Taxation

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Taxation

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 has not accrued withholding taxes on the unremitted earnings of RenaissanceRe Finance to date as there is no intention to remit such earnings. The cumulative amount that would be subject to withholding tax, if distributed, is not practicable to compute. 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 operations 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,	2022		2021		2020
Domestic
Bermuda	$	(672,950)	$	156,031	$	1,122,261
Foreign
Singapore	112		4,420		16,416
Ireland	6		101		1,315
U.S.	(367,799)		(92,335)		286
Australia	(29,214)		7,148		(1,689)
Switzerland	(72,773)		(106,249)		(40,502)
U.K.	(76,217)		(83,224)		(102,167)
Income (loss) before taxes	$	(1,218,835)	$	(114,108)	$	995,920

Income tax (expense) benefit is comprised as follows:

Year ended December 31, 2022	Current		Deferred		Total
Total income tax (expense) benefit	$	(3,078)	$	62,097	$	59,019
Year ended December 31, 2021
Total income tax (expense) benefit	$	(992)	$	11,660	$	10,668
Year ended December 31, 2020
Total income tax (expense) benefit	$	(6,313)	$	3,451	$	(2,862)

The Company’s expected income tax provision computed on pre-tax income (loss) at the weighted average tax rate has been calculated as the sum of the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. Statutory tax rates of 0.0% in Bermuda, 21.0% in the U.S., 12.5% in Ireland, 19.0% in the U.K., 17.0% in Singapore, 19.7% in Switzerland and 30.0% in Australia have been used.

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 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,	2022		2021		2020
Expected income tax benefit (expense)	$	114,721	$	53,093	$	25,489
Nondeductible expenses	(508)		(334)		5,074
Reinsurance adjustment	(1,265)		(4,604)		—
Income tax audit adjustment	—		—		3,424
Effect of change in tax rate	7,461		14,904		3,055
Transfer pricing	—		224		206
GAAP to statutory accounting difference	(6,019)		—		—
U.S. base erosion and anti-abuse tax	—		(1,725)		(36)
Withholding tax	(2,154)		(1,013)		(1,822)
Non-taxable loss on sale of RenaissanceRe UK	—		—		(6,091)
Change in valuation allowance	(62,133)		(42,819)		(13,003)
Foreign branch adjustments	11,656		(5,491)		(17,821)
Other	(2,740)		(1,567)		(1,337)
Income tax benefit (expense)	$	59,019	$	10,668	$	(2,862)

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,	2022		2021
Deferred tax assets
Tax loss and credit carryforwards	$	185,741	$	149,739
Unearned premiums	46,579		36,962
Reserve for claims and claim expenses	39,536		22,611
Deferred finance charges	19,309		17,962
Deferred underwriting results	10,481		12,483
Accrued expenses	2,233		1,788
Investments	71,747		—
Amortization and depreciation	11,533		6,969
	387,159		248,514
Deferred tax liabilities
Investments	—		(2,180)
Deferred acquisition expenses	(66,536)		(49,661)
Intangible assets	(3,830)		(4,242)
	(70,366)		(56,083)
Net deferred tax asset (liability) before valuation allowance	316,793		192,431
Valuation allowance	(193,640)		(131,507)
Net deferred tax asset (liability)	$	123,153	$	60,924

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

During 2022, the Company recorded a net increase to the valuation allowance of $62.1 million (2021 – increase of $42.8 million, 2020 – increase of $13.0 million). The Company’s net deferred tax asset primarily relates to net operating loss carryforwards, unrealized losses in the U.S. investment portfolio and GAAP versus tax basis accounting differences relating to unearned premiums, reserves for claims and claim expenses, deferred finance charges, deferred underwriting results, accrued expenses, investments, deferred acquisition expenses 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 and unrealized losses in the U.S. investment portfolio.

In the U.S. and Switzerland, the Company has net operating loss carryforwards of $310.4 million and $527.2 million respectively. Under applicable law, the U.S. and Swiss net operating loss carryforwards will begin to expire in 2037 and 2023 respectively. The Company has net operating loss carryforwards of $263.9 million in the U.K., $18.7 million in Singapore, $7.7 million in Ireland and $7.5 million in Australia. Under applicable law, the U.K., Singapore, Irish and Australia net operating losses can be carried forward for an indefinite period. The Company has unrealized losses in the US investment portfolio of $320.9 million. These unrealized investment losses do not expire. However, if realized, these losses may only offset realized capital gains and would expire, if unused, at the end of the fifth taxable year following their realization.

The Company made net payments for U.S. federal, Irish, U.K., Singapore, Switzerland and Australia income taxes of $3.1 million for the year ended 2022 (2021 – net refunds of $4.3 million, 2020 – net payments of $5.7 million).

The Company had no unrecognized tax benefits at December 31, 2022 and December 31, 2021. Interest and penalties related to unrecognized tax benefits would be recognized in income tax expense. At December 31, 2022 and December 31, 2021, there was no interest or penalties accrued on unrecognized tax benefits. The following filed income tax returns are open for examination with the applicable tax

authorities: tax years 2017 through 2021 with the U.S.; 2018 through 2021 with Ireland; 2020 through 2021 with the U.K.; 2018 through 2021 with Singapore; 2020 and 2021 with Switzerland; and 2018 through 2021 with Australia. The Company does not expect the resolution of these open years to have a significant impact on its consolidated statements of operations and financial condition.