(12,290)
Net tax liabilities	$	(362,549)	$	(230,579)

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, 2012 related to a tax loss carryforwardin Singapore of $34.2 million and to a foreign tax credit carryforward in Ireland of $13.2 million. The valuation allowance recorded at December 31, 2011 related to a tax loss carryforward in Singapore.

At December 31, 2012, the deferred tax assets (after valuation allowance) included foreign tax credit carryforwards of $14.6 million in Ireland, which can be carried forward for an unlimited period of time, and $9.7 million in the United States, which can be carried forward for 10 years, and tax loss carryforwards of $9.9 million in Canada, which can be carried forward for 20 years. At December 31, 2011, the deferred tax assets (after valuation allowance) related to foreign tax credit carryforwards of $9.0 million in Ireland, which can be carried forward for an unlimited period of time, and deferred foreign tax credits of $6.0 million in Ireland and the United States.

The total amount of unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 was as follows (in thousands of U.S. dollars):

				Changes in tax		Tax positions		Change as a		Impact of the
				positions taken		taken		result of a lapse		change in
		January 1,		during a prior		during the		of the statute		foreign currency		December 31,
		2012		period		current period		of limitations		exchange rates		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

				Changes in tax		Tax positions		Change as a		Impact of the
				positions taken		taken		result of a lapse		change in
		January 1,		during a prior		during the		of the statute		foreign currency		December 31,
		2011		period		current period		of limitations		exchange rates		2011
Unrecognized tax benefits
	that, if recognized, would impact
	the effective tax rate	$	51,529	$	3,194	$	3,788	$	(47,886)	$	1,254	$	11,879
Interest and penalties recognized
	on the above		0		435		0		0		(24)		411
Total unrecognized tax benefits, including
	interest and penalties	$	51,529	$	3,629	$	3,788	$	(47,886)	$	1,230	$	12,290

				Changes in tax		Tax positions		Change as a		Impact of the
				positions taken		taken		result of a lapse		change in
		January 1,		during a prior		during the		of the statute		foreign currency		December 31,
		2010		period		current period		of limitations		exchange rates		2010
Unrecognized tax benefits
	that, if recognized, would impact
	the effective tax rate	$	41,935	$	13,215	$	2,578	$	(3,254)	$	(2,945)	$	51,529
Interest and penalties recognized
	on the above		544		104		0		(471)		(177)		0
Total unrecognized tax benefits, including
	interest and penalties	$	42,479	$	13,319	$	2,578	$	(3,725)	$	(3,122)	$	51,529

For the years ended December 31, 2012, 2011 and 2010, 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, 2012, the total amount of unrecognized tax benefits for which it is reasonably possible to change within twelve months was $2.1 million, which primarily relates to the expected expiration of the statute of limitations related to certain tax positions and various intra-group transactions in Europe.