Income Taxes

The Company and the majority of its subsidiaries are subject to U.S. tax and file a U.S. consolidated federal income tax return. Information about domestic and foreign pre-tax income as well as current and deferred tax expense follows:



	Years Ended December 31,
	2014		2013		2012
Pre-tax income:
Domestic	$	632,738	$	716,172	$	686,571
Foreign	111,399		73,527		71,180
Total pre-tax income	$	744,137	$	789,699	$	757,751



	Years Ended December 31,
	2014			2013		2012
Current expense:
Federal & state	$	162,483		$	129,204	$	169,394
Foreign	46,593			35,188		33,520
Total current expense	209,076			164,392		202,914
Deferred expense (benefit):
Federal & state	72,645			131,336		71,372
Foreign	(8,491		)	5,064		(240		)
Total deferred expense	64,154			136,400		71,132
Total income tax expense	$	273,230		$	300,792	$	274,046

The provision for foreign taxes includes amounts attributable to income from U.S. possessions that are considered foreign under U.S. tax laws. International operations of the Company are subject to income taxes imposed by the jurisdiction in which they operate.

A reconciliation of the federal income tax rate to the Company’s effective income tax rate follows:



	December 31,
	2014		2013		2012
Federal income tax rate:	35.0	%	35.0	%	35.0	%
Reconciling items:
Tax exempt interest	(1.2	)	(1.0	)	(1.3	)
Dividends received deduction	(0.7	)	(0.7	)	(0.6	)
Foreign earnings (a)	(2.2	)	1.1		0.5
Non deductible compensation	3.8		3.4		1.1
Non deductible health insurer fee	1.1		0		0
IRS audit settlement	(0.3	)	0		1.0
Other	1.2		0.3		0.5
Effective income tax rate:	36.7	%	38.1	%	36.2	%


(a)	Results for all years primarily include tax expense/(benefit) associated with the earnings of certain non-U.S. subsidiaries that are deemed reinvested indefinitely and realization of foreign tax credits for certain other subs. In addition, 2014 reflects a one-time benefit of 2.6% related to the conversion of Canadian branch operations of certain U.S. companies to foreign corporate entities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows:



	Years Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	(10,322	)	$	(11,515	)	$	(17,524	)
Additions based on tax positions related to the current year	(2,940		)	(309		)	(499		)
Reductions based on tax positions related to the current year	581			995			3,124
Additions for tax positions of prior years	(1,037		)	(1,090		)	(20,830		)
Reductions for tax positions of prior years	2,495			959			8,365
Lapses	—			—			374
Settlements	4,961			638			15,475
Balance at end of year	$	(6,262	)	$	(10,322	)	$	(11,515	)

The total unrecognized tax benefit of $7,631, $12,510, and $12,442 for 2014, 2013, and 2012, respectively, which includes interest, would impact the Company’s consolidated effective tax rate if recognized. The liability for unrecognized tax benefits is included in tax payable on the consolidated balance sheets.

The Company’s continuing practice is to recognize interest expense related to income tax matters in income tax expense. During the years ended December 31, 2014, 2013 and 2012, the Company recognized approximately $246, $375 and $1,200, respectively, of interest expense related to income tax matters. The Company had $1,730 and $4,500 of interest accrued as of December 31, 2014 and 2013, respectively. No penalties have been accrued.

The Company and its subsidiaries file income tax returns in the U.S. and various state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2011. Substantially all non-U.S. income tax matters have been concluded for the years through 2008, and all state and local income tax matters have been concluded for the years through 2009.

The tax effects of temporary differences that result in significant deferred tax assets and deferred tax liabilities are as follows:



	December 31,
	2014			2013
Deferred Tax Assets
Policyholder and separate account reserves	$	498,231		$	611,774
Accrued liabilities	23,183			17,791
Investments, net	168,061			119,410
Net operating loss carryforwards	50,103			65,507
Deferred gain on disposal of businesses	35,347			34,833
Compensation related	24,029			21,713
Employee and post-retirement benefits	111,716			81,725
Unearned fee income	55,765			61,121
Other	40,584			44,585
Total deferred tax asset	1,007,019			1,058,459
Less valuation allowance	(18,164		)	(16,474		)
Deferred tax assets, net of valuation allowance	988,855			1,041,985
Deferred Tax Liabilities
Deferred acquisition costs	(867,212		)	(894,921		)
Net unrealized appreciation on securities	(435,375		)	(276,212		)
Total deferred tax liability	(1,302,587		)	(1,171,133		)
Net deferred income tax liability	$	(313,732	)	$	(129,148	)

The net deferred tax liability of $313,732 as of December 31, 2014 is comprised of $341,290 deferred tax liabilities and $27,558 deferred tax assets, by jurisdiction. Similarly, the net deferred tax liability of $129,148 as of December 31, 2013 is comprised of $155,858 deferred tax liabilities and $26,710 deferred tax assets, by jurisdiction.

The Company’s valuation allowance against deferred tax assets increased $1,690 to $18,164 at December 31, 2014 from $16,474 at December 31, 2013. A cumulative valuation allowance of $18,164 has been recorded because it is management’s assessment that it is more likely than not that only $988,855 of deferred tax assets will be realized. The valuation allowance relates to the deferred tax assets attributable to certain international subsidiaries.

The Company’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income of the same character within the carryback or carryforward periods. In assessing future taxable income, the Company considered all sources of taxable income available to realize its deferred tax asset, including the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies. If changes occur in the assumptions underlying the Company’s tax planning strategies or in the scheduling of the reversal of the Company’s deferred tax liabilities, the valuation allowance may need to be adjusted in the future.

Other than for certain wholly owned Canadian subsidiaries, deferred taxes have not been provided on the undistributed earnings of wholly owned foreign subsidiaries since the Company intends to indefinitely reinvest the earnings in these other jurisdictions. The cumulative amount of undistributed earnings for which the Company has not provided deferred income taxes is $162,696. Upon distribution of such earnings in a taxable event, the Company would incur additional U.S. income taxes of $971 net of anticipated foreign tax credits.

At December 31, 2014, the Company and its subsidiaries had $202,099 of net operating loss carryforwards in certain foreign subsidiaries that will expire if unused as follows:



Expiration Year	Amount
2015 – 2019	$	29,438
2020 – 2024	6,074
2025 – 2029	5,791
2030 – 2034	26,217
Unlimited	134,579
	$	202,099