INCOME TAXES

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. The effective income tax rate was (15.0)% and 34.4% for the three months ended June 30, 2021 and 2020, respectively. The effective income tax rate was (2.5)% and 36.6% for the six months ended June 30, 2021 and 2020, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% are driven by state income taxes, changes in valuation allowance and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction and executive compensation.

The application of GAAP requires us to evaluate the recoverability of our net deferred income tax assets, including those associated with net operating loss ("NOL") carryforwards, and establish a valuation allowance, if necessary, to reduce our deferred income tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred income tax assets and liabilities; taxable income in prior carryback years, if any; future reversals of existing temporary differences; the length of time carryovers can be utilized; and any tax planning strategies we would employ to avoid a tax benefit from expiring unused. Realization is never assured and based on available information, including the financial performance of the Company during the second quarter of 2021 and the inherent difficulty, as a catastrophe exposed entity, of forecasting the timing of recovery of our NOL carryforwards to the level of assurance required by GAAP, we determined that it was more likely than not that the net deferred income tax asset would not be realized. Therefore, during the first six months of 2021, we established an income tax valuation allowance of $17.7 million with a corresponding charge to income of $16.2 million and a decrease of $1.5 million to accumulated other comprehensive income (loss).

The Company had an uncertain tax position of $0.2 million and $0.2 million as of June 30, 2021 and December 31, 2020, respectively. The Company has a valuation allowance of $20.7 million and $3.0 million on its deferred income tax asset as of June 30, 2021 and December 31, 2020, respectively.

We recognize accrued interest and penalties related to unrecognized tax benefits in the consolidated statements of operations and statements of comprehensive income (loss). For the three and six months ended June 30, 2021 and 2020, the Company recognized no benefit related to an uncertain tax position and our associated accrued interest and penalties was less than $0.1 million.