Income Taxes

12 Months Ended

Dec. 31, 2023

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)	2023		2022		2021
Current provision (benefit)	$	(633)	$	2,920	$	2,368
Deferred provision	165,001		206,925		161,793
Total income tax provision	$	164,368	$	209,845	$	164,161

The reconciliation of taxes computed at the statutory tax rate of 21% in 2023, 2022 and 2021 to the provision for income taxes is as follows.

Reconciliation of provision for income taxes
	Years Ended December 31,
(In thousands)	2023		2022		2021
Provision for income taxes computed at the statutory tax rate	$	161,172	$	200,084	$	160,615
Change in tax resulting from:
State tax provision (benefit), net of federal impact	8,988		20,869		(1,714)
Valuation allowance	(6,283)		(13,791)		5,700
Other, net	491		2,683		(440)
Provision for income taxes	$	164,368	$	209,845	$	164,161

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)	2023		2022
Deferred tax assets
Net unrealized loss on investments	$	88,065	$	121,497
State income taxes	46,170		54,946
Goodwill and intangibles	29,197		30,782
Unearned premiums	24,948		26,108
Capitalized research and development	12,450		4,740
Accrued expenses	10,829		11,913
Lease liability	9,386		10,371
Differences in fair value of financial instruments	2,840		5,998
Loss reserves	2,805		3,102
Other	28,196		30,673
Total deferred tax assets	$	254,886	$	300,130
Deferred tax liabilities
Contingency reserve	$	755,481	$	587,722
Depreciation	5,795		10,031
Other	19,820		23,823
Total deferred tax liabilities	781,096		621,576
Less: Valuation allowance	63,354		69,637
Net deferred tax asset (liability)	$	(589,564)	$	(391,083)

Current and Deferred Taxes

As of both December 31, 2023 and 2022, our current federal income tax liability was $21 million, 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, 2023 and 2022, this valuation allowance was $63 million and $70 million, respectively.

In addition, as of December 31, 2023, 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, 2023 and 2022, we held $750 million and $596 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 (“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. The new minimum tax, 1% excise tax and other income tax provisions of the IRA did not have a material impact on the Company.

Unrecognized Tax Benefits

As of December 31, 2023, we have $4 million of net unrecognized tax benefits, including $3 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 $776 thousand of expense and $182 thousand of benefit were recorded for the years ended December 31, 2023 and 2022, 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)	2023		2022
Balance at beginning of period	$	20,810	$	19,888
Tax positions related to the current year:
Increases	314		1,791
Decreases	(290)		—
Tax positions related to prior years:
Increases	20,387		17,666
Decreases	(667)		(17)
Lapses of applicable statute of limitation	(20,623)		(18,518)
Balance at end of period	$	19,931	$	20,810

Our gross unrecognized tax benefits decreased by $879 thousand from December 31, 2022, to December 31, 2023, primarily as a result of 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 $297 thousand due to the expiration of the applicable statute of limitations relating to the 2020 tax year. The statute of limitations related to our federal consolidated income tax return remains open for tax years 2020-2023. Additionally, among the entities within our consolidated group, various tax years remain open to potential examination by state and local taxing authorities.