FEDERAL INCOME TAX

12 Months Ended

Dec. 31, 2019

The Tax Act was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of December 31, 2018 we have completed accounting for the tax effects of enactment of the Tax Act and no adjustments were made during the measurement period.

Federal income tax expense (benefit) from both continuing and discontinued operations is composed of the following:




Years Ended December 31,	2019			2018			2017
Current	$	(7,843	)	$	18,493		$	1,989
Deferred	9,902			(21,791		)	(26,719		)
Total	$	2,059		$	(3,298	)	$	(24,730	)

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 21.0 percent in 2019 and 2018 and 35.0 percent in 2017 to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:




Years Ended December 31,	2019			2018			2017
Computed expected income tax expense	$	3,544		$	5,114		$	9,202
Impact of enactment of Tax Act	—			—			(21,884		)
Tax-exempt municipal bond interest income	(3,961		)	(4,235		)	(8,875		)
Nontaxable dividend income	(594		)	(591		)	(1,540		)
Valuation allowance reduction	—			(329		)	(547		)
Compensation	1,638			(497		)	(695		)
Reinsurance	998			—			—
Other, net	434			(2,760		)	(391		)
Consolidated federal income tax expense (benefit)	$	2,059		$	(3,298	)	$	(24,730	)

Reconciliation of consolidated federal income tax expense (benefit) from:
Continuing operations	$	2,059		$	(11,405	)	$	(29,220	)
Gain on sale of discontinued operations				7,544			—
Discontinued operations	—			563			4,490
Consolidated federal income tax expense (benefit)	$	2,059		$	(3,298	)	$	(24,730	)

We measure certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 21.0 percent. The significant components of our net deferred tax liability at December 31, 2019 and 2018 are as follows:




December 31,	2019		2018
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities	$	48,652	$	38,430
All other securities	12,568		(2,478		)
Deferred policy acquisition costs	19,801		19,487
Investments in partnerships	2,156		2,510
Prepaid pension cost	4,441		4,158
Net bond discount accretion	357		296
Depreciation	1,908		1,063
Revaluation of investment basis⁽¹⁾	377		419
Identifiable intangible assets ⁽¹⁾	1,540		1,689
Other	1,416		1,639
Gross deferred tax liability	$	93,216	$	67,213
Deferred tax assets
Financial statement reserves in excess of income tax reserves	$	20,845	$	19,800
Unearned premium adjustment	20,816		20,406
Net operating loss carryforwards	1,708		—
Underfunded benefit plan obligation	9,072		5,622
Post-retirement benefits other than pensions	10,785		12,035
Other-than-temporary impairment of investments	2,094		2,094
Contingent ceding commission accrual	—		14
Compensation expense related to stock options	2,394		3,506
Other	4,916		4,648
Deferred tax asset	$	72,630	$	68,125
Net deferred tax liability (asset)	$	20,586	$	(912	)

(1) Related to our acquisition of Mercer Insurance Group, Inc.