Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Deferred income taxes have been established based upon the temporary differences between the financial statement and income tax bases of assets and liabilities. The reversal of the temporary differences will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled. A valuation allowance is required if it is more likely than not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based on the available positive and negative evidence regarding future sources of taxable income, we have determined that the establishment of a valuation allowance was not necessary at December 31, 2019 and 2018.

The Tax Act made broad changes to the U.S. tax code impacting our companies, including reducing the federal corporate tax rate from 35% to 21% and numerous base-broadening provisions. At December 31, 2017, we recorded a provisional estimate of the impact of the Tax Act, which resulted in a reduction of net deferred tax liabilities of $84.8 million, which includes $48.2 million related to deferred taxes previously recognized in accumulated other comprehensive income. At December 31, 2018, the accounting for the Tax Act was completed, as the provisional estimates used were finalized by filing the 2017 income tax return. This resulted in no significant impact to earnings. Additional estimates were also adjusted, resulting only in reclassification between deferred tax items, such as the deferred tax asset on future policy benefits. In these cases, the overall impact of the Tax Act did not change from 2017.



Income Tax Expenses (Credits)

	Year ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Taxes provided in consolidated statement of operations on:
Income before equity income:
Current	$	16,557		$	20,429		$	34,301
Deferred	6,876			(4,953		)	(73,094		)
LIHTC	(3,504		)	(3,826		)	(1,190		)
	19,929			11,650			(39,983		)
Equity income	919			1,179			1,394

Taxes provided in consolidated statements of changes in stockholders’ equity:
Accumulated other comprehensive income	70,048			(50,025		)	43,448
	$	90,896		$	(37,196	)	$	4,859



Effective Tax Rate Reconciliation to Federal Income Tax Rate

	Year ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Income before income taxes and equity income	$	142,781		$	101,033		$	144,760

Income tax at federal statutory rate	$	29,984		$	21,217		$	50,666
Tax effect (decrease) of:
Tax-exempt dividend and interest income	(3,949		)	(3,762		)	(3,384		)
Net impact of LIHTC	(3,504		)	(3,826		)	(1,190		)
Remeasurement of deferred taxes under the Tax Act	—			—			(84,806		)
Adjustments to tax-basis policy reserves	(2,460		)	—			—
Other items	(142		)	(1,979		)	(1,269		)
Income tax expense (benefit)	$	19,929		$	11,650		$	(39,983	)



Tax Effect of Temporary Differences Giving Rise to Deferred Income Tax Assets and Liabilities

	December 31,
	2019		2018
	(Dollars in thousands)
Deferred income tax assets:
Future policy benefits	$	33,719	$	25,137
Accrued benefit and compensation costs	3,736		3,854
Loss carryforwards	2,698		2,870
Derivative instruments	—		617
Other	1,060		1,938
	41,213		34,416
Deferred income tax liabilities:
Fixed maturity and equity securities	151,212		42,961
Deferred acquisition costs	26,813		55,810
Value of insurance in force acquired	551		2,181
Property and equipment	7,961		7,021
Derivative instruments	4,386		—
Other	2,663		1,892
	193,586		109,865
Net deferred income tax liability	$	152,373	$	75,449

We recognize the benefits of uncertain tax positions when the benefits are more-likely-than-not to be sustained. Our reserve for uncertain tax positions was $0.6 million at December 31, 2019. We had no reserve for uncertain tax positions at December 31, 2018. We recognize interest related to uncertain tax positions in interest expense and related penalties in other expenses. We paid no such interest or penalties during 2019, 2018 or 2017. We do not expect any significant changes in the amount of our reserve for uncertain tax positions within the next twelve months. We are generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2016.

At December 31, 2019, we had non-life net operating loss carryforwards for federal income tax purposes totaling $11.9 million, which begin to expire after 2032. We also had non-life net operating loss carryforwards in several state jurisdictions, with varying expiration dates. State deferred taxes are not generally provided on any temporary differences or carryforwards, as state taxes have historically been insignificant.