Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We file consolidated federal income tax returns that include all of our wholly-owned subsidiaries. Our income tax expense as presented in the consolidated financial statements is summarized as follows:

	Year Ended December 31,
	2022		2021		2020
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	20,209	$	332	$	3,430
Deferred income taxes	304,946		128,423		141,071
Total income tax expense included in consolidated statements of operations	325,155		128,755		144,501
Stockholders' equity:
Expense (benefit) relating to:
Adoption of expected credit loss model	—		—		(2,543)
Change in net unrealized investment losses	(1,067,791)		(90,284)		225,746
Total income tax expense included in consolidated financial statements	$	(742,636)	$	38,471	$	367,704

Income tax expense in the consolidated statements of operations differed from the amount computed at the applicable statutory federal income tax rates of 21% for the years ended December 31, 2022, 2021, and 2020 as follows:

	Year Ended December 31,
	2022			2021			2020
	(Dollars in thousands)
Income before income taxes	$	1,546,457		$	602,747		$	815,961
Income tax expense on income before income taxes	$	324,756		$	126,577		$	171,352
Tax effect of:
State income taxes	2,564			5,239			5,749
Tax exempt net investment income	(4,065)			(4,715)			(4,602)
Tax rate differential on net operating loss carryback	—			—			(30,041)
Other	1,900			1,654			2,043
Income tax expense	$	325,155		$	128,755		$	144,501
Effective tax rate	21.0		%	21.4		%	17.7		%

The effective tax rate for the year ended December 31, 2020 was positively impacted by $30.0 million related to the provision of the CARES ACT which allowed net operating losses for 2018 through 2020 to be carried back to previous tax years in which a 35% statutory tax rate was in effect.

Deferred income tax assets or liabilities are established for temporary differences between the financial reporting amounts and tax bases of assets and liabilities that will result in deductible or taxable amounts, respectively, in future years. The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2022 and 2021, are as follows:

	December 31,
	2022		2021
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	—	$	524,412
Credit losses/impairments	10,531		15,275
Net unrealized losses on available for sale fixed maturity securities	578,476		—
Amounts due reinsurer	1,047,159		745,839
Other policyholder funds	358		3,332
Deferred compensation	3,866		3,434
Share-based compensation	422		5,171
Net operating loss carryforwards	50,913		87,314
Other	71,682		1,140
Gross deferred tax assets	1,763,407		1,385,917
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(655,164)		(1,170,859)
Net unrealized gains on available for sale fixed maturity securities	—		(489,290)
Derivative instruments	(145,785)		(107,717)
Policy benefit reserves	(566,100)		(98,616)
Investment income items	(155,864)		(56,285)
Other	(19,621)		(5,124)
Gross deferred tax liabilities	(1,542,534)		(1,927,891)
Net deferred income tax asset (liability)	$	220,873	$	(541,974)

Included in deferred income taxes is the expected income tax benefit attributable to unrealized losses on available for sale fixed maturity securities. There is no valuation allowance provided for the deferred income tax asset attributable to unrealized losses on available for sale fixed maturity securities. We have the intent and ability to hold these securities to maturity or recovery of value, whichever is sooner. Realization of our deferred income tax assets is more likely than not based on expectations as to our future taxable income and considering all other available evidence, both positive and negative. Therefore, no valuation allowance against deferred income tax assets has been established as of December 31, 2022 and 2021.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2022. Our tax returns are subject to audit by various federal, state and local tax authorities. The Company's income tax returns are subject to examination by the IRS and state tax authorities, generally for three years after they are due or filed, whichever is later. Tax years ended before December 31, 2019 are no longer open to examination by the IRS.

At December 31, 2022 and 2021, we had federal net operating losses of $170.5 million and $419.5 million, respectively, primarily related to a reinsurance transaction that occurred in 2021. The federal net operating losses are carried forward indefinitely. Additionally, at December 31, 2022 and 2021, we had $45.7 million and $0 million, respectively, of capital loss carryforwards for federal income tax purposes that can be carried forward for five years.