Income Taxes

The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.

The Internal Revenue Service (“IRS”) is currently examining the Company’s 2013 and 2014 federal income tax returns. The Company’s tax years prior to 2013 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of the Company’s tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.

The reconciliation of the change in the amount of unrecognized tax benefits for the years ended December 31 is as follows:



($ in millions)	2016		2015		2014
Balance – beginning of year	$	7	$	—	$	—
Increase for tax positions taken in a prior year	—		4		—
Decrease for tax positions taken in a prior year	—		—		—
Increase for tax positions taken in the current year	3		3		—
Decrease for tax positions taken in the current year	—		—		—
Decrease for settlements	—		—		—
Reductions due to lapse of statute of limitations	—		—		—
Balance – end of year	$	10	$	7	$	—

The Company believes it is reasonably possible that the liability balance will not significantly increase within the next twelve months. Because of the impact of deferred tax accounting, recognition of previously unrecognized tax benefits is not expected to impact the Company’s effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company did not record interest income or expense relating to unrecognized tax benefits in income tax expense in 2016, 2015 or 2014. As of December 31, 2016 and 2015, there was no interest accrued with respect to unrecognized tax benefits. No amounts have been accrued for penalties.

The components of the deferred income tax assets and liabilities as of December 31 are as follows:



($ in millions)	2016			2015
Deferred assets
Unearned premium reserves	$	819		$	796
Pension	294			236
Accrued compensation	203			189
Discount on loss reserves	188			203
Difference in tax bases of invested assets	78			202
Other postretirement benefits	64			76
Other assets	118			137
Total deferred assets	1,764			1,839
Deferred liabilities
DAC	(1,211		)	(1,157		)
Unrealized net capital gains	(529		)	(303		)
Life and annuity reserves	(324		)	(260		)
Other liabilities	(187		)	(209		)
Total deferred liabilities	(2,251		)	(1,929		)
Net deferred liability	$	(487	)	$	(90	)

Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized.

As of December 31, 2016, the Company has net operating loss carryforwards of $42 million which will expire at the end of 2025 through 2029.

The components of income tax expense for the years ended December 31 are as follows:



($ in millions)	2016		2015		2014
Current	$	654	$	1,033	$	1,123
Deferred	223		78		263
Total income tax expense	$	877	$	1,111	$	1,386

The Company paid income taxes of $359 million, $1.07 billion and $1.07 billion in 2016, 2015 and 2014, respectively. The Company had current income tax payable of $135 million as of December 31, 2016 and current income tax receivable of $59 million as of December 31, 2015.

A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:



	2016		2015		2014
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Tax-exempt income	(1.2	)	(1.0	)	(0.9	)
Tax credits	(1.2	)	(0.9	)	(0.7	)
Sale of subsidiary	—		—		(0.9	)
Other ⁽¹⁾	(0.7	)	0.8		0.2
Effective income tax rate	31.9	%	33.9	%	32.7	%

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⁽¹⁾	Includes $45 million of income tax expense related to the change in accounting guidance for investments in qualified affordable housing projects adopted in 2015.