INCOME TAXES

On December 22, 2017 the TCJA was signed into law. Among other provisions, the TCJA lowered the federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Since the change in tax rate is not effective until 2018, current tax expense in 2017 is unaffected; however, the temporary tax differences that comprised the net deferred income tax liability at the enactment date are now projected to reverse at the lower 21 percent tax rate. The re-measurement of deferred income tax assets and liabilities resulted in the recognition of a $9.1 million deferred income tax benefit.

On December 22, 2017, the Securities Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), which allows a company to record a provisional amount for certain income tax effects of the TCJA that are based on reasonable estimates in circumstances in which the accounting is incomplete. Pursuant to SAB 118, the Company made reasonable estimates of the effects the TCJA had on the deferred income tax assets and liabilities. For other items where the Company could not make a reasonable estimate, primarily loss reserve discounting, the Company is using existing accounting guidance and the provisions of the tax laws that were in place prior to the enactment until further guidance is released by the Internal Revenue Service (IRS) with updated discount factors. The Company will continue to gather information to provide a more precise re-measurement of deferred income tax assets and liabilities, and expects to complete its analysis of the effects of the TCJA within a year of the enactment date.

Temporary differences between the consolidated financial statement carrying amount and tax basis of assets and liabilities that give rise to significant portions of the deferred income tax asset (liability) at December 31, 2017 and 2016 are as follows:



	December 31,
($ in thousands)	2017			2016
Loss reserve discounting	$	7,507		$	13,442
Unearned premium reserve limitation	10,284			16,497
Other policyholders' funds payable	2,103			4,574
Other, net	2,202			2,561
Total deferred income tax asset	22,096			37,074
Net unrealized holding gains on investment securities	(22,195		)	(26,786		)
Deferred policy acquisition costs	(8,634		)	(14,328		)
Retirement benefits	(3,714		)	(3,510		)
Other, net	(2,573		)	(3,771		)
Total deferred income tax liability	(37,116		)	(48,395		)
Net deferred income tax liability	$	(15,020	)	$	(11,321	)

Based upon anticipated future taxable income and consideration of all other available evidence, management believes that it is “more likely than not” that the Company’s deferred income tax assets will be realized.

The actual income tax expense for the years ended December 31, 2017, 2016 and 2015 differed from the “expected” income tax expense for those years (computed by applying the United States federal corporate tax rate of 35 percent to income before income tax expense) as follows:



	Year ended December 31,
($ in thousands)	2017			2016			2015
Computed "expected" income tax expense	$	13,936		$	22,123		$	25,079
Increases (decreases) in tax resulting from:
Deferred income tax benefit from enactment of the TCJA	(9,056		)	—			—
Tax-exempt interest income	(2,715		)	(2,803		)	(2,805		)
Dividends received deduction	(1,291		)	(1,429		)	(1,136		)
Proration of tax-exempt interest and dividends received deduction	601			635			591
Investment tax credits	(672		)	(1,392		)	—
Other, net	(225		)	(130		)	(235		)
Total income tax expense	$	578		$	17,004		$	21,494

Comprehensive income tax expense included in the consolidated financial statements for the years ended December 31, 2017, 2016 and 2015 is as follows. The deferred income tax benefit that resulted from the enactment of the TCJA in 2017 is included in the "operations" line.



	Year ended December 31,
($ in thousands)	2017			2016			2015
Income tax expense (benefit) on:
Operations	$	578		$	17,004		$	21,494
Change in unrealized holding gains on investment securities	10,205			(5,720		)	(9,689		)
Change in funded status of retirement benefit plans:
Pension plans	1,694			414			(1,748		)
Postretirement benefit plans	(774		)	(1,345		)	(1,071		)
Comprehensive income tax expense	$	11,703		$	10,353		$	8,986

The Company had no provision for uncertain income tax positions at December 31, 2017 or 2016. The Company recognized no interest expense or other penalties related to U.S. federal or state income taxes during 2017, 2016 or 2015. It is the Company’s accounting policy to reflect income tax penalties as other expense, and interest as interest expense.

The Company files a U.S. federal income tax return, along with various state income tax returns. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2014.