8. INCOME TAXES

The components of income tax expense include the following:

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	Year Ended December 31,
	2018			2017			2016
	(In thousands)
Federal:
Current	$	5,162		$	2,431		$	5,076
Deferred	(751		)	810			(4,714		)
Federal income tax expense (benefit)	4,411			3,241			362
State:
Current	1,383			494			674
Deferred	(296		)	(150		)	(494		)
State income tax expense (benefit)	1,087			344			180
Total income tax expense (benefit)	$	5,498		$	3,585		$	542

The actual income tax expense differs from the “expected” income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense) as follows:

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	Year Ended December 31,
	2018			2017			2016
	(In thousands)
Computed expected tax expense provision, at federal rate	$	4,244		$	3,124		$	631
State tax, net of federal tax benefit	761			187			50
Tax-exempt interest	(134		)	(429		)	(571		)
Income subject to dividends-received deduction	(13		)	(76		)	(219		)
Return to provision	158			329			145
Rate changes	—			297			—
Executive compensation	436			185			382
Meals and entertainment	28			76			130
Other	18			(108		)	(6		)
Total income tax expense (benefit)	$	5,498		$	3,585		$	542

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. For the years ended December 31, 2018, 2017 and 2016, the effective income tax rate was 27.2%, 40.2% and 30.1%, respectively. Differences in the effective income tax from the statutory Federal income tax rate of 21% in 2018 and 35% in 2017 and 2016, is driven by state income taxes and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction, executive compensation and other items.

The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21%. In connection with the Company’s analysis of the impact of the Tax Act, the Company recorded a discrete provisional net tax expense of $0.3 million for the year ended December 31, 2017. This estimated net expense primarily consists of the U.S. federal rate reduction from 35% to 21% applied to the net deferred tax asset. During 2018, the impact of the Tax Legislation was not adjusted from the Company's preliminary estimates. The accounting for income tax effects of the Tax Legislation has been completed.

The Company does not have a valuation allowance as of December 31, 2018 and 2017.

The Company recognizes income tax expense, including accrued interest and penalties related to unrecognized tax benefits, in income tax expense in the consolidated statements of operations and consolidated statements of comprehensive income (loss). A reconciliation of these uncertain tax positions was as follows:



	Year Ended December 31,
	2018		2017		2016
	(In thousands)
Balance at January 1	$	585	$	585	$	203
Increases (decreases) for tax positions taken during the current year	—		—		382
	$	585	$	585	$	585

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax asset (liability) include the following:

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	Year Ended December 31,
	2018			2017
	(In thousands)
Deferred income tax assets:
Unearned premiums	$	9,977		$	9,543
Unpaid losses and loss adjustment expenses	958			1,050
Accrued expenses	832			689
Net operating loss carryforwards	1,714			1,567
Deferred revenue	236			—
Share-based compensation	255			255
Unrealized gains on investment securities	1,254			—
Other	21			123
Total deferred income tax assets	15,247			13,227

Deferred income tax liabilities:
Deferred acquisition costs	(11,198		)	(11,742		)
Depreciation and amortization	(577		)	(548		)
Unrealized gains on investment securities	—			(600		)
Other	(273		)	(30		)
Total deferred income tax liabilities	(12,048		)	(12,920		)

Deferred income tax asset (liability), net	$	3,199		$	307

The Company files a federal income tax return and various state and local tax returns. The Company’s consolidated federal and state income tax returns for 2015 - 2017 are open for review by the Internal Revenue Service and other state taxing authorities.