Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes [Text Block]

(8) Income Taxes

At December 31, 2012 and 2011, we had current income taxes payableof $34.2million and $5.9million, respectively,included in accounts payable and accrued liabilities in the consolidated balance sheets.

The following table summarizes the differences between our effective tax rate for financial statement purposes and the Federal statutory rate.

	2012			2011			2010
Statutory tax rate		35.0	%		35.0	%		35.0	%
Federal tax at statutory rate	$	194,049		$	124,252		$	171,439
Nontaxable municipal bond interest and dividend received deduction		(31,939)			(29,021)			(26,968)
State income taxes, net of federal tax benefit		3,619			3,050			2,397
Foreign income taxes		40,703			25,410			32,008
Foreign tax credit		(40,703)			(25,410)			(32,008)
Uncertain tax positions (net of federal tax benefit (expense) on state
positions: $719 in 2012, $212 in 2011 and $(52) in 2010)		878			38			(1,532)
Other, net		(3,420)			1,444			(605)
Income tax expense	$	163,187		$	99,763		$	144,731
Effective tax rate		29.4	%		28.1	%		29.5	%

The components of income tax expense were as follows:

		2012		2011		2010
Federal current		$	94,493	$	47,993	$	113,837
Federal deferred			20,827		21,075		(3,218)
	Total federal		115,320		69,068		110,619
State current			2,570		2,203		1,797
State deferred			2,997		2,489		1,891
	Total state		5,567		4,692		3,688
Foreign current			34,678		28,543		31,691
Foreign deferred			6,025		(2,790)		317
	Total foreign		40,703		25,753		32,008
Uncertain tax positions			1,597		250		(1,584)
	Income tax expense	$	163,187	$	99,763	$	144,731

The net deferred tax liability is included in accounts payable and accrued liabilitiesin our consolidated balance sheets. The composition of deferred tax assets and liabilities at December 31, 2012 and 2011 was as follows:

		2012		2011
Excess of financial statement unearned premium over tax		$	26,192	$	26,217
Discounting of loss reserves, net of salvage and subrogation			58,105		62,402
Excess of financial statement accrued expenses over tax			18,797		16,331
Allowance for bad debts, not deductible for tax			4,733		6,216
Stock-based compensation expense in excess of deduction for tax			5,133		9,712
Financial statement loss for Lloyd’s syndicates in excess of deduction for tax			0		7,571
Tax basis in net assets of foreign subsidiaries in excess of book basis			2,811		0
Federal tax net operating loss carryforwards			4,744		4,451
State tax net operating loss carryforwards, net of federal tax benefit			2,631		3,352
Federal benefit of state uncertain tax positions			1,142		424
Valuation allowance			(9,187)		(7,983)
	Total deferred tax assets		115,101		128,693
Unrealized gain on increase in value of securities			161,098		120,854
Deferred policy acquisition costs, net of ceding commissions, deductible for tax			15,360		19,482
Amortizable goodwill for tax			97,344		84,110
Financial statement income for Lloyd’s syndicates in excess of taxable income			3,860		0
Book basis in net assets of foreign subsidiaries in excess of tax basis			0		10,504
Depreciation and other items			13,926		11,856
	Total deferred tax liabilities		291,588		246,806
	Net deferred tax liability	$	(176,487)	$	(118,113)

Changes in the valuation allowance account applicable to deferred tax assets relate primarily to net operating losses and other tax attributes for acquired businesses. Changes in the valuation allowance were as follows:

		2012		2011		2010
Balance at beginning of year		$	7,983	$	8,143	$	6,495
Net operating loss carryforwards			1,248		(120)		1,676
Other			(44)		(40)		(28)
	Balance at December 31	$	9,187	$	7,983	$	8,143

At December 31, 2012, we had Federal, state and foreign tax net operating loss carryforwards of approximately $13.6 million, $41.0million and $30.8million, respectively, which will expire in varying amounts through 2032, except for $5.4 million of foreign losses in the U.K. and Ireland that can be carried forward indefinitely. Future use of certain carryforwards is subject to statutory limitations due to prior changes of ownership. We have recorded valuation allowances of $2.4million and $2.6million against our state and foreign loss carryforwards, respectively. Based on our history of taxable income in our domestic insurance and other operations, we believe it is more likely than not that the deferred tax assets related to net operating loss carryforwards, excluding amounts covered by valuation allowances, will be realized.

At December 31, 2012 and 2011, we had recorded tax liabilities for unrecognized gross tax benefits related to uncertain tax positions of $4.1million and $2.5million, respectively.If the uncertain tax benefits as of year-end 2012had been recognized in 2012, the total amount of such benefits would have reduced our2012 income tax expense and our effective tax rate.At December 31, 2012, it is reasonably possible that liabilities for unrecognized tax benefits could decrease $0.2million (including no interest or penalties) in the next twelve months, due to the expiration of statutes of limitation.

The changes in our liability for unrecognized gross tax benefits were as follows:

		2012		2011		2010
Balance at beginning of year		$	2,522	$	2,274	$	3,821
Gross increases
Tax position of current year			145		160		289
Tax position of prior years			2,988		763		259
Gross decreases
Statute expirations			(713)		(595)		(1,244)
Settlements			(404)		0		0
Tax positions of prior years			(409)		(80)		(851)
	Balance at December 31	$	4,129	$	2,522	$	2,274

We report any potential net interest income/expense and penalties related to changes in our uncertain tax positions in our consolidated statements of earnings as interest expense and other operating expense, respectively. We recognized net interest expense of $0.5 million and no penalties in 2012, andminimal amounts of interest income/expense and no penalties in 2011 and 2010. At December 31, 2012, we had no accrual for penalties and $0.9million for interest payable.

We file income tax returns in the U.S. Federal jurisdiction, and various state and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. Federal, state and local, or foreign income tax examinations by tax authorities for years before 2008. We currently are not under examination by any U.S. Federal or foreign jurisdiction. Our New York income tax returns for 2007 – 2009, our Massachusetts income tax returns for 2009 –2010, and our Illinois income tax returns for 2009 – 2010 are currently under audit. While we cannot predict the outcome of these audits, we do not anticipate the results of these state tax audits to have a material effect on our consolidated financial position, results of operations or cash flows.