Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Income Before Income Taxes From its Non-U.S. Subsidiaries and U.S. Subsidiaries

The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share and stop-loss agreements between Wind River Reinsurance and the Insurance Operations, for the quarters and nine months ended September 30, 2012 and 2011 were as follows:

Quarter Ended September 30, 2012: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	29,595		$	51,205		$	(23,851	)	$	56,949
Net premiums written	$	29,595		$	21,860		$	—		$	51,455
Net premiums earned	$	34,198		$	21,131		$	—		$	55,329
Net investment income		13,687			5,726			(4,636	)		14,777
Net realized investment gains		584			2,627			—			3,211
Other income (loss)		(21	)		122			—			101
Total revenues		48,448			29,606			(4,636	)		73,418
Losses and Expenses:
Net losses and loss adjustment expenses		20,672			14,735			—			35,407
Acquisition costs and other underwriting expenses		13,927			9,296			—			23,223
Corporate and other operating expenses		216			1,823			—			2,039
Interest expense		—			5,901			(4,636	)		1,265
Income (loss) before income taxes	$	13,633		$	(2,149	)	$	—		$	11,484

Quarter Ended September 30, 2011: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross premiums written	$	42,603		$	55,262	$	(24,773	)	$	73,092
Net premiums written	$	42,603		$	22,331	$	—		$	64,934
Net premiums earned	$	51,075		$	26,015	$	—		$	77,090
Net investment income		10,602			6,926		(4,648	)		12,880
Net realized investment gains (losses)		(762	)		2,050		—			1,288
Other income		202			170		—			372
Total revenues		61,117			35,161		(4,648	)		91,630
Losses and Expenses:
Net losses and loss adjustment expenses		76,539			9,695		—			86,234
Acquisition costs and other underwriting expenses		21,812			11,515		—			33,327
Corporate and other operating expenses		1,788			1,279		—			3,067
Interest expense		—			6,173		(4,648	)		1,525
Income (loss) before income taxes	$	(39,022	)	$	6,499	$	—		$	(32,523	)

Nine Months Ended September 30, 2012: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	100,183		$	151,411		$	(69,255	)	$	182,339
Net premiums written	$	99,635		$	63,236		$	—		$	162,871
Net premiums earned	$	113,039		$	64,619		$	—		$	177,658
Net investment income		32,745			18,326			(13,806	)		37,265
Net realized investment gains		915			5,998			—			6,913
Other income (loss)		(726	)		435			—			(291	)
Total revenues		145,973			89,378			(13,806	)		221,545
Losses and Expenses:
Net losses and loss adjustment expenses		70,955			42,619			—			113,574
Acquisition costs and other underwriting expenses		43,502			26,648			—			70,150
Corporate and other operating expenses		3,190			3,673			—			6,863
Interest expense		—			18,019			(13,806	)		4,213
Income (loss) before income taxes	$	28,326		$	(1,581	)	$	—		$	26,745

Nine Months Ended September 30, 2011: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross premiums written	$	158,058		$	182,102	$	(84,440	)	$	255,720
Net premiums written	$	157,556		$	76,893	$	—		$	234,449
Net premiums earned	$	151,538		$	79,576	$	—		$	231,114
Net investment income		33,548			21,469		(13,793	)		41,224
Net realized investment gains		5,024			16,647		—			21,671
Other income		538			12,001		—			12,539
Total revenues		190,648			129,693		(13,793	)		306,548
Losses and Expenses:
Net losses and loss adjustment expenses		156,075			50,254		—			206,329
Acquisition costs and other underwriting expenses		60,562			32,248		—			92,810
Corporate and other operating expenses		7,573			3,296		—			10,869
Interest expense		—			18,813		(13,793	)		5,020
Income (loss) before income taxes	$	(33,562	)	$	25,082	$	—		$	(8,480	)

U.S. federal and foreign current income tax expense

The following table summarizes the Company’s U.S. federal and foreign current income tax expense for each of the quarters and nine months ending September 30, 2012 and 2011:

	Quarters Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2012		2011		2012			2011
Non-U.S. current income tax expense (benefit)	$	34	$	15	$	(594	)	$	344
U.S. federal current income tax expense (benefit)		1,131		482		(5,560	)		5,756
Total current income tax expense (benefit)		1,165		497		(6,154	)		6,100

Differences in Tax and Estimated Tax Provisions at Weighted Average Tax Rate

The following tables summarize the differences between the tax provisions under accounting guidance applicable to interim financial statement periods and the expected tax provision at the weighted average tax rate:

	Quarters Ended September 30,
(Dollars in thousands)	2012						2011
	Amount			% of Pre- Tax  Income			Amount			% of Pre- Tax  Income
Expected tax provision at weighted average rate	$	(719	)		(6.3	%)	$	2,290			(7.0	%)
Adjustments:
Tax exempt interest		(359	)		(3.1	%)		(478	)		1.5	%
Dividend exclusion		(275	)		(2.4	%)		(173	)		0.5	%
Effective tax rate adjustment		3,287			28.6	%		—			—
Other		(363	)		(3.1	%)		(740	)		2.2	%
Income tax expense	$	1,571			13.7	%	$	899			(2.8	%)

	Nine Months Ended September 30,
(Dollars in thousands)	2012						2011
	Amount			% of Pre- Tax  Income			Amount			% of Pre- Tax  Income
Expected tax provision at weighted average rate	$	(440	)		(1.6	%)	$	9,124			(107.6	%)
Adjustments:
Tax exempt interest		(1,138	)		(4.3	%)		(1,498	)		17.7	%
Dividend exclusion		(807	)		(3.0	%)		(540	)		6.4	%
Effective tax rate adjustment		(888	)		(3.3	%)		—			—
Other		(361	)		(1.4	%)		(685	)		8.0	%
Income tax expense (benefit)	$	(3,634	)		(13.6	%)	$	6,401			(75.5	%)