Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

Note 9.  Income Taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

At September 30, 2012, we recorded a net deferred tax liability of $351 million on our Consolidated Statements of Financial Position.  Of this amount, $16 million is a net deferred tax asset attributable to Indemnity and $367 million is a net deferred tax liability attributable to the Exchange.  There was no deferred tax valuation allowance recorded at September 30, 2012.  Our effective tax rate is calculated after consideration of permanent differences related to our investment revenues.  Given that these amounts represent 98% of the total permanent differences, the effective tax rate is approximately 35% for both Indemnity and the Exchange when the investment related permanent differences are excluded.