James River Group Holdings, Inc.JRVR
James River Group Holdings, Inc. Income Taxes Disclosure
Income Taxes
Currently, James River Group Holdings, Ltd. is not (and its former Bermuda-based subsidiary, JRG Re, prior to its disposition was not) subject to income or capital tax. The Companies have obtained from the Bermuda Minister of Finance an assurance that, in the event Bermuda enacts legislation imposing tax, the imposition of any such tax shall not be applicable to the Company until March 31, 2035 (the “EUTP Act”). Effective for tax years beginning on or after January 1, 2025, Bermuda has introduced the Corporate Income Tax Act 2023 ("CIT Act") where a Bermuda Constituent Entity group (BCE) that is part of an “in scope Multi-National Enterprise group” (MNE) will be subject to a 15% corporate income tax. The CIT Act supersedes the assurance received from the Bermuda Minister of Finance under the EUTP Act.
A MNE group with a limited international footprint is not an in scope MNE, thus not subject to CIT. The limited international footprint exception is a year-by-year test and expires after tax year 2029. James River Group Holdings, Ltd. is expected to meet the criteria of the limited international footprint exception, and as such is not expected to be subject to tax under the CIT act.
Distributions from the Company’s U.S. subsidiaries to its U.K. intermediate holding company, James River UK, are generally subject to a 5% dividend withholding tax. No distributions occurred in 2024, 2023 or 2022.
The Company’s U.S. subsidiaries are subject to federal, state and local corporate income taxes, and other taxes applicable to U.S. corporations. The Company’s U.S.-domiciled subsidiaries file a consolidated U.S. federal income tax return.
The Company’s U.S.-based subsidiaries are generally no longer subject to income tax examination by U.S. income tax authorities for the tax years ending before January 1, 2021.
During 2018, the IRS published factors that allowed the Company to adjust its current and deferred tax liabilities based on the provisions of the Tax Act. The Tax Act has specific transition provisions associated with reserve discounting. The initial impact of the proposed regulations in 2018 was an increase to our deferred tax asset for the additional discount as of December 31, 2017 of $8.8 million offset by an increase to our deferred tax liability of $8.8 million representing the 8 year transition provision required by the Tax Act. During 2018, $1.1 million of this transition provision was recognized in our current provision and adjusted out of our deferred tax liability. The regulations were finalized in 2019, and the remaining reserve adjustment at December 31, 2019 based on these final regulations was $5.7 million to be recognized over the six years 2020 - 2025 at $950,000 per year.
The expected income tax provision computed from 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 Federal statutory tax rate. Federal
statutory tax rates of 0% and 21% have been used in 2024, 2023 and 2022 for Bermuda and the U.S., respectively. The U.S. income (loss) before Federal income taxes was $(40.0) million, $119.9 million, and $85.9 million for the years ending December 31, 2024, 2023, and 2022, respectively. The Tax Act base-erosion and anti-abuse tax (“BEAT”) provisions impose a minimum tax on applicable taxpayers that make certain payments to related foreign persons. BEAT subjects the modified taxable income of an applicable taxpayer to a specified tax rate (10% in 2024). Modified taxable income is generally calculated by adding back certain payments to related foreign persons to regular taxable income. A reconciliation of the difference between the Company’s Federal income tax provision on U.S. income and the expected Federal tax provision on U.S. income using the weighted-average tax rate as well as a reconciliation to total tax expense is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Federal income tax expense (benefit) at applicable statutory rates | $ | (8,435) | $ | 25,175 | $ | 18,041 | |||||||||||
| Tax-exempt investment income | (216) | (230) | (225) | ||||||||||||||
| Dividends received deduction | (461) | (386) | (315) | ||||||||||||||
| Excess tax expense (benefits) on share based compensation | 740 | 449 | 530 | ||||||||||||||
| Provision to return and amended tax returns | 126 | (211) | 124 | ||||||||||||||
| Excess §162(m) compensation | 399 | 522 | 210 | ||||||||||||||
| Other | 68 | (14) | 49 | ||||||||||||||
| Federal income tax expense (benefit) | $ | (7,779) | $ | 25,305 | $ | 18,414 | |||||||||||
| U.S. state income tax expense | 145 | 400 | — | ||||||||||||||
| Total income tax expense (benefit) | $ | (7,634) | $ | 25,705 | $ | 18,414 | |||||||||||
The significant components of net deferred tax assets at the corporate income tax rate of 21% for the years ended December 31, 2024 and 2023 are summarized as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Accrued compensation expenses | $ | 3,696 | $ | 3,302 | |||||||
| Reserve for losses and loss adjustment expenses | 32,823 | 27,260 | |||||||||
| Unearned premiums | 11,580 | 12,484 | |||||||||
| Share based compensation | 1,543 | 1,692 | |||||||||
| Allowance for credit losses | 4,496 | 3,240 | |||||||||
| Other invested assets | 3,552 | 998 | |||||||||
| Net unrealized losses | 18,595 | 16,613 | |||||||||
| Other | 4,466 | 3,838 | |||||||||
| Total deferred tax assets | 80,751 | 69,427 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | 6,709 | 6,733 | |||||||||
| Deferred policy acquisition costs | 6,337 | 6,614 | |||||||||
| Equity method investments | 2,792 | 3,470 | |||||||||
| Other | 3,743 | 4,313 | |||||||||
| Total deferred tax liabilities | 19,581 | 21,130 | |||||||||
| Net deferred tax assets | $ | 61,170 | $ | 48,297 | |||||||
Deferred income taxes have not been accrued with respect to certain undistributed earnings of foreign subsidiaries. If the earnings were to be distributed, as dividends or otherwise, such amounts may be subject to withholding taxation in the
jurisdiction of the paying entity. The Company asserts that U.S. unremitted earnings as of December 31, 2024 will be permanently reinvested in the U.S. and, accordingly, no provision for withholding taxes arising in respect to U.S. unremitted earnings has been made.
The Company is considered a mixed company for net operating loss carryforward rules. A 20-year carryforward without an annual income limitation is applicable for insurance companies. The carryforward period for non-insurance companies is unlimited but limited to 80% of the current year taxable income. At December 31, 2024, the Company has $984,000 of net operating loss carryforwards that were generated in 2024 and do not expire.
The Company had no reserve for future tax contingencies or liabilities (“unrecognized tax benefits”) at December 31, 2024 or 2023.
The U.S. imposes a 1% excise tax on reinsurance premiums paid to non-U.S. reinsurers with respect to risks located in the U.S. The rates of tax are established based on the nature of the risk, unless reduced by an applicable U.S. tax treaty. The Company paid excise taxes of $204,000, $194,000, and $842,000 for the years ended December 31, 2024, 2023, and 2022, respectively, on written premiums assumed from third-party insurers with respect to risks located in the U.S. These excise taxes are reflected as “other operating expenses” in the Company’s Consolidated Statements of (Loss) Income and Comprehensive Loss.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.