Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes [Abstract]

Income Taxes [Text Block]

(8) Income Taxes

At December 31, 2014 and 2013, we had current income taxes payableof $27.9million and $2.0 million, 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.

	2014			2013			2012
Statutory tax rate		35.0	%		35.0	%		35.0	%
Federal tax at statutory rate	$	231,643		$	200,448		$	194,049
Nontaxable municipal bond interest and dividend received deduction		(35,166)			(34,734)			(31,939)
State income taxes, net of federal tax benefit		2,135			2,097			3,619
Foreign income taxes		42,093			42,691			40,703
Foreign tax credit		(42,093)			(42,691)			(40,703)
Uncertain tax positions (net of federal tax benefit on state
positions: $223 in 2014, $340 in 2013 and $719 in 2012)		1,091			518			878
Other, net		3,790			(2,816)			(3,420)
Income tax expense	$	203,493		$	165,513		$	163,187
Effective tax rate		30.7	%		28.9	%		29.4	%

The components of income tax expense were as follows:

		2014		2013		2012
Federal current		$	126,442	$	117,933	$	94,493
Federal deferred			30,359		804		20,827
	Total federal		156,801		118,737		115,320
State current			1,740		2,649		2,570
State deferred			1,545		578		2,997
	Total state		3,285		3,227		5,567
Foreign current			35,243		37,978		34,678
Foreign deferred			6,850		4,713		6,025
	Total foreign		42,093		42,691		40,703
Uncertain tax positions			1,314		858		1,597
	Income tax expense	$	203,493	$	165,513	$	163,187

The net deferred tax liability is included in accounts payable and accrued liabilitiesin our consolidated balance sheets. The deferred tax liability that related to the book over tax basis of our foreign subsidiaries at December 31, 2014 and 2013 was based on the assumption that we will merge certain subsidiaries in our International operations. The composition of deferred tax assets and liabilities at December 31, 2014 and 2013 was as follows:

		2014		2013
Excess of financial statement unearned premium over tax		$	30,225	$	26,821
Discounting of loss reserves, net of salvage and subrogation			40,046		50,481
Excess of financial statement accrued expenses over tax			20,103		18,920
Allowance for bad debts, not deductible for tax			2,427		3,146
Stock-based compensation expense in excess of deduction for tax			8,919		5,163
Financial statement loss for Lloyd’s syndicates in excess of deduction for tax			-		351
Federal tax net operating loss carryforwards			2,983		3,202
State tax net operating loss carryforwards			441		181
Foreign tax net operating loss carryforwards			20,008		22,605
Federal benefit of state uncertain tax positions			1,705		1,482
Valuation allowance			(25,050)		(27,430)
	Total deferred tax assets		101,807		104,922
Unrealized gain on increase in value of securities			91,515		52,424
Deferred policy acquisition costs, net of ceding commissions, deductible for tax			15,764		14,570
Amortizable goodwill for tax			123,017		110,064
Financial statement income for Lloyd’s syndicates in excess of taxable income			7,143		-
Book basis in net assets of foreign subsidiaries in excess of tax basis			23,075		2,414
Depreciation and other items			12,676		14,458
	Total deferred tax liabilities		273,190		193,930
	Net deferred tax liability	$	(171,383)	$	(89,008)

Changes in the valuation allowance account applicable to deferred tax assets relate primarily to net operating losses in various foreign and state tax jurisdictions.Changes in the valuation allowance were as follows:

		2014		2013		2012
Balance at beginning of year		$	27,430	$	9,187	$	7,983
State net operating loss carryforwards			260		(2,228)		(651)
Foreign net operating loss carryforwards			(3,232)		20,207		296
Other			592		264		1,559
	Balance at December 31	$	25,050	$	27,430	$	9,187

At December 31, 2014, we had Federal, state and Spanish tax net operating loss carryforwards of approximately $8.5 million, $17.6 million and $71.7 million, respectively, which will expire in varying amounts through 2034. We had $11.7 million of additional foreign net operating losses in the U.K., France and Ireland that can be carried forward indefinitely. Future use of our $8.5 million Federal loss carryforward is subject to statutory limitations due to a prior ownership change. We have recorded valuation allowances of $5.0 million and $20.0 million against our state and Spanish 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, 2014 and 2013, we had recorded tax liabilities for unrecognized gross tax benefits related to uncertain tax positions of $6.3million and $5.0million, respectively.If the uncertain tax benefits as of year-end 2014had been recognized in 2014, the total amount of such benefits would have reduced our2014 income tax expense and our effective tax rate. At December 31, 2014, it is reasonably possible that liabilities for unrecognized tax benefits could decrease $0.1million (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:

		2014		2013		2012
Balance at beginning of year		$	5,003	$	4,129	$	2,522
Gross increases
Tax position of current year			593		632		145
Tax positions of prior years			825		506		2,988
Gross decreases
Statute expirations			(151)		(264)		(713)
Settlements			-		-		(404)
Tax positions of prior years			-		-		(409)
	Balance at December 31	$	6,270	$	5,003	$	4,129

We report any potential net interest income and 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 $0.7million in 2014, $0.3million in 2013 and $0.5 million in 2012, and no penalties in any year. At December 31, 2014, we had no accrual for penalties and $1.9million 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 2009. We currently are not under U.S. Federal examination. Our income tax returns for New York (2007 – 2012), Massachusetts (2009 – 2010), Illinois (2009 – 2011), California (2011 – 2012), Spain (2009 – 2010) and France (2011 – 2013) are currently under audit. While we cannot predict the outcome of these audits, we do not anticipate the results to have a material effect on our consolidated financial position, results of operations or cash flows.