Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure

Income Taxes

6. 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)	2024		2023
Deferred tax assets:
Tax discounting of unpaid losses and settlement expenses	$	29,524	$	25,491
Unearned premium offset		36,086		32,763
Deferred compensation		4,630		4,170
Share-based compensation expense		3,685		3,556
Capitalized research and development costs		6,350		4,970
Lease liability		3,288		3,113
Other		3,864		2,949
Deferred tax assets before allowance	$	87,427	$	77,012
Less valuation allowance		—		—
Total deferred tax assets	$	87,427	$	77,012
Deferred tax liabilities:
Net unrealized appreciation of securities	$	25,898	$	10,981
Deferred policy acquisition costs		34,905		30,779
Lease asset		2,943		2,870
Discounting of unpaid losses and settlement expenses - Tax Cuts and Jobs Act (TCJA) implementation offset		636		1,272
Fixed assets		2,908		2,745
Intangible assets		1,561		1,552
Undistributed earnings of unconsolidated investees		10,265		10,351
Other		518		590
Total deferred tax liabilities	$	79,634	$	61,140
Net deferred tax asset	$	7,793	$	15,872

Income tax expense (benefit) attributable to income from operations for the years ended December 31, 2024, 2023 and 2022, 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)	2024					2023					2022
Provision for income taxes at the statutory federal tax rates	$	89,786		21.0	%	$	79,226		21.0	%	$	151,342		21.0	%
Increase (reduction) in taxes resulting from:
Excess tax benefit on share-based compensation		(5,580)		(1.3)	%		(3,774)		(1.0)	%		(4,491)		(0.6)	%
Tax-exempt interest income		(905)		(0.2)	%		(1,092)		(0.3)	%		(1,143)		(0.2)	%
Dividends received deduction		(1,326)		(0.3)	%		(938)		(0.2)	%		(912)		(0.1)	%
Tax credit		(3,539)		(0.8)	%		(3,644)		(1.0)	%		(6,204)		(0.9)	%
ESOP dividends paid deduction		(2,545)		(0.6)	%		(1,591)		(0.4)	%		(4,171)		(0.6)	%
Nondeductible expenses		3,726		0.9	%		3,351		0.9	%		1,263		0.2	%
Other items, net		2,155		0.4	%		1,116		0.3	%		1,583		0.2	%
Total	$	81,772	​	19.1	%	$	72,654	​	19.3	%	$	137,267	​	19.0	%

Effective rates are dependent upon components of pretax earnings and the related tax effects. The effective rate was slightly lower in 2024 due to higher 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. We received a $3 million dividend from Prime in 2024 and recognized less than $1 million of tax benefit from applying the lower tax rate applicable to affiliated dividends paid to insurance companies (10.8 percent), as compared to the corporate capital gains rate on which the deferred tax liabilities were based. No dividends were declared from Prime in 2023 or 2022, 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 2024, 2023 and 2022 resulted in tax benefits of $3 million, $2 million and $4 million, respectively. These tax benefits reduced the effective tax rate for 2024, 2023 and 2022 by 0.6 percent, 0.4 percent and 0.6 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 we believe 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 2024, 2023 and 2022 amounted to $68 million, $50 million and $190 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 12 to the consolidated financial statements for more information on the sale.

Although we are not currently under audit by the IRS, tax years 2021 through 2024 remain open and are subject to examination.