Income Taxes

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Income Taxes

Allocation of Income Taxes:	Years Ended December 31,
($ in thousands)	2011		2010		2009
Income tax expense (benefit) attributable to:
Current	$	7,236	$	(11,138)	$	28,445
Deferred		(16,648)		431		(22,438)
Income tax expense (benefit)	$	(9,412)	$	(10,707)	$	6,007
Income taxes paid (recovered)	$	(2,478)	$	1,264	$	11,489

Effective Income Tax Rate:	Years Ended December 31,
($ in thousands)	2011		2010		2009
Income (loss) before income taxes	$	7,550	$	(35,583)	$	(15,146)
Income taxes at statutory rate of 35.0%		2,643		(12,454)		(5,301)
Dividend received deduction		(2,000)		(591)		(1,376)
ASC 740 increase (decrease)		--		(52)		(667)
Valuation allowance increase (decrease)		(10,800)		(400)		9,500
IRS audit settlements/adjustments		768		2,488		3,843
Other, net		(23)		302		8
Applicable income taxes (benefit)	$	(9,412)	$	(10,707)	$	6,007
Effective income tax rates		(124.7%)		30.1%		(39.7%)

Deferred Income Tax Balances Attributable to Temporary Differences:	As of December 31,
($ in thousands)	2011		2010
Deferred income tax assets:
Future policyholder benefits	$	96,416	$	61,608
Unearned premiums / deferred revenues		17,853		21,450
Investments		14,507		36,678
Net operating and capital loss carryover benefits		25,770		44,454
Alternative minimum tax credits		4,466		--
Valuation allowance		--		(10,800)
Gross deferred income tax assets		159,012		153,390
Deferred income tax liabilities:
Deferred policy acquisition costs		163,633		156,406
Other		2,141		10,355
Gross deferred income tax liabilities		165,774		166,761
Deferred income tax liabilities	$	6,762	$	13,371

As of December 31, 2011, we performed our assessment of the realization of deferred tax assets. Significant management judgment is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against our deferred tax assets. Our methodology for determining the realizability of deferred tax assets involves estimates of future taxable income and consideration of available tax planning strategies and actions that could be implemented, if necessary. These estimates are projected through the life of the related deferred tax assets based on assumptions that we believe to be reasonable and consistent with current operating results. Changes in future operating results not currently forecasted may have a significant impact on the realization of deferred tax assets. Based on the scheduling of gross deferred tax liabilities, a valuation allowance is not required at December 31, 2011, as we believe it is more likely than not that the deferred tax assets will be recognized.

For the year ended December 31, 2011, we recognized a decrease in the valuation allowance of $10,800 thousand. Accounting guidance requires that this movement be allocated to the various financial statement components of income or loss. The entire decrease to the valuation allowance corresponds to a decrease of $10,800 thousand in income statement related deferred tax balances. An income tax benefit of $9,412 thousand recognized through the income statement primarily reflects the decrease of the valuation allowance.

As of December 31, 2011, $25,770 thousand of net operating and capital loss carryover benefits were included in the deferred tax asset. Of this amount, $16,761 thousand related to $47,888 thousand of federal net operating losses scheduled to expire in 2024. An additional $9,010 thousand related to $25,742 thousand of federal capital losses scheduled to expire in 2014 and 2016.

As of December 31, 2011, we had deferred tax assets of $4,466 thousand related to alternative minimum tax credit carryovers which do not expire.

As of December 31, 2011, in accordance with the tax sharing agreement, we had an intercompany current tax payable of $15,514 thousand.

The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2010. During 2011, the Company resolved examination issues for 2009. No material unanticipated assessments were incurred and no increases were necessary to our liability for uncertain tax positions.

The Company does not anticipate that any event will result in a significant change in the existing balance of unrecognized tax benefits within 12 months. Management believes that adequate provisions have been made in the financial statements for any potential assessments that may result from tax examinations and other tax related matters for all open tax years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits:	2011		2010
($ in thousands)
Balance, beginning of year	$	--	$	52
Reductions for tax positions of prior years		--		(52)
Settlements with taxing authorities		--		--
Balance, end of year	$	--	$	--

Based upon the timing and status of our current examinations by taxing authorities, we do not believe that it is reasonably possible that any changes to the balance of unrecognized tax benefits occurring within the next 12 months will result in a significant change to the results of operations, financial condition or liquidity. In addition, we do not anticipate that there will be additional payments made or refunds received within the next 12 months with respect to the years under audit. We do not anticipate any increases to the existing unrecognized tax benefits that would have a significant impact on the financial position of the Company.