Income Taxes

12 Months Ended

Dec. 31, 2019

Income tax expense (benefit) consists of:



(In thousands)	Current Expense		Deferred Expense (Benefit)			Total
December 31, 2019
Domestic	$	124,231	$	27,616		$	151,847
Foreign	9,030		8,058			17,088
Total expense	$	133,261	$	35,674		$	168,935

December 31, 2018
Domestic	$	188,712	$	(63,134	)	$	125,578
Foreign	13,963		23,487			37,450
Total expense (benefit)	$	202,675	$	(39,647	)	$	163,028

December 31, 2017
Domestic	$	225,694	$	(27,601	)	$	198,093
Foreign	8,803		12,537			21,340
Total expense (benefit)	$	234,497	$	(15,064	)	$	219,433

Income before income taxes from domestic operations was $739 million, $755 million and $797 million for the years ended December 31, 2019, 2018 and 2017, respectively. Income (loss) before income taxes from foreign operations was $114 million, $57 million and $(25) million for the years ended December 31, 2019, 2018 and 2017, respectively.

A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 21% for 2019 and 2018 and 35% for 2017 to pre-tax income are as follows:



(In thousands)	2019			2018			2017
Computed “expected” tax expense	$	179,113		$	170,540		$	270,470
Tax-exempt investment income	(14,666		)	(18,833		)	(37,209		)
Change in valuation allowance	(1,945		)	18,576			11,161
Impact of foreign tax rates	7,700			7,683			3,508
State and local taxes	4,842			3,901			1,644
Impact of change in U.S. tax rate	—			(10,950		)	(30,531		)
Other, net	(6,109		)	(7,889		)	390
Total expense	$	168,935		$	163,028		$	219,433

At December 31, 2019 and 2018, the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:



(In thousands)	2019			2018
Deferred tax asset:
Loss reserve discounting	$	136,100		$	130,513
Unearned premiums	120,246			112,190
Net operating losses	37,147			37,463
Other-than-temporary impairments	8,049			9,910
Employee compensation plans	60,552			56,027
Other	63,633			58,809
Gross deferred tax asset	425,727			404,912
Less valuation allowance	(33,250		)	(35,195		)
Deferred tax asset	392,477			369,717
Deferred tax liability:
Amortization of intangibles	12,832			13,641
Loss reserve discounting - transition rule	29,697			41,088
Deferred policy acquisition costs	103,947			99,293
Unrealized investment gains	93,330			35,430
Property, furniture and equipment	47,082			39,239
Investment funds	73,083			51,712
Other	50,212			53,824
Deferred tax liability	410,183			334,227
Net deferred tax liability (asset)	$	17,706		$	(35,490	)

The Company had a current tax receivable of $13.4 million and $0.7 million at December 31, 2019 and 2018, respectively. At December 31, 2019, the Company had foreign net operating loss carryforwards of $9.0 million that expire beginning in 2027, and an additional $169.0 million that have no expiration date. At December 31, 2019, the Company had a valuation allowance of $33.3 million, as compared to $35.2 million at December 31, 2018. The Company has provided a valuation allowance against the utilization of foreign tax credits and the future net operating loss carryforward benefits of certain foreign operations. The statute of limitations has closed for the Company’s U.S. Federal tax returns through December 31, 2013.

The realization of the deferred tax asset is dependent upon the Company’s ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The U.S. tax law requires insurance reserves to be discounted for tax purposes. The Tax Act modified this computation. At the end of 2018, the IRS issued revised discount factors to be applied to the 2017 reserves. During 2019, the IRS updated the revised discount factors. This modified the increase in the beginning of year 2018 deferred tax asset for loss reserve discounting to $40 million. Under the related transition rule, a deferred tax liability was established which will be included in taxable income over eight years beginning in 2018.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $124 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.