Income Taxes

3 Months Ended

Mar. 31, 2020

6.Income Taxes

As of March 31, 2020, the statutory income tax rates of the countries where the Company conducts business are 21% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 19% in the United Kingdom, and 25% on non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the expected annual taxable income of the Company in each country to estimate the annual income tax expense.

The Company’s income (loss) before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries for the quarters ended March 31, 2020 and 2019 were as follows:

Quarter Ended March 31, 2020 (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross written premiums	$	17,517		$	138,207		$	—		$	155,724
Net written premiums	$	17,517		$	121,595		$	—		$	139,112
Net earned premiums	$	23,855		$	120,613		$	—		$	144,468
Net investment income		6,376			7,250			(3,497	)		10,129
Net realized investment losses		(3,710	)		(64,452	)		—			(68,162	)
Other income (loss)		(318	)		483			—			165
Total revenues		26,203			63,894			(3,497	)		86,600
Losses and Expenses:
Net losses and loss adjustment expenses		12,562			65,085			—			77,647
Acquisition costs and other underwriting expenses		8,549			47,863			—			56,412
Corporate and other operating expenses		1,127			3,096			—			4,223
Interest expense		342			8,020			(3,497	)		4,865
Income (loss) before income taxes	$	3,623		$	(60,170	)	$	—		$	(56,547	)

Quarter Ended March 31, 2019 (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross written premiums	$	17,549		$	124,652	$	—		$	142,201
Net written premiums	$	17,542		$	105,874	$	—		$	123,416
Net earned premiums	$	14,707		$	107,382	$	—		$	122,089
Net investment income		4,370			3,136		(287	)		7,219
Net realized investment gains (losses)		(892	)		11,282		—			10,390
Other income		15			473		—			488
Total revenues		18,200			122,273		(287	)		140,186
Losses and Expenses:
Net losses and loss adjustment expenses		4,980			53,341		—			58,321
Acquisition costs and other underwriting expenses		4,995			44,748		—			49,743
Corporate and other operating expenses		1,527			1,678		—			3,205
Interest expense		353			4,957		(287	)		5,023
Income (loss) before income taxes	$	6,345		$	17,549	$	—		$	23,894

The following table summarizes the components of income tax expense (benefit):

	Quarters Ended March 31,
(Dollars in thousands)	2020			2019
Current income tax expense:
Foreign	$	—		$	46
U.S. Federal		—			—
Total current income tax expense	$	—			46
Deferred income tax expense (benefit):
U.S. Federal		(11,969	)		4,248
Total deferred income tax expense (benefit)		(11,969	)		4,248
Total income tax expense (benefit)	$	(11,969	)	$	4,294

The weighted average expected tax provision has been calculated using income (loss) before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.

The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:

	Quarters Ended March 31,
	2020						2019
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average tax rate	$	(12,635	)		22.3	%	$	3,732			15.6	%
Adjustments:
Tax exempt interest		(1	)		—			(1	)		—
Dividend exclusion		(71	)		0.1			(77	)		(0.3	)
Non-deductible interest		679			(1.1	)		680			2.8
Other		59			(0.1	)		(40	)		(0.1	)
Effective income tax expense (benefit)	$	(11,969	)		21.2	%	$	4,294			18.0	%

The effective income tax benefit rate for the quarter ended March 31, 2020 was 21.2%, compared with an effective income tax expense rate of 18.0% for the quarter ended March 31, 2019. The income tax benefit rate for the quarter ended March 31, 2020 was primarily the result of investment losses incurred by the Company’s U.S. Subsidiaries.

The Company has a net operating loss (“NOL”) carryforward of $22.9 million as of March 31, 2020, which begins to expire in 2036 based on when the original NOL was generated. The Company’s NOL carryforward as of December 31, 2019 was $21.9 million.

The Company has a Section 163(j) (“163(j)”) carryforward of $9.0 million as of March 31, 2020 and December 31, 2019, which can be carried forward indefinitely. The 163(j) carryforward relates to the limitation on the deduction for business interest expense paid or accrued.

The Company has an alternative minimum tax (“AMT”) credit carryforward of $5.5 million and $11.0 million as of March 31, 2020 and December 31, 2019, respectively. The Company received $5.5 million of the AMT credit carryforward during the quarter ended March 31, 2020. Under provisions of the CARES Act, the Company filed a request for a full refund of the remaining $5.5 million in 2020.