Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Provision

The components of our consolidated income tax provision from continuing operations are as follows.

Income tax provision
	Years Ended December 31,
(In thousands)	2022		2021		2020
Current provision (benefit)	$	2,920	$	2,368	$	(16,264)
Deferred provision	206,925		161,793		102,079
Total income tax provision	$	209,845	$	164,161	$	85,815

The reconciliation of taxes computed at the statutory tax rate of 21% in 2022, 2021 and 2020 to the provision for income taxes is as follows.

Reconciliation of provision for income taxes
	Years Ended December 31,
(In thousands)	2022		2021		2020
Provision for income taxes computed at the statutory tax rate	$	200,084	$	160,615	$	100,683
Change in tax resulting from:
State tax provision (benefit), net of federal impact	20,869		(1,714)		(9,062)
Valuation allowance	(13,791)		5,700		11,290
Uncertain tax positions	(1,076)		853		(14,784)
Other, net	3,759		(1,293)		(2,312)
Provision for income taxes	$	209,845	$	164,161	$	85,815

Deferred Tax Assets and Liabilities

The significant components of our net deferred tax assets and liabilities from continuing operations are summarized as follows.

Deferred tax assets and liabilities
	December 31,
(In thousands)	2022		2021
Deferred tax assets
Net unrealized loss on investments	$	121,497	$	—
State income taxes, net of federal impact	58,031		77,637
Goodwill and intangibles	30,782		29,723
Unearned premiums	26,108		23,699
Accrued expenses	11,913		16,584
Lease liability	10,371		11,240
Differences in fair value of financial instruments	5,998		—
Loss reserves	3,102		6,286
Other	32,328		27,932
Total deferred tax assets	$	300,130	$	193,101
Deferred tax liabilities
Contingency reserve	$	587,722	$	368,000
Depreciation	10,031		12,775
Net unrealized gain on investments	—		31,876
Differences in fair value of financial instruments	—		7,763
Other	23,823		26,768
Total deferred tax liabilities	621,576		447,182
Less: Valuation allowance	69,637		83,428
Net deferred tax asset (liability)	$	(391,083)	$	(337,509)

Current and Deferred Taxes

As of December 31, 2022 and 2021, our current federal income tax liability was $21.4 million and $19.9 million, respectively, which primarily relates to applying the standards of accounting for uncertainty in income taxes, and is included as a component of other liabilities in our consolidated balance sheets.

We are required to establish a valuation allowance against our deferred tax assets when it is more likely than not that all or some portion of our deferred tax assets will not be realized. At each balance sheet date, we assess our need for a valuation allowance, and this assessment is based on all available evidence, both positive and negative. This requires management to exercise judgment and make assumptions regarding whether our deferred tax assets will be realized in future periods. Certain entities within our consolidated group have generated net deferred tax assets relating primarily to state and local NOL carryforwards which, if unutilized, will expire during various future tax periods. We have determined that certain of these entities may continue to generate taxable losses on a separate company basis in the near term and may not be able to fully utilize certain of their state and local NOLs on their state and local tax returns. Therefore, we have concluded a valuation allowance is required with respect to deferred tax assets relating to these state and local NOLs and other state timing adjustments. As of December 31, 2022 and 2021, this valuation allowance was $69.6 million and $83.4 million, respectively. In addition, as of December 31, 2022, we have generated deferred tax assets related to unrealized capital losses, and we consider it more likely than not that these assets will be realized. We will continue to monitor the level of these losses and our overall ability to realize the related deferred tax assets in the coming quarters.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Internal Revenue Code Section 832(e) for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that, in conjunction with quarterly federal tax payment due dates, we purchase non-interest-bearing U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. As of December 31, 2022 and 2021, we held $596.4 million and $354.1 million, respectively, of these bonds, which are included as prepaid federal

income taxes in our consolidated balance sheets. The corresponding deduction of our statutory contingency reserves resulted in the recognition of a net deferred tax liability. See Note 16 for additional information about our U.S. Mortgage Guaranty Tax and Loss Bonds.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (the “IRA”), which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases that occur after December 31, 2022, and several tax incentives to promote clean energy. Currently, we do not believe that this new minimum tax or the other income tax provisions of the IRA will have a material impact on our consolidated financial statements.

Unrecognized Tax Benefits

As of December 31, 2022, we have $2.8 million of net unrecognized tax benefits, including $2.1 million of interest and penalties, that would affect the effective tax rate if recognized. Our policy for the recognition of interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision, of which $0.2 million of benefit and $0.7 million of expense were recorded for the years ended December 31, 2022 and 2021, respectively.

A reconciliation of the beginning and ending gross unrecognized tax benefits is as follows.

Reconciliation of gross unrecognized tax benefits
	Years Ended December 31,
(In thousands)	2022		2021
Balance at beginning of period	$	19,888	$	20,249
Tax positions related to the current year:
Increases	1,791		267
Decreases	—		(858)
Tax positions related to prior years:
Increases	17,666		230
Decreases	(17)		—
Lapses of applicable statute of limitation	(18,518)		—
Balance at end of period	$	20,810	$	19,888

Our gross unrecognized tax benefits increased by $0.9 million from December 31, 2021, to December 31, 2022, primarily due to the impact of unrecognized tax benefits associated with our recognition of certain premium income, partially offset by reductions related to lapses of the statute of limitations. Although unrecognized tax benefits decreased due to statute expirations, certain amounts for premium income recognition continued to impact subsequent years, resulting in a corresponding increase in unrecognized tax benefits related to premium income recognition. Over the next 12 months, our unrecognized tax benefits may decrease by approximately $0.4 million due to the expiration of the applicable statute of limitations relating to the 2019 tax year. The statute of limitations related to our federal consolidated income tax return remains open for tax years 2019-2022. Additionally, among the entities within our consolidated group, various tax years remain open to potential examination by state and local taxing authorities.