Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of ProAssurance’s deferred tax assets and liabilities were as follows:



	Year Ended December 31
(In thousands)	2016		2015
Deferred tax assets
Unpaid loss discount	$	39,746	$	44,886
Unearned premium adjustment	22,847		22,889
Compensation related	20,190		18,130
Intangibles	1,001		1,435
Total deferred tax assets	83,784		87,340
Deferred tax liabilities
Deferred acquisition costs	9,754		9,287
Unrealized gains on investments, net	9,797		13,933
Fixed assets	1,291		3,401
Basis differentials–investments	25,512		17,492
Intangibles	22,067		24,644
Other	5,107		3,486
Total deferred tax liabilities	73,528		72,243
Net deferred tax assets (liabilities)	$	10,256	$	15,097

At December 31, 2016, ProAssurance had no available net operating loss carryforwards, capital loss carryforwards, or Alternative Minimum Tax credit carryforwards. ProAssurance files income tax returns in various states, the U.S. federal jurisdiction and the U.K.

ProAssurance had a liability for U.S. federal and U.K. income taxes of $5.1 million at December 31, 2016, carried as part of Other liabilities, and a receivable of $16.4 million at December 31, 2015, carried as a part of Other assets.

The statute of limitations is now closed for all tax years prior to 2013.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2016, 2015 and 2014, were as follows:



(In thousands)	2016			2015		2014
Balance at January 1	$	8,195		$	577	$	4,823
Increase for tax position acquired as result of a business combination	—			—		414
Increases for tax positions taken during the current year	361			7,618		163
(Decreases) for tax positions taken during the current year	—			—		(4,823		)
(Decreases) relating to a lapse of the applicable statute of limitations	(203		)	—		—
Balance at December 31	$	8,353		$	8,195	$	577

At December 31, 2016 and 2015, approximately $1.0 million and $0.9 million, respectively, of ProAssurance's uncertain tax positions, if recognized, would affect the effective tax rate. As with any uncertain tax position, there is a possibility that the ultimate benefit realized could differ from the estimate management has established. Management believes that it is reasonably possible that a portion of unrecognized tax benefits at December 31, 2016, may change during the next twelve months. However, an estimate of the change cannot be made at this time.

ProAssurance recognizes interest and/or penalties related to income tax matters in income tax expense. Interest recognized in the income statement approximated $0.2 million for the year ended December 31, 2016 and was nominal for the years ended 2015 and 2014. The accrued liability for interest approximated $0.2 million at December 31, 2016 and was nominal at December 31, 2015.

A reconciliation of “expected” income tax expense (35% of income before income taxes) to actual income tax expense for each of the years ended December 31, 2016, 2015 and 2014 were as follows:



(In thousands)	2016			2015			2014
Computed “expected” tax expense	$	61,670		$	45,099		$	91,702
Tax-exempt income	(9,917		)	(12,913		)	(13,250		)
Tax credits	(27,549		)	(22,407		)	(17,918		)
Non-U.S. Loss	—			1,806			1,741
Other	916			1,073			3,165
Income tax expense	$	25,120		$	12,658		$	65,440