FEDERAL INCOME TAX

12 Months Ended

Dec. 31, 2020

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.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision and has included an income tax benefit of $18.6 million as the result of this Act.

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



Years Ended December 31,	2020		2019		2018
Current	$	(46,861)	$	(7,843)	$	18,493
Deferred	(9,948)		9,902		(21,791)
Total	$	(56,809)	$	2,059	$	(3,298)

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 21.0 percent in 2020, 2019 and 2018 to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:



Years Ended December 31,	2020		2019		2018
Computed expected income tax expense (benefit)	$	(35,598)	$	3,544	$	5,114

The CARES Act	(18,562)		—		—
Tax-exempt municipal bond interest income	(3,669)		(3,961)		(4,235)
Nontaxable dividend income	(517)		(594)		(591)
Goodwill impairment	3,169		—		—
Valuation allowance reduction	—		—		(329)

Compensation	695		1,638		(497)
Reinsurance	—		998		—
Research and development credit	(2,045)		—		—
Other, net	(282)		434		(2,760)
Consolidated federal income tax expense (benefit)	$	(56,809)	$	2,059	$	(3,298)

Reconciliation of consolidated federal income tax expense (benefit) from:
Continuing operations	$	(56,809)	$	2,059	$	(11,405)
Gain on sale of discontinued operations	—		—		7,544
Discontinued operations	—		—		563
Consolidated federal income tax expense (benefit)	$	(56,809)	$	2,059	$	(3,298)

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, 2020 and 2019 are as follows:



December 31,	2020		2019
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities	$	33,096	$	48,652
All other securities	22,082		12,568
Deferred policy acquisition costs	18,289		19,801
Investments in partnerships	964		2,156
Prepaid pension cost	4,553		4,441
Net bond discount accretion	383		357
Depreciation	4,187		1,908
Revaluation of investment basis (1)	325		377
Identifiable intangible assets (1)	1,391		1,540
Capitalized Software	4,891		—
Other	1,568		1,416
Gross deferred tax liability	91,729		$	93,216
Deferred tax assets
Financial statement reserves in excess of income tax reserves	$	23,851	$	20,845
Unearned premium adjustment	18,979		20,816
Net operating loss carryforwards	—		1,708
Underfunded benefit plan obligation	4,295		9,072
Post-retirement benefits other than pensions	9,533		10,785
Other-than-temporary impairment of investments	1,974		2,094



Compensation expense related to stock options	2,307		2,394

Nonqualified deferred compensation	2,066		1,623
Other	3,795		3,293


Deferred tax asset	$	66,800	$	72,630
Net deferred tax liability	$	24,929	$	20,586

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

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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