Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

(10) Income Taxes

The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
Statutory U.S. federal income tax rate		21.0	%		21.0	%		21.0	%		21.0	%
Increase in rate resulting from:
Tax on income from terminated swaps		5.6			2.3			3.6			2.7
Reduction in uncertain tax positions		—			(5.7	)		—			(2.3	)
Non-deductible expenses		1.2			0.4			0.7			0.5
Other, net		0.2			—			0.2			(0.2	)
Effective rate		28.0	%		18.0	%		25.5	%		21.7	%

The effective tax rate for the three and nine months ended September 30, 2022 was above the statutory U.S. federal income tax rate of 21% largely due to tax expense on certain forward starting swap gains that are tax effected at the previously enacted federal income tax rate of 35% as they are amortized into net investment income. The effective tax rate for the three months ended September 30, 2021 was below the statutory U.S. federal income tax rate of 21% primarily attributable to a reduction in uncertain tax positions due to the expiration of certain statute of limitations.

The increase in the effective tax rate for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily attributable to higher tax expense on certain forward starting swap gains in relation to pre-tax income in the current year and a reduction in uncertain tax positions due to the expiration of certain statute of limitations in the prior year that did not recur.

Our ability to realize our deferred tax assets is largely dependent upon generating sufficient taxable income and capital gains in future years. As of September 30, 2022 and December 31, 2021, our tax valuation allowance was $585 million and $382 million, respectively. Given the change in our unrealized gains (losses) on our fixed maturity securities and forward starting swaps in the current year due to rising interest rates and the corresponding reduction in the amount of unrealized capital gains expected to be available in the future to offset our capital loss carryforwards and other capital deferred tax assets, we recorded an additional valuation allowance of $200 million during the nine months ended September 30, 2022, which included $150 million in the third quarter of 2022, through accumulated other comprehensive income (loss) related to capital deferred tax assets.