INCOME TAXES

As of September 30, 2013, and December 31, 2012, we had no liability for unrecognized tax benefits. Details about our liability for unrecognized tax benefits are found in our 2012 Annual Report on Form 10-K, Item 8, Note 11, Income Taxes, Page 129.

During the third quarter of 2013, we were advised that the congressional Joint Committee on Taxation had completed its review of tax years 2009 and 2010 and agreed with the Internal Revenue Service examination report, which resulted in no material changes to the returns as filed.

On September 13, 2013, the Internal Revenue Service released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code of 1986 (Code), regarding the deduction and capitalization of expenditures related to tangible property. The final regulations replace temporary regulations that were issued in December 2011. Also released were proposed regulations under Section 168 of the Code regarding dispositions of tangible property. These regulations generally apply to taxable years beginning on or after January 1, 2014. Although the final regulations will affect all taxpayers that acquire, produce, or improve tangible property, we do not expect them to have a material impact on our consolidated financial statements.

The differences between the 35 percent statutory income tax rate and our effective income tax rate were as follows:



(Dollars in millions)	Three months ended September 30,										Nine months ended September 30,
	2013					2012					2013					2012
Tax at statutory rate	$	64		35.0	%	$	53		35.0	%	$	191		35.0	%	$	103		35.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(8		)	(4.4	)	(8		)	(5.3	)	(24		)	(4.4	)	(25		)	(8.5	)
Dividend received exclusion	(6		)	(3.3	)	(6		)	(4.0	)	(18		)	(3.3	)	(17		)	(5.8	)
Other	1			0.7		2			1.3		3			0.5		3			1.1
Provision for income taxes	$	51		28.0	%	$	41		27.0	%	$	152		27.8	%	$	64		21.8	%

The change in our effective tax rate was primarily due to changes in pretax income from underwriting results and realized investment gains and losses, compared with unchanged levels of permanent book-tax differences.