Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

The Company’s deferred income tax assets and liabilities are as follows:

	December 31,
	2020			2019
	(in thousands)
Deferred income tax assets:
Discounting of net unpaid loss and loss adjustment expenses	$	19,297		$	19,985
Unearned premiums		6,984			7,638
Accrued expenses and other		2,947			2,612
State income tax		2,212			2,484
Accrued policyholder dividends		2,020			2,330
Capital loss carryforward		—			20
Accrued insurance-related assessments		1,963			2,672
Total deferred tax assets		35,423			37,741
Less: Valuation allowance		(2,169	)		(2,025	)
Net deferred tax assets		33,254			35,716
Deferred income tax liabilities:
Deferred policy acquisition costs		(4,547	)		(4,838	)
Callable bond amortization		—			(2	)
Unrealized gain on securities available-for-sale		(7,194	)		(3,970	)
Property and equipment and other		(260	)		(271	)
Salvage and subrogation		(516	)		(636	)
Loss reserves adjustment due to the Tax Act		(7,072	)		(8,486	)
Total deferred income tax liabilities		(19,589	)		(18,203	)
Net deferred income taxes	$	13,665		$	17,513

The components of consolidated income tax expense (benefit) are as follows:

	Year Ended December 31,
	2020		2019		2018
	(in thousands)
Current:
Federal	$	17,760	$	20,658	$	16,407
State		900		1,297		1,004
		18,660		21,955		17,411
Deferred:
Federal		1,403		732		(1,389	)
State		254		140		(73	)
		1,657		872		(1,462	)
Total	$	20,317	$	22,827	$	15,949

As of December 31, 2020 and 2019, the Company had a valuation allowance against its deferred income tax benefits of $2.2 and $2.0 million, respectively.  During 2018, there was no valuation allowance on the Company’s deferred income tax assets and liabilities. 

Income tax expense from operations is different from the amount computed by applying the U.S. federal income tax statutory rate of 21% to income before income taxes as follows:

	Year Ended December 31,
	2020			2019			2018
	(in thousands)
Income tax computed at federal statutory tax rate	$	22,453		$	24,258		$	18,392
Tax-exempt interest, net		(3,226	)		(2,999	)		(2,965	)
State income tax		1,080			1,178			720
Dividends received deduction		(89	)		(59	)		(44	)
Other		99			449			(154	)
	$	20,317		$	22,827		$	15,949

In December 2018, the IRS released its guidance for determining the Tax Act transition adjustment related to the discounting of  loss reserves.  During the period ended December 31, 2018, the Company recorded an increase in its deferred tax assets and a corresponding increase in its deferred tax liabilities as a result of the transition adjustment, which had no impact on tax expense recognized in 2018.  

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.  The bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals.  The Company was able to take advantage of a provision in the Act delaying payment of certain payroll taxes until 2021 and 2022.  The CARES Act had no material impact on the Company’s financial statements.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2020, 2019 and 2018.

Tax years 2017 through 2020 are subject to examination by the federal and state taxing authorities.