Income Taxes Income Tax Expense (Tables)

12 Months Ended

Dec. 31, 2018

Components of Income Tax Expense (Benefit)

Income tax expense consists of the following:



	Years ended December 31,
(In millions)	2018		2017		2016
Current	$	78	$	5	$	(33	)
Deferred	44		101		(28		)
Income tax expense (benefit)	$	122	$	106	$	(61	)

Total income taxes were as follows:



	Years ended December 31,
(In millions)	2018			2017		2016
Income tax expense (benefit)	$	122		$	106	$	(61	)
Income tax expense (benefit) from OCI	(431		)	334		260
Total income taxes	$	(309	)	$	440	$	199

Schedule of Income before Income Tax

Income tax expense was calculated based on the following components of income before income taxes:



	Years ended December 31,
(In millions)	2018		2017		2016
Income before income taxes – Bermuda	$	641	$	1,165	$	566
Income before income taxes – Germany	—		25		12
Income before income taxes – U.S.	534		274		134
Income before income taxes	$	1,175	$	1,464	$	712

Schedule of Effective Income Tax Rate Reconciliation

The expected 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% and 21% have been used for Bermuda and the United States, respectively, for the year ended December 31, 2018. Statutory tax rates of 0%, 31% and 35% have been used for Bermuda, Germany and the United States, respectively, for the years ended December 31, 2017 and 2016. A reconciliation of the difference between the expected tax provision at the weighted average tax rate and income tax expense (benefit) is as follows:



	Years ended December 31,
(In millions)	2018			2017			2016
Expected tax provision computed on pre-tax income at weighted average income tax rate	$	112		$	104		$	51
Increase (decrease) in income taxes resulting from:
Deferred tax valuation allowance	—			(5		)	(116		)
Prior year true-up	11			8			1
Corporate owned life insurance	(3		)	(8		)	(7		)
Stock compensation expense	1			5			5
Change in statutory tax rates	—			(7		)	—
State taxes and other	1			9			5
Income tax expense (benefit)	$	122		$	106		$	(61	)
Effective tax rate	10		%	7		%	(9		)%

Schedule of Gross Current and Deferred Tax Assets and Liabilities

Current income tax recoverable and deferred tax assets are included in other assets on the consolidated balance sheets, and current income tax payable and deferred tax liabilities are included in other liabilities on the consolidated balance sheets. Current and deferred income tax assets and liabilities were as follows:



	December 31,
(In millions)	2018		2017
Current income tax recoverable	$	36	$	29
Current income tax payable	33		9
Net current income tax recoverable	$	3	$	20

Deferred tax assets	$	340	$	3
Deferred tax liabilities	—		46
Net deferred tax assets (liabilities)	$	340	$	(43	)

Schedule of Deferred Tax Assets and Liabilities

Deferred income tax assets and liabilities consisted of the following:



	December 31,
(In millions)	2018			2017¹
Deferred tax assets
Insurance liabilities	$	1,186		$	1,402
Net unrealized losses on AFS	112			—
Net operating and capital loss carryforwards	78			167
Tax credits	—			6
Fixed assets	43			26
Employee benefits	24			37
Other	38			26
Total deferred tax assets	1,481			1,664
Valuation allowance²	(52		)	(96		)
Deferred tax assets, after valuation allowance	1,429			1,568
Deferred tax liabilities
Investments, including derivatives	296			781
Net unrealized gains on AFS	—			325
DAC, DSI and VOBA	790			497
Other	3			8
Total deferred tax liabilities	1,089			1,611
Net deferred tax assets (liabilities)	$	340		$	(43	)

¹ Deferred tax balances were remeasured as of December 22, 2017 using the reduced U.S. statutory income tax rate as a result of the Tax Act.
² A portion of the valuation allowance reduction was recorded in other comprehensive income as of December 31, 2017.

Summary of Valuation Allowance

The valuation allowance consists of the following:



	December 31,
(In millions)	2018		2017
U.S. federal and state net operating losses and other deferred tax assets	$	52	$	46
Germany other deferred tax assets	—		50
Total valuation allowance	$	52	$	96