Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

Income Taxes

The Company files a consolidated federal income tax return. The insurance subsidiaries pay premium taxes on premiums in lieu of some states' income or franchise taxes.

The Tax Cuts and Jobs Act significantly revised U.S. corporate income tax law by, among other things, reducing the corporate statutory income tax rate from 35% to 21%, beginning January 1, 2018. This reduction in the corporate statutory income tax

rate required the Company to re-evaluate certain of its deferred tax assets and liabilities, as of the date of Enactment, to reflect the revised income tax rates applicable to future periods. Despite a repeal of the corporate alternative minimum tax, the Company's minimum tax credit was fully recognized in the year ended December 31, 2018.

The Company's provision for income taxes consisted of the following:

	Years Ended December 31,
	2021		2020		2019
Current tax expense:	(in millions)
Federal	$	20.2	$	27.6	$	26.3
State	0.8		0.7		1.8
Total current tax expense	21.0		28.3		28.1
Deferred federal tax expense:
Other	6.7		(0.4)		8.6
Total deferred federal tax expense	6.7		(0.4)		8.6
Income tax expense	$	27.7	$	27.9	$	36.7

The differences between the statutory federal tax rate of 21% and the Company's effective tax rate on net income before income taxes as reflected in the Consolidated Statements of Comprehensive Income were as follows:

	Years Ended December 31,
	2021		2020		2019
	(in millions)
Expense computed at statutory rate	$	31.0	$	31.0	$	40.7
Tax-advantaged investment income	(1.7)		(1.9)		(2.4)
LPT deferred gain amortization	(1.9)		(2.2)		(2.3)
Stock based compensation	0.1		(0.2)		(0.9)
LPT Reserve Adjustment	(0.5)		(0.3)		(0.4)
Other	0.7		1.5		2.0
Income tax expense	$	27.7	$	27.9	$	36.7

The LPT Reserve Adjustments for the years ended December 31, 2021, 2020, and 2019 increased GAAP net income by $2.6 million, $1.2 million, and $1.8 million, respectively, but did not affect taxable income. The LPT Contingent Commission Adjustments increased net income by $0.5 million, $0.2 million, and $0.2 million during 2021, 2020, and 2019, respectively, but did not increase taxable income.

As of December 31, 2021, 2020, and 2019 the Company had no material unrecognized tax benefits and its tax years 2018 through 2021 remain open and are available for examination by the Internal Revenue Service.

The Company made cash payments of $28.2 million, $18.5 million and $37.8 million for income taxes during the years ended December 31, 2021, 2020, and 2019, respectively.

The significant components of deferred income taxes, net, were as follows as of December 31:

	2021				2020
	Deferred Tax				Deferred Tax
	Assets		Liabilities		Assets		Liabilities
	(in millions)
Unrealized capital gains, net	$	—	$	43.5	$	—	$	50.7
Deferred policy acquisition costs	—		9.4		—		9.2
Intangible assets	—		1.6		—		1.6
Loss reserve discounting for tax reporting	30.0		—		30.3		—
Unearned premiums	11.9		—		11.5		—
Allowance for bad debt	2.3		—		2.4		—
Stock-based compensation	2.5		—		3.4		—
Accrued liabilities	4.1		—		3.5		—
Operating leases	3.5		3.0		4.2		3.6
Other	2.2		6.7		2.4		8.1
Total	$	56.5	$	64.2	$	57.7	$	73.2
Deferred income tax asset (liability), net	$	(7.7)			$	(15.5)

Deferred tax assets are required to be reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. Realization of the deferred income tax asset is dependent on the Company generating sufficient taxable income in future years as the deferred income tax charges become deductible for tax reporting purposes. Although realization is not assured, management believes that it is more likely than not that the net deferred income tax asset will be realized.

The Company is required to discount its loss and LAE reserves for federal income tax purposes. The Company's income tax deduction associated with its loss and LAE reserves is discounted using interest rates prescribed by the U.S. Treasury, as well as established loss payment patterns. Enactment changed the prescribed interest rates to rates based on corporate bond yield curves and extends the time periods associated with loss payment patterns, which resulted in an acceleration of future income tax payments. These changes became effective for tax years beginning after 2017 and are subject to a transition rule that spreads the additional tax payment from the amount determined by applying these changes over the eight years beginning in 2018. This item is a taxable temporary difference and had no direct impact on the Company's total income tax expense for 2017 or future years. The Company has followed the guidance of Revenue Procedure 2019-31 to complete its accounting for loss reserve discounting.