Accounting policy. Deferred income tax assets and liabilities are recognized for differences between the financial and income tax reporting bases of the underlying assets and liabilities and established based upon enacted tax rates and laws. Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not. The deferred income tax provision generally represents the net change in deferred income tax assets and liabilities during the year, excluding amounts reported as adjustments to accumulated other comprehensive income or amounts initially recorded due to business combinations. The current income tax provision generally represents estimated amounts due on various income tax returns for the year reported plus the effect of any uncertain tax positions. Uncertain tax positions are evaluated in accordance with GAAP.

As part of its global capital management strategy, the Company's foreign operations retain a significant portion of their earnings overseas. These undistributed earnings are deployed outside of the U.S. in support of the liquidity and capital needs of our foreign operations. The Company does not intend to repatriate these earnings to the U.S. and as a result, income taxes are provided using the respective foreign jurisdictions' tax rate.

Income tax provisions related to the Company's foreign operations are generally determined based upon the local country income tax rate.

(In millions)	2016		2015		2014
Current taxes
U.S. income taxes	$	935	$	1,076	$	1,068
Foreign income taxes		95		93		115
State income taxes		32		60		49
Total current taxes		1,062		1,229		1,232
Deferred taxes (benefits)
U.S. income taxes		69		22		10
Foreign income taxes (benefits)		9		(6)		(22)
State income taxes (benefits)		(4)		5		(10)
Total deferred taxes		74		21		(22)
Total income taxes	$	1,136	$	1,250	$	1,210

Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax rate of 35% for the following reasons:

(In millions)	2016		2015		2014
Tax expense at nominal rate	$	1,043	$	1,164	$	1,156
Effect of undistributed foreign earnings		(57)		(67)		(74)
Health insurance industry tax		108		109		83
State income tax (net of federal income tax benefit)		18		42		25
Other		24		2		20
Total income taxes	$	1,136	$	1,250	$	1,210

Consolidated pre-tax income from the Company's foreign operations was approximately 11% of the Company's pre-tax income in 2016 and 2015, compared with 10% in 2014.

The consolidated effective tax rates of 38.1% in 2016 and 37.6% in 2015 have increased from historical levels due to the health insurance industry tax that took effect in 2014 and that is not deductible for federal income tax purposes. Undistributed foreign earnings also may affect the effective tax rates. The Company has accumulated undistributed foreign earnings of $2.5 billion as of December 31, 2016. If the Company intended to repatriate these foreign earnings to the U.S., the Company's Consolidated Balance Sheets would have included an additional $325 million of deferred tax liabilities as of December 31, 2016.

(In millions)	2016		2015
Deferred tax assets
Employee and retiree benefit plans	$	481	$	535
Other insurance and contractholder liabilities		460		465
Net operating losses		128		101
Other accrued liabilities		166		177
Other		140		99
Deferred tax assets before valuation allowance		1,375		1,377
Valuation allowance for deferred tax assets		(87)		(71)
Deferred tax assets, net of valuation allowance		1,288		1,306
Deferred tax liabilities
Depreciation and amortization		781		765
Unrealized appreciation on investments and foreign currency translation		149		152
Other		54		10
Total deferred tax liabilities		984		927
Net deferred income tax assets	$	304	$	379

Included in the consolidated net deferred tax asset of $304 million is approximately $140 million of deferred tax liabilities attributable to foreign jurisdictions, most notably Korea and Taiwan.

Management believes that future results will be sufficient to realize the Company's deferred tax assets. With the exception of certain net operating loss related tax benefits, the Company's deferred tax benefits may be carried forward indefinitely. Net operating loss benefits are primarily attributable to foreign jurisdictions. The Company establishes a valuation allowance when it determines that realization of a deferred tax asset does not meet the more likely than not standard. Valuation allowances have been established against certain federal, foreign and state deferred tax assets, generally when there is a requirement to assess them on a separate entity basis. The increased valuation allowance in 2016 is primarily attributable to net operating losses of certain foreign operations.

A reconciliation of unrecognized tax benefits for the years ended December 31 was as follows:

(In millions)	2016		2015		2014
Balance at January 1,	$	31	$	26	$	17
Increase due to current year positions		10		7		12
Reduction related to settlements with taxing authorities		(2)		-		-
Reduction related to lapse of applicable statute of limitations		(8)		(2)		(3)
Balance at December 31,	$	31	$	31	$	26

The Company conducts business in a number of state and foreign jurisdictions, and may be engaged in multiple audit proceedings at any given time. Generally, no further state audit activity is expected for tax years prior to 2009, and prior to 2010 for foreign audit activity.

In 2016, the Internal Revenue Service (“IRS”) completed its examination of the Company's 2011 and 2012 tax years, resulting in an immaterial effect on shareholders' net income.