Taxation (Tables)

12 Months Ended

Dec. 31, 2016

The following table details the years that are the subject of open examinations, by major tax jurisdiction. While the Company cannot estimate with certainty the outcome of these examinations, the Company does not believe that adjustments from open tax years will result in a significant change to the Company's financial results.



Jurisdiction	Tax Years
U.S.	2013-2015
Ireland	2008 - 2009
U.K.	2014
France	2013 - 2014
Spain	2011 - 2012

The following table details open tax years that are open to assessment by local tax authorities, in the following major tax jurisdictions.



Jurisdiction	Tax Years
U.S.	2013 - 2016
Ireland	2008 - 2016
U.K.	2014 - 2016
Germany	2014 - 2016
Switzerland	2011 - 2016
France	2013 - 2016
Spain	2011 - 2016
Italy	2012 - 2016

Distribution of income (loss) before income tax, by jurisdiction

The Company’s income (loss) before income tax and non-controlling interests, for the years ended December 31, 2016, 2015 and 2014, was distributed between U.S. and non-U.S. jurisdictions as follows:



Income (loss) before income tax: (U.S. dollars in thousands)	2016		2015			2014
U.S.	$	68,970	$	(5,931	)	$	228,708
Non U.S.	543,304		1,300,109			137,027
Total	$	612,274	$	1,294,178		$	365,735

Components of income tax expense

The income tax provisions for the years ended December 31, 2016, 2015 and 2014 are as follows:



(U.S. dollars in thousands)	2016			2015			2014
Current expense (benefit):
U.S.	$	(12,201	)	$	(22,698	)	$	45,598
Non U.S.	59,031			67,784			81,371
Total current expense (benefit)	$	46,830		$	45,086		$	126,969
Deferred expense (benefit):
U.S.	$	8,502		$	(63,491	)	$	8,572
Non U.S.	(13,203		)	(756		)	(38,644		)
Total deferred expense (benefit)	$	(4,701	)	$	(64,247	)	$	(30,072	)
Total tax expense (benefit)	$	42,129		$	(19,161	)	$	96,897

Applicable statutory tax rates by jurisdiction

The applicable statutory tax rates for the current year of the most significant jurisdictions contributing to the overall taxation of the Company are:



Jurisdiction	Applicable Statutory Corporate Income Tax Rates
Ireland (1)	12.50	%
Bermuda	—	%
U.S.	35.00	%
U.K.	20.00	%
Switzerland (2)	21.15	%
Germany (3)	15.00	%
France (4)	33.33	%

____________


(1)	The 12.5% statutory corporate income tax rate applies to active income from the conduct of a trade in Ireland. For passive income or income from other defined activities the rate increases to 25%.

(2) Represents the combined federal and cantonal rate primarily applicable to XL Catlin Swiss entities.


(3)	The statutory corporate income tax rate is 15% . However, including applicable surcharges and local trade tax, which can vary by location, would increase the combined statutory rate to approximately 33%.


(4)	The statutory corporate income tax rate is 33.33%. However, with the mandatory social surcharge, the combined statutory rate would increase to 34.43%.

Reconciliation of effective tax rate

A reconciliation of the difference between the provision for income taxes and the expected tax provision for the years ended December 31, 2016, 2015 and 2014 is provided below:



(U.S. dollars in thousands)	2016			2015			2014
Expected tax (benefit) provision	$	(31,080	)	$	(50,797	)	$	132,775
Permanent differences:
Non-taxable (income) loss	(19,937		)	(23,036		)	(19,870		)
Revision to prior year estimates	(24,121		)	7,402			2,016
State, local and foreign taxes	23,157			27,499			47,078
Valuation allowance	1,197			9,517			(181		)
Net allocated investment income	5,990			(405		)	3,399
Stock awards	543			(433		)	411
Non-deductible expenses	48,206			42,839			22,556
Other investment related adjustments	(905		)	2,075			(2,916		)
Adjustments related to GreyCastle Life Retro Arrangements	21,682			(35,045		)	(99,535		)
Change in tax rates	(6,233		)	(11,877		)	3,974
Uncertain tax positions	23,630			13,100			7,190
Total tax expense (benefit)	$	42,129		$	(19,161	)	$	96,897

Components of net deferred tax assets

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2016 and 2015 were as follows:



(U.S. dollars in thousands)	2016		2015
Deferred tax asset:
Net unpaid loss reserve discount	$	96,357	$	111,584
Net unearned premiums	95,676		80,434
Compensation liabilities	96,280		94,013
Net operating losses	323,716		181,295
Investment adjustments	14,030		14,399
Pension	6,817		10,370
Bad debt reserve	12,418		7,425
Amortizable goodwill	967		5,396
Net unrealized depreciation on investments	5,915		5,051
Stock options	7,249		16,192
Depreciation	26,525		13,299
Net realized capital losses	89,568		98,756
Deferred intercompany capital losses	18,221		26,164
Untaxed Lloyd's result	—		3,769
Deferred acquisition costs	17,820		31,133
Currency translation adjustments	—		6,280
Tax Credits	71,651		5,047
Other	34,708		19,930
Deferred tax asset, gross of valuation allowance	$	917,918	$	730,537
Valuation allowance	367,366		276,301
Deferred tax asset, net of valuation allowance	$	550,552	$	454,236

Deferred tax liability:
Net unrealized appreciation on investments	$	21,500	$	51,010
Unremitted earnings	—		3,739
Deferred acquisition costs	10,858		8,308
Currency translation adjustments	12,813		1,210
Regulatory reserves	116,500		64,352
Net unearned premiums	4,380		—
Investment adjustments	5,269		6,373
Untaxed Lloyd’s result	11,940		—
Depreciation	15,601		11,500
Syndicate capacity	82,106		92,756
Intangible asset	32,508		40,126
Other	3,806		13,202
Deferred tax liability	$	317,281	$	292,576
Net Deferred Tax Asset	$	233,271	$	161,660

Summary of valuation allowance

At December 31, 2016 and 2015, the valuation allowance of $367.4 million and $276.3 million, respectively, related primarily to net operating loss and realized capital loss carryforwards in the following major tax jurisdictions:



Jurisdiction (U.S. dollars in thousands)	2016		2015
Ireland	$	96,642	$	93,396
U.S.	92,999		106,624
U.K.	32,528		46,732
Switzerland	15,025		7,818
Other	130,172		21,731
Valuation Allowance Total	$	367,366	$	276,301

Reconciliation of unrecognized tax benefits

The following table presents a reconciliation of the Company’s unrecognized tax benefits:



(U.S. dollars in thousands)	2016			2015			2014
Unrecognized tax benefits, beginning of the year	$	80,590		$	37,190		$	30,000
Increases for tax positions taken during the year	25,250			20,370			12,182
Increases for tax positions taken in prior years	11,700			38,650			15,304
Decreases for tax positions taken in prior years	(6,440		)	(4,850		)	(20,296		)
Decreases for lapse of the applicable statute of limitations	(13,320		)	(10,770		)	—
Unrecognized tax benefits, end of year	$	97,780		$	80,590		$	37,190