Note E - Income Taxes

Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:

	2015			2014
Deferred tax liabilities:
Unrealized gain on fixed income and equity security investments	$	20,959		$	27,914
Deferred acquisition costs		877			1,341
Loss and loss expense reserves		2,305			2,373
Limited partnership investments		1,771			4,636
Accelerated depreciation		897			601
Other		1,024			628
Total deferred tax liabilities		27,833			37,493

Deferred tax assets:
Loss and loss expense reserves		9,349			10,973
Unearned premiums discount		1,593			2,201
Other-than-temporary investment declines		3,437			2,049
Deferred compensation		1,699			1,565
Deferred ceding commission		371			549
Other		186			183
Total deferred tax assets		16,635			17,520

Net deferred tax liabilities	$	(11,198	)	$	(19,973	)

A summary of the difference between federal income tax expense computed at the statutory rate and that reported in the consolidated financial statements is as follows:

	2015			2014			2013

Statutory federal income rate applied to pretax income	$	11,883		$	15,539		$	19,218
Tax effect of (deduction):
Tax-exempt investment income		(919	)		(924	)		(811	)
Other		(295	)		66			(85	)
Federal income tax expense	$	10,669		$	14,681		$	18,322

Federal income tax expense consists of the following:

	2015			2014		2013
Taxes (benefit) on pre-tax income:
Current	$	12,488		$	13,041	$	17,383
Deferred		(1,819	)		1,640		939
	$	10,669		$	14,681	$	18,322

The components of the provision for deferred federal income taxes are as follows:

	2015			2014			2013
Limited partnerships	$	(2,865	)	$	2,025		$	1,058
Discounts of loss and loss expense reserves		1,526			113			313
Unearned premium discount		608			(38	)		(65	)
Deferred compensation		(127	)		(685	)		(146	)
Other-than-temporary investment declines		(1,416	)		(19	)		680
Deferred acquisitions costs and ceding commission		(287	)		(20	)		(271	)
Other		742			264			(630	)
Provision for deferred federal income tax	$	(1,819	)	$	1,640		$	939

Cash flows related to federal income taxes paid, net of refunds received, for 2015, 2014 and 2013 were $14,500, $11,619 and $17,250, respectively.

The Company is required to establish a valuation allowance for any portion of the gross deferred tax asset that management believes will not be realized. Management has determined that no such valuation allowance is necessary at December 31, 2015 or 2014. As of December 31, 2015, only the calendar year 2014 remains subject to examination by the IRS.

The Company has no uncertain tax positions as of December 31, 2015 or 2014. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense and changes in such accruals would impact the Company's effective tax rate. There were no amounts accrued for the payment of interest at December 31, 2015, 2014 and 2013.