Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

7. INCOME TAXES

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are summarized below.

(in thousands)	2023		2022
Deferred tax assets:
Tax discounting of unpaid losses and settlement expenses	$	25,491	$	23,788
Unearned premium offset		32,763		27,158
Net unrealized depreciation of securities		—		19,839
Deferred compensation		4,170		4,058
Share-based compensation expense		3,556		3,202
Capitalized research and development costs		4,970		2,544
Lease liability		3,113		3,026
Other		2,949		938
Deferred tax assets before allowance	$	77,012	$	84,553
Less valuation allowance		—		—
Total deferred tax assets	$	77,012	$	84,553
Deferred tax liabilities:
Net unrealized appreciation of securities	$	10,981	$	—
Deferred policy acquisition costs		30,779		26,850
Lease asset		2,870		2,681
Discounting of unpaid losses and settlement expenses - Tax Cuts and Jobs Act (TCJA) implementation offset		1,272		1,909
Fixed assets		2,745		3,083
Intangible assets		1,552		1,543
Undistributed earnings of unconsolidated investees		10,351		7,399
Other		590		819
Total deferred tax liabilities	$	61,140	$	44,284
Net deferred tax asset	$	15,872	$	40,269

Income tax expense (benefit) attributable to income from operations for the years ended December 31, 2023, 2022 and 2021, differed from the amounts computed by applying the U.S. federal tax rate of 21 percent to pretax income from continuing operations as demonstrated in the following table:

(in thousands)	2023					2022					2021
Provision for income taxes at the statutory federal tax rates	$	79,226		21.0	%	$	151,342		21.0	%	$	72,307		21.0	%
Increase (reduction) in taxes resulting from:
Excess tax benefit on share-based compensation		(3,774)		(1.0)	%		(4,491)		(0.6)	%		(3,090)		(0.9)	%
Tax-exempt interest income		(1,092)		(0.3)	%		(1,143)		(0.2)	%		(1,219)		(0.3)	%
Dividends received deduction		(938)		(0.2)	%		(912)		(0.1)	%		(891)		(0.3)	%
Tax credit		(3,644)		(1.0)	%		(6,204)		(0.9)	%		(4,657)		(1.3)	%
ESOP dividends paid deduction		(1,591)		(0.4)	%		(4,171)		(0.6)	%		(1,566)		(0.5)	%
Nondeductible expenses		3,351		0.9	%		1,263		0.2	%		3,834		1.1	%
Other items, net		1,116		0.3	%		1,583		0.2	%		249		0.1	%
Total	$	72,654	​	19.3	%	$	137,267	​	19.0	%	$	64,967	​	18.9	%

Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was higher in 2023 due to lower levels of tax-favored adjustments.

Our net earnings include equity in earnings of unconsolidated investees. The investees do not have a policy or pattern of paying dividends. As a result, we record a deferred tax liability on the earnings at the corporate capital gains rate of 21 percent in anticipation of recovering our investments through means other than through the receipt of dividends, such as a sale. No dividends were declared from unconsolidated investees in 2023, 2022 or 2021, therefore having no impact to their respective effective tax rates.

Dividends paid to our Employee Stock Ownership Plan (ESOP) also result in a tax deduction. Dividends paid to the ESOP in 2023, 2022 and 2021 resulted in tax benefits of $2 million, $4 million and $2 million, respectively. These tax benefits reduced the effective tax rate for 2023, 2022 and 2021 by 0.4 percent, 0.6 percent and 0.5 percent, respectively.

We have recorded our deferred tax assets and liabilities using the statutory federal tax rate of 21 percent. We believe it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the projected results of future operations, which will generate sufficient taxable income to realize the deferred tax asset. In addition, we believe when these deferred items reverse in future years, our taxable income will be taxed at an effective rate of 21 percent.

Federal and state income taxes paid in 2023, 2022 and 2021 amounted to $50 million, $190 million and $39 million, respectively. The larger amount paid in 2022 was the result of taxes paid on the sale of our investment in Maui Jim. See note 13 for more information on the sale.

Although we are not currently under audit by the IRS, tax years 2020 through 2023 remain open and are subject to examination.