Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Our income tax provision includes the following components for the years ended December 31:


(in millions)	2012		2011		2010
Current tax provision	$	9.4	$	9.8	$	39.0
Deferred tax provision (benefit) related to:
Future tax deductions		2.9		9.4		(2.8	)
Valuation allowance change		2.1		0.8		(1.0	)

Income tax provision	$	14.4	$	20.0	$	35.2

Schedule of Pre-Tax Income (Loss) and Effective Income Tax Rates

For the years ended December 31, 2012, 2011 and 2010, pre-tax income (loss) attributable to our operations and the operations’ effective tax rates were as follows:


	2012						2011						2010
	Pre-tax			Effective Tax			Pre-tax			Effective Tax			Pre-tax			Effective Tax
(in millions)	income (loss)			Rate			income (loss)			Rate			income (loss)			Rate
Bermuda	$	10.0			0.0	%	$	(129.8	)		0.0	%	$	6.2			0.0	%
United States		52.0			21.3	%		99.6			28.4	%		125.3			29.9	%
United Kingdom		14.0			24.4	%		(27.3	)		29.5	%		(9.4	)		38.9	%
Belgium		(0.1	)		98.4	%		0.3			20.7	%		0.2			49.2	%
Brazil		(6.5	)		0.0	%		(4.1	)		0.0	%		(0.3	)		0.0	%
Dubai		0.0	⁽¹⁾		0.0	%		0.1			0.0	%		n/a			n/a
Ireland		(0.2	)		0.0	%		(0.3	)		0.0	%		(0.1	)		5.0	%⁽²⁾
Malta		(2.6	)		0.0	%		(0.4	)		0.0	%		n/a			n/a
Switzerland		0.1			22.8	%		0.0	⁽¹⁾		37.3	%		0.0	⁽¹⁾		22.7	%

Pre-tax income (loss)	$	66.7					$	(61.9	)				$	121.9

(1)	Pre-tax income for the respective year was less than $0.1 million.

(2)	Effective tax rate of 5 percent on intercompany dividends of $26.3 million for the year ended December 31, 2010. Dividends eliminated in consolidation.

Reconciliation of Difference Between Provision for Income Taxes and Expected Tax Provision at Weighted Average Tax Rate

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:


(in millions)	2012			2011			2010
Income tax provision at expected rate	$	18.5		$	26.0		$	42.6
Tax effect of:
Tax-exempt interest		(5.6	)		(5.8	)		(6.1	)
Dividends received deduction		(2.2	)		(1.6	)		(1.4	)
Valuation allowance change		2.1			0.8			(1.0	)
Other permanent adjustments, net		1.8			0.3			0.9
Adjustment for prior year tax return		0.2			1.6			1.2
United States state tax benefit		(0.3	)		(0.3	)		0.0
Other foreign adjustments		0.0			0.1			0.2
Prior year foreign taxes recovered		0.0			(0.6	)		(0.7	)
Rate adjustment on loss carrybacks		0.0			(0.4	)		0.0
Deferred tax rate reduction		(0.6	)		(0.4	)		(0.1	)
Foreign exchange adjustments		0.5			0.3			(0.4	)

Income tax provision	$	14.4		$	20.0		$	35.2

Income tax provision (benefit) - Foreign	$	3.3		$	(8.0	)	$	(2.2	)
Income tax provision - United States Federal		11.5			28.5			37.3
Income tax (benefit) provision - United States State		(0.4	)		(0.5	)		0.1

Income tax provision	$	14.4		$	20.0		$	35.2

Schedule of Deferred Tax Assets and Liabilities


(in millions)	2012			2011			2010
Deferred tax assets:
Unrealized losses on fixed maturities and other investment securities	$	0.4		$	0.0		$	0.4
Losses and loss adjustment expense reserve discounting		33.1			40.1			41.9
Unearned premiums		23.3			22.6			23.8
Capital loss carryforward		30.7			31.7			32.7
Allowance for bad debt		1.3			2.9			6.3
Accrual for contingent commissions		0.6			1.3			0.7
Net operating loss carryforward		19.8			19.7			19.7
Impairment of investment values		9.7			8.7			11.5
United States amortization of intangible assets		3.3			3.8			1.3
Accrued bonus		3.1			0.3			1.0
Accrued vacation		2.1			2.1			1.9
Stock option expense		4.4			4.2			4.4
United Kingdom interest		0.9			1.0			1.0
United Kingdom underwriting profits		0.0			0.0			0.5
Brazil operating losses		3.9			1.8			0.1
Malta operating losses		1.0			0.1			0.0
Other		5.2			2.9			5.5

Deferred tax assets, gross		142.8			143.2			152.7

Deferred tax liabilities:
Unrealized gains on equity securities		(51.2	)		(39.8	)		(31.4	)
Unrealized gains on fixed maturities and other investment securities		(47.5	)		(38.1	)		(40.8	)
Deferred acquisition costs		(19.1	)		(19.1	)		(20.1	)
United States amortization of intangible assets		(3.2	)		(3.0	)		0.0
United Kingdom underwriting losses		(3.8	)		(1.6	)		0.0
United Kingdom amortization of intangible assets		(3.8	)		(4.8	)		(5.9	)
Brussels pension		(0.2	)		0.0			0.0
United States state tax		(0.3	)		(0.5	)		(0.6	)
Other		(5.0	)		(4.4	)		(6.7	)

Deferred tax liabilities, gross		(134.1	)		(111.3	)		(105.5	)

Deferred tax assets, net before valuation allowance		8.7			31.9			47.2
Valuation allowance		(52.5	)		(50.4	)		(49.6	)

Deferred tax liabilities, net	$	(43.8	)	$	(18.5	)	$	(2.4	)

Net deferred tax liabilities - Foreign	$	(7.0	)	$	(5.0	)	$	(4.0	)
Net deferred tax (liabilities) assets - United States		(36.8	)		(13.5	)		1.6

Deferred tax liabilities, net	$	(43.8	)	$	(18.5	)	$	(2.4	)