11. Income Taxes

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Income Taxes

Phoenix and PHL Variable file a consolidated U.S. Federal income tax return. The Company also files combined, unitary and separate income tax returns in various states.

Significant Components of Income Taxes:	Years Ended December 31,
($ in millions)	2012			2011			2010
				As restated			As restated
				and amended			and amended
Income tax expense (benefit) attributable to:
Current	$	27.7		$	0.6		$	(21.9	)
Deferred		(11.5	)		(6.9	)		(10.4	)
Income tax expense (benefit)	$	16.2		$	(6.3	)	$	(32.3	)

Reconciliation of Effective Income Tax Rate:	Years Ended December 31,
($ in millions)	2012			2011			2010
				As restated			As restated
				and amended			and amended
Loss before income taxes	$	(121.5	)	$	(26.3	)	$	(95.9	)
Income tax benefit at statutory rate of 35.0%		(42.5	)		(9.2	)		(33.6	)
Dividend received deduction		(1.5	)		(2.0	)		(0.6	)
Valuation allowance increase (release)		60.2			4.1			(1.0	)
Other, net		—			0.8			2.9
Income tax expense (benefit)	$	16.2		$	(6.3	)	$	(32.3	)
Effective income tax rates		(13.3	%)		23.9	%		33.7	%

Allocation of Income Taxes:	Years Ended December 31,
($ in millions)	2012		2011			2010
			As restated			As restated
			and amended			and amended
Income tax expense (benefit)	$	16.2	$	(6.3	)	$	(32.3	)
Income tax from OCI:
Unrealized		24.9		4.2			9.2
Pension		—		—			—
Policy dividend obligation & deferred policy acquisition cost		—		—			—
Other		—		—			—
Income tax related to cumulative effect of change in accounting		—		—			0.9
Total income tax recorded to all components of income	$	41.1	$	(2.1	)	$	(22.2	)

Deferred Income Tax Balances Attributable to Temporary Differences:	As of December 31,
($ in millions)	2012			2011
				As restated
				and amended
Deferred income tax assets
Future policyholder benefits	$	276.7		$	190.1
Unearned premiums / deferred revenues		—			—
Investments		—			—
Net operating and capital loss carryover benefits		1.7			8.6
Other		0.2			(2.0	)
Available-for-sale debt securities		16.2			29.4
Alternative minimum tax credits		1.8			2.0
Subtotal		296.6			228.1
Valuation allowance		(105.4	)		(34.2	)
Total deferred income tax assets, net of valuation allowance		191.2			193.9
Deferred income tax liabilities
Deferred policy acquisition costs		(92.2	)		(110.8	)
Other		(82.8	)		(53.7	)
Gross deferred income tax liabilities		(175.0	)		(164.5	)
Net deferred income tax assets	$	16.2		$	29.4

As of December 31, 2012, we performed our assessment of the realization of deferred tax assets. This assessment included consideration of all available evidence – both positive and negative – weighted to the extent the evidence was objectively verifiable. Due primarily to the existence of significant negative evidence as well as the weight given to the objective nature of the cumulative losses in recent years, and after consideration of all available evidence, we concluded that our estimates of future taxable income, timing of the reversal of existing taxable temporary differences and certain tax planning strategies did not provide sufficient positive evidence to assert that it is more likely than not that certain deferred tax assets would be realizable. To the extent the Company can demonstrate the ability to generate sustained profitability in the future, the valuation allowance could potentially be reversed resulting in a benefit to income tax expense.

As of December 31, 2012, we concluded that our estimates of future taxable income, certain tax planning strategies and other sources of income did not constitute sufficient positive evidence to assert that it is more likely than not that certain deferred tax assets would be realizable. Accordingly, a valuation allowance of $105.4 million has been recorded on net deferred tax assets of $121.6 million. The valuation allowance recorded constitutes a full valuation allowance on the net deferred tax assets that require future taxable income in order to be realized. The remaining deferred tax asset of $16.2 million attributable to available-for-sale debt securities with gross unrealized losses do not require a valuation allowance due to our ability and intent to hold these securities until recovery of fair or principle value through sale or contractual maturity, thereby avoiding the realization of taxable losses. This conclusion is consistent with prior periods. The impact of the valuation allowance on the allocation of tax to the components of the financial statements included an increase of $60.2 million in net loss and an increase of $11.1 million in OCI-related deferred tax balances.

As of December 31, 2012, $1.7 million of capital loss carryover benefits were included in the deferred tax asset.

As of December 31, 2012, we had deferred tax assets of $1.8 million related to alternative minimum tax credit carryovers which do not expire.

The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2011. During 2012, the Company resolved examination issues for tax years 2010 which resulted in adjustments to tax attribute carryforwards. No material unanticipated assessments were incurred, and no adjustment to our liability for uncertain tax positions was required.

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:	2012			2011			2010
($ in millions)				As restated			As restated
				and amended			and amended
Balance, beginning of period		$	—		$	—		$	0.1
Reductions for tax positions of prior years			—			—			(0.1	)
Settlements with taxing authorities			—			—			—
Balance, end of period		$	—		$	—		$	—

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. 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.