Taxation

12 Months Ended

Dec. 31, 2019

TAXATION

Under current Bermuda law, RenaissanceRe and its Bermuda subsidiaries are not subject to any income or capital gains taxes. In the event that such taxes are imposed, RenaissanceRe and its Bermuda subsidiaries would be exempted from any such tax until March 2035 pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and Amended Acts of 1987 and 2011, respectively.

RenaissanceRe Finance and its subsidiaries are subject to income taxes imposed by U.S. federal and state authorities and file a consolidated U.S. federal income tax return. Should the U.S. subsidiaries pay a dividend to RenaissanceRe, withholding taxes would apply to the extent of current year or accumulated earnings and profits at an expected tax rate of 5.0%. The Company also has operations in Ireland, the U.K., Singapore, Switzerland and Australia which are subject to income taxes imposed by the respective jurisdictions in which they operate. Withholding taxes would not be expected to apply to dividends paid to RenaissanceRe from its subsidiaries in Ireland, the U.K., Singapore Switzerland and Australia.

The following is a summary of the Company’s income (loss) before taxes allocated between domestic and foreign operations:




Year ended December 31,	2019			2018			2017
Domestic
Bermuda	$	861,068		$	349,959		$	(262,827	)
Foreign
U.S.	102,724			(56,261		)	(11,897		)
Australia	3,390			—			—
Switzerland	14,255			166			—
Ireland	(388		)	551			617
Singapore	(6,334		)	(3,226		)	(12,421		)
U.K.	(7,233		)	(28,574		)	(41,656		)
Income (loss) before taxes	$	967,482		$	262,615		$	(328,184	)

Income tax (expense) benefit is comprised as follows:




Year ended December 31, 2019	Current			Deferred			Total
Total income tax expense	$	(2,128	)	$	(15,087	)	$	(17,215	)
Year ended December 31, 2018
Total income tax (expense) benefit	$	(1,668	)	$	7,970		$	6,302
Year ended December 31, 2017
Total income tax expense	$	(844	)	$	(25,643	)	$	(26,487	)

The Company’s expected income tax provision computed on pre-tax income at the weighted average tax rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. Statutory tax rates of 0.0%, 21.0%, 12.5%, 19.0%, 17.0%, 21.2% and 30.0% have been used for Bermuda, the U.S., Ireland, the U.K., Singapore, Switzerland and Australia, respectively.

The Company’s effective income tax rate, which it calculates as income tax expense divided by net income before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income (loss) in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax net income (loss) can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned; the geographic location, the size and the nature of net claims and claim expenses incurred; the amount and geographic location of operating expenses, net investment income, net realized and unrealized gains (losses) on investments; outstanding debt and related interest expense; and the amount of specific adjustments to determine the income tax basis in each of the Company’s operating jurisdictions. In addition, a significant portion of the Company’s gross and net premiums are currently written and earned in Bermuda, which does not have a corporate income tax, including the majority of the Company’s catastrophe business, which can result in significant volatility to its pre-tax net income (loss) in any given period.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate is as follows:




Year ended December 31,	2019			2018			2017
Expected income tax (expense) benefit	$	(22,874	)	$	17,697		$	14,216
Nondeductible expenses	(7,059		)	(370		)	(276		)
Change in valuation allowance	(5,481		)	(5,255		)	(11,718		)
Withholding tax	(665		)	(1,831		)	(216		)
Effect of change in tax rate	(262		)	(708		)	(38,083		)
Non-taxable foreign exchange gains (losses)	(4		)	586			2,574
Tax exempt income	400			944			3,794
Transfer pricing	2,503			(2,481		)	(11		)
GAAP to statutory accounting difference	6,553			—			—
Foreign branch adjustments	7,315			—			—
U.S. base erosion and anti-abuse tax	—			(1,271		)	—
Other	2,359			(1,009		)	3,233
Income tax (expense) benefit	$	(17,215	)	$	6,302		$	(26,487	)

As a result of the reduction in the U.S. corporate tax rate from 35% to 21% effective January 1, 2018 pursuant to the Tax Cuts and Jobs Act of 2017, the Company recorded a partial write-down of its U.S. deferred tax asset of $36.7 million in 2017. This adjustment is included in effect of change in tax rate in the table above.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:




At December 31,	2019			2018
Deferred tax assets
Tax loss and credit carryforwards	$	111,835		$	60,395
Unearned premiums	14,430			10,108
Deferred finance charges	10,160			14,646
Reserve for claims and claim expenses	8,984			17,345
Accrued expenses	7,196			4,292
Deferred underwriting results	4,033			3,514
Premiums receivable	3,412			—
Investments	—			4,427
	160,050			114,727
Deferred tax liabilities
Deferred acquisition expenses	(16,296		)	(11,801		)
VOBA	(12,673		)	—
Investments	(6,468		)	—
Intangible assets	(2,891		)	—
Amortization and depreciation	(2,133		)	(2,992		)
	(40,461		)	(14,793		)
Net deferred tax asset before valuation allowance	119,589			99,934
Valuation allowance	(75,685		)	(35,271		)
Net deferred tax asset	$	43,904		$	64,663

The Company’s net deferred tax asset is included in other assets on its consolidated balance sheets.

During 2019, the Company recorded a net increase to the valuation allowance of $40.4 million (2018 – increase of $5.3 million, 2017 – increase of $11.2 million). The Company’s net deferred tax asset primarily

relates to net operating loss carryforwards and GAAP versus tax basis accounting differences relating to unearned premiums, deferred finance charges, reserves for claims and claim expenses, accrued expenses, deferred underwriting results, premiums receivable, deferred acquisition expenses, VOBA, investments, intangible assets and amortization and depreciation. The Company’s valuation allowance assessment is based on all available information including projections of future GAAP taxable income from each tax-paying component in each tax jurisdiction.

A valuation allowance has been provided against deferred tax assets in the U.S., Ireland, the U.K., Singapore and Switzerland. These deferred tax assets relate primarily to net operating loss carryforwards. The acquired valuation allowance of TMR as of March 22, 2019 was $35.7 million, the majority of which was established in the U.S.

In the U.S., the Company has net operating loss carryforwards of $338.6 million. Under applicable law, the U.S. net operating loss carryforwards will begin to expire in 2031. The Company has net operating loss carryforwards of $115.4 million in the U.K., $25.4 million in Singapore, $186.6 million in Switzerland, and $5.6 million in Ireland. Under applicable law, the U.K., Singapore and Irish net operating losses can be carried forward for an indefinite period, while the net operating losses in Switzerland will begin to expire in 2020.

The Company had a net payment for U.S. federal, Irish, U.K., Singapore, Switzerland and Australia income taxes of $9.7 million for the year ended 2019 (2018 – net payment of $0.3 million, 2017 – net payment of $0.3 million).

The Company has unrecognized tax benefits of $Nil as of December 31, 2019 (2018 – $Nil). Interest and penalties related to unrecognized tax benefits would be recognized in income tax expense. At December 31, 2019, interest and penalties accrued on unrecognized tax benefits were $Nil (2018 – $Nil). The following filed income tax returns are open for examination with the applicable tax authorities: tax years 2016 through 2018 with the IRS; 2015 through 2018 with Ireland; 2018 with the U.K.; 2015 through 2018 with Singapore; 2018 with Switzerland; and 2015 through 2018 with Australia. The Company does not expect the resolution of these open years to have a significant impact on its results from operations and financial condition.