Income Taxes

6 Months Ended

Jun. 30, 2013

Income Taxes [Abstract]

Income Taxes

Note 15― Income Taxes

A. Income Tax Expense

The Company permanently reinvests the undistributed earnings of certain foreign operationsoverseas. As a result, income taxes are provided on theearnings of these operations using the respective foreign jurisdictions' tax rates, as compared to the higher U.S. statutory tax rate. In the first quarter of 2012, the Company began computing income taxesattributable to its China and Indonesia operations using this method.The Company continues to evaluate the permanent reinvestment of earnings for additional foreign jurisdictions.

The permanent reinvestment of foreign operation earnings resulted in an increase to shareholders' net income of $20 millionfor the six months ended June 30, 2013 and $22 million for the six months ended June 30, 2012,including $13 millionresulting from the first quarter 2012 implementation for the Company's China and Indonesia operations. The Company has accumulated permanentlyreinvested foreign earnings of $792 million, thathas resulted in cumulative unrecognized deferred tax liabilities of $135 million throughJune 30, 2013.

B. Unrecognized Tax Benefits

Unrecognized tax benefits decreased for the six months ended June 30, 2013 by $12 million, includinga $5 million decrease to shareholders' net income.

The Company believes there could be a significant decline in the liability for unrecognized tax benefits upon recording of the IRS examination results for the 2009 and 2010 tax years later in 2013. This decline is expected to increase shareholders' net income, the impact of which could be material. The Company also believes it reasonably possible that there could be significant change within the next twelve months in the level of unrecognized tax benefitsdue to certain other IRS related matters. These additional changes are not expected to have a material impact on shareholders' net income as they are attributable to matters affecting the timing of income tax deductions.

C. Other Tax Matters

The Company's long standing dispute with the IRS for tax years 2004 through 2006, regarding the appropriate reserve methodology for certain reinsurance contracts, has been finally resolved. On February 28, 2013, the United States Tax Court entered its decision on this matterfor the 2004 tax year,finding the Company had an overpayment of federal income tax for the period. On January 9, 2013, the United States Tax Court entered its decision on this matter for the 2005 and 2006 tax years,findingthat the Company had no additional tax liability for these years.

The Company anticipates that the IRS will completeits examination of the Company's 2009 and 2010 consolidated federal income tax returns in the second half of 2013.The results of the audit are expected to increase shareholder's net income in 2013 due to the recognition of previously unrecognized tax benefits,the amount of which could be material.