Income Taxes

The Company and the majority of its subsidiaries are subject to U.S. tax and file a U.S. consolidated federal income tax return. Information about domestic and foreign pre-tax income as well as current and deferred tax expense follows:



	Years Ended December 31,
	2015		2014		2013
Pre-tax income:
Domestic	$	126,797	$	632,738	$	716,172
Foreign	74,384		111,399		73,527
Total pre-tax income	$	201,181	$	744,137	$	789,699



	Years Ended December 31,
	2015			2014			2013
Current expense:
Federal & state	$	40,643		$	162,483		$	129,204
Foreign	22,851			46,593			35,188
Total current expense	63,494			209,076			164,392
Deferred expense (benefit):
Federal & state	173			72,645			131,336
Foreign	(4,041		)	(8,491		)	5,064
Total deferred (benefit) expense	(3,868		)	64,154			136,400
Total income tax expense	$	59,626		$	273,230		$	300,792

The provision for foreign taxes includes amounts attributable to income from U.S. possessions that are considered foreign under U.S. tax laws. International operations of the Company are subject to income taxes imposed by the jurisdiction in which they operate.

A reconciliation of the federal income tax rate to the Company’s effective income tax rate follows:



	December 31,
	2015		2014		2013
Federal income tax rate:	35.0	%	35.0	%	35.0	%
Reconciling items:
Non-taxable investment income	(6.8	)	(1.9	)	(1.7	)
Foreign earnings (a)	(5.2	)	(2.2	)	1.1
Non deductible compensation	9.1		3.8		3.4
Non deductible health insurer fee	6.9		1.1		—
Sale of subsidiary	(8.0	)	—		—
Other	(1.4	)	0.9		0.3
Effective income tax rate:	29.6	%	36.7	%	38.1	%

(a)

Results for all years primarily include tax expense (benefit) associated with the earnings of certain non-U.S. subsidiaries that are deemed reinvested indefinitely and realization of foreign tax credits for certain other subsidiaries. In addition, 2015 reflects a 6.5% benefit related to a Latin American reorganization and 2014 reflects a 2.6% benefit related to the conversion of Canadian branch operations of certain U.S. companies to foreign corporate entities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 is as follows:



	Years Ended December 31,
	2015			2014			2013
Balance at beginning of year	$	(6,262	)	$	(10,322	)	$	(11,515	)
Additions based on tax positions related to the current year	(30,712		)	(2,940		)	(309		)
Reductions based on tax positions related to the current year	102			581			995
Additions for tax positions of prior years	(2,128		)	(1,037		)	(1,090		)
Reductions for tax positions of prior years	1,990			2,495			959
Settlements	—			4,961			638
Balance at end of year	$	(37,010	)	$	(6,262	)	$	(10,322	)

The total unrecognized tax benefit of $35,618, $7,631, and $12,510 for 2015, 2014, and 2013, respectively, which includes interest, would impact the Company’s consolidated effective tax rate if recognized. The liability for unrecognized tax benefits is included in tax receivable and accounts payable and other liabilities on the consolidated balance sheets.

The Company’s continuing practice is to recognize interest expense related to income tax matters in income tax expense. During the years ended December 31, 2015, 2014 and 2013, the Company recognized approximately $169, $246 and $375, respectively, of interest expense related to income tax matters. The Company had $1,733 and $1,730, and $4,500 of interest accrued as of December 31, 2015, 2014 and 2013, respectively. No penalties have been accrued.

The Company does not anticipate any significant increase or decrease of unrecognized tax benefit within the next 12 months.

The Company and its subsidiaries file income tax returns in the U.S. and various state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2011. Substantially all non-U.S. income tax matters have been concluded for the years through 2009, and all state and local income tax matters have been concluded for the years through 2009.

The tax effects of temporary differences that result in significant deferred tax assets and deferred tax liabilities are as follows:



	December 31,
	2015			2014
Deferred Tax Assets
Policyholder and separate account reserves	$	568,053		$	498,231
Accrued liabilities	32,257			23,183
Investments, net	140,785			168,061
Net operating loss carryforwards	40,479			50,103
Deferred gain on disposal of businesses	32,362			35,347
Compensation related	28,289			24,029
Employee and post-retirement benefits	115,904			111,716
Unearned fee income	50,931			55,765
Other	48,548			40,584
Total deferred tax asset	1,057,608			1,007,019
Less valuation allowance	(13,218		)	(18,164		)
Deferred tax assets, net of valuation allowance	1,044,390			988,855
Deferred Tax Liabilities
Deferred acquisition costs	(931,630		)	(867,212		)
Net unrealized appreciation on securities	(262,075		)	(435,375		)
Total deferred tax liability	(1,193,705		)	(1,302,587		)
Net deferred income tax liability	$	(149,315	)	$	(313,732	)

The net deferred tax liability of $149,315 as of December 31, 2015 is comprised of $177,748 deferred tax liabilities and $28,433 deferred tax assets, by jurisdiction. Similarly, the net deferred tax liability of $313,732 as of December 31, 2014 is comprised of $341,290 deferred tax liabilities and $27,558 deferred tax assets, by jurisdiction.

The Company’s valuation allowance against deferred tax assets decreased $4,946 to $13,218 at December 31, 2015 from $18,164 at December 31, 2014. A cumulative valuation allowance of $13,218 has been recorded because it is management’s assessment that it is more likely than not that only $1,044,390 of deferred tax assets will be realized. The valuation allowance relates to the deferred tax assets attributable to certain international subsidiaries.

The Company’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income of the same character within the carryback or carryforward periods. In assessing future taxable income, the Company considered all sources of taxable income available to realize its deferred tax asset, including the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies. If changes occur in the assumptions underlying the Company’s tax planning strategies or in the scheduling of the reversal of the Company’s deferred tax liabilities, the valuation allowance may need to be adjusted in the future.

Other than for certain wholly owned Canadian subsidiaries, deferred taxes have not been provided on the undistributed earnings of wholly owned foreign subsidiaries since the Company intends to indefinitely reinvest the earnings in these other jurisdictions. The cumulative amount of undistributed earnings for which the Company has not provided deferred income taxes is $198,325. Upon distribution of such earnings in a taxable event, the Company would incur additional U.S. income taxes of $21,285, net of anticipated foreign tax credits.

At December 31, 2015, the Company and its subsidiaries had $163,722 of net operating loss carryforwards in certain foreign subsidiaries that will expire if unused as follows:



Expiration Year	Amount
2016 - 2020	$	31,205
2021 - 2025	7,436
2026 - 2030	4,140
2031 - 2035	19,200
Unlimited	101,741
	$	163,722