Income Taxes

12 Months Ended

Dec. 31, 2020

Income tax expense (benefit) consists of:


(In thousands)	Current Expense		Deferred Expense (Benefit)		Total
December 31, 2020
Domestic	$	162,305	$	17	$	162,322
Foreign	23,375		(13,880)		9,495
Total expense (benefit)	$	185,680	$	(13,863)	$	171,817

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

Income before income taxes from domestic operations was $831 million, $739 million and $755 million for the years ended December 31, 2020, 2019 and 2018, respectively. (Loss) income before income taxes from foreign operations was ($126) million, $114 million and $57 million for the years ended December 31, 2020, 2019 and 2018, respectively.

A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 21% for 2020, 2019 and 2018 to pre-tax income are as follows:


(In thousands)	2020		2019		2018
Computed “expected” tax expense	$	148,008	$	179,113	$	170,540
Tax-exempt investment income	(12,770)		(14,666)		(18,833)
Change in valuation allowance	46,238		(1,945)		18,576
Impact of foreign tax rates	6,753		7,700		7,683
State and local taxes	2,561		4,842		3,901
Impact of change in U.S. tax rate	—		—		(10,950)
Other, net	(18,973)		(6,109)		(7,889)
Total expense	$	171,817	$	168,935	$	163,028

At December 31, 2020 and 2019, 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)	2020		2019
Deferred tax asset:
Loss reserve discounting	$	141,877	$	136,100
Unearned premiums	134,971		120,246
Net operating losses	64,494		37,147
Other-than-temporary impairments	5,973		8,049
Employee compensation plans	60,551		60,552
Other	85,327		63,633
Gross deferred tax asset	493,193		425,727
Less valuation allowance	(79,488)		(33,250)
Deferred tax asset	413,705		392,477
Deferred tax liability:
Amortization of intangibles	12,761		12,832
Loss reserve discounting - transition rule	24,747		29,697
Deferred policy acquisition costs	113,084		103,947
Unrealized investment gains	100,241		93,330
Property, furniture and equipment	48,235		47,082
Investment funds	64,944		73,083
Other	62,809		50,212
Deferred tax liability	426,821		410,183
Net deferred tax liability	$	13,116	$	17,706

The Company had a current tax net payable of $35.4 million and net receivable of $13.4 million at December 31, 2020 and 2019, respectively. At December 31, 2020, the Company had foreign net operating loss carryforwards of $7.7 million that expire beginning in 2027, and an additional $305.4 million that have no expiration date. At December 31, 2020, the Company had a valuation allowance of $79.5 million, as compared to $33.3 million at December 31, 2019. 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 for the Company’s U.S. Federal tax returns has closed for calendar year 2016 and all years 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. The IRS issued revised discount factors to be applied to the 2017 reserves, which increased the beginning of year 2018 deferred tax asset for loss reserve discounting. Under the related transition rule, a deferred tax liability was established which will be included in taxable income over the eight year period that began in 2018.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $111 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.