Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

6. INCOME TAXES

Provisions for income taxes have been calculated in accordance with the provisions of ASC 740. Income from continuing operations before income taxes and a summary of the components of income tax expense in the Consolidated Statements of Income are shown below:

YEARS ENDED DECEMBER 31	2023			2022			2021
(in millions)
Income from continuing operations before income taxes	$	41.1		$	144.0		$	521.3
Income tax expense (benefit):
Current	$	32.6		$	73.7		$	77.5
Deferred		(25.0	)		(46.5	)		23.8
Total income tax expense	$	7.6		$	27.2		$	101.3

The income tax expense attributable to the consolidated results of continuing operations is different from the amount determined by multiplying income from continuing operations before income taxes by the U.S. statutory federal income tax rate of 21%. The sources of the difference and the tax effects of each were as follows:

YEARS ENDED DECEMBER 31	2023			2022			2021
(in millions)
Expected income tax expense	$	8.7		$	30.3		$	109.5
Nondeductible expenses		3.8			3.1			2.3
Tax difference related to investment disposals and maturities		(1.3	)		(1.4	)		(4.6	)
Stock-based compensation windfall benefit		(1.1	)		(3.2	)		(2.6	)
Change in uncertain tax positions		(0.9	)		—			—
Current year federal tax credits		(0.7	)		(0.4	)		(0.5	)
Dividend received deduction		(0.5	)		(1.0	)		(1.2	)
Prior years’ federal research tax credits		—			—			(1.7	)
Other, net		(0.4	)		(0.2	)		0.1
Income tax expense	$	7.6		$	27.2		$	101.3
Effective tax rate		18.5	%		18.9	%		19.4	%

The following are the components of the Company’s deferred tax assets and liabilities, excluding those associated with its discontinued operations.

DECEMBER 31	2023		2022
(in millions)
Deferred tax assets:
Loss, LAE and unearned premium reserves, net	$	197.6	$	185.6
Investments, net		97.2		144.3
Employee benefit plans		7.3		8.4
Other		9.2		7.3
Total deferred tax assets		311.3		345.6
Deferred tax liabilities:
Deferred acquisition costs		130.4		127.0
Software capitalization		7.6		19.4
Total deferred tax liabilities		138.0		146.4
Net deferred tax asset	$	173.3	$	199.2

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized. The Company believes it is more likely than not that the deferred tax assets will be realized; therefore there was no valuation allowance required at December 31, 2023 or 2022.

In prior years, the Company completed several transactions which resulted in, for tax purposes only, realized gains in its investment portfolio. As a result of these transactions, the Company was able to utilize capital losses carried forward and to release the valuation allowance recorded against the deferred tax asset related to these losses. The releases of these valuation allowances were recorded as a benefit in accumulated other comprehensive income (loss). Previously unrealized benefits of $1.3 million, $1.4 million and $4.6 million, were recognized as part of income from continuing operations during 2023, 2022 and 2021, respectively. The remaining amount of $4.3 million in accumulated other comprehensive income (loss) will be released into income from continuing operations in future years, as the investment securities subject to these transactions are sold or mature.

The table below provides a reconciliation of the beginning and ending liability for uncertain tax positions as follows:

YEARS ENDED DECEMBER 31	2023			2022		2021
(in millions)
Liability at beginning of year, net	$	2.2		$	2.0	$	0.9
Additions for tax positions of current year		—			0.2		2.0
Subtractions as a result of a lapse of the applicable statute of limitations		(0.9	)		—		(0.9	)
Liability at end of year, net	$	1.3		$	2.2	$	2.0

There were no tax positions at December 31, 2023, 2022 and 2021 for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, a change in the timing of deductions would not impact the annual effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in federal income tax expense. For the years ended December 31, 2023, 2022 and 2021 the Company has released and/or recognized de minimis amounts of net interest and has not recognized any penalties associated with unrecognized tax benefits.

In 2024, the Company is expecting to release $0.9 million of liability due to the expiration of a statute of limitations.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as foreign jurisdictions. The Company and its subsidiaries are subject to U.S. federal and state income tax examinations and foreign examinations for years after 2019. The audit of the Company’s 2019 Illinois business income tax was settled in June 2023 and the audit of the Company’s Massachusetts corporate excise tax for years 2017 and 2018 was settled in October 2022.