Income Taxes

The significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31 were as follows:



(Dollars in millions)	At December 31,
	2016		2015
Deferred tax assets:
Loss and loss expense reserves	$	199	$	191
Unearned premiums	158		151
Investments	5		25
Other	52		42
Total gross deferred tax assets	414		409
Deferred tax liabilities:
Unrealized investment gains, net	907		719
Deferred acquisition costs	195		187
Life policy reserves	162		137
Other	15		4
Total gross deferred tax liabilities	1,279		1,047
Net deferred income tax liability	$	865	$	638

Deferred tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount recognized for tax purposes.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, we believe it is more likely than not that all of the deferred tax asset will be realized. As a result, we have no valuation allowance as of December 31, 2016 and 2015.

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



(Dollars in millions)	Years ended December 31,
	2016					2015					2014
Tax at statutory rate:	$	284		35.0	%	$	308		35.0	%	$	252		35.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(34		)	(4.2	)	(33		)	(3.7	)	(33		)	(4.6	)
Dividend received exclusion	(33		)	(4.1	)	(32		)	(3.6	)	(29		)	(4.0	)
Other	4			0.5		4			0.3		6			0.8
Provision for income taxes	$	221		27.2	%	$	247		28.0	%	$	196		27.2	%

The provision for federal income taxes is based upon filing a consolidated income tax return for the company and its subsidiaries. As of December 31, 2016, 2015 and 2014, we had no operating or capital loss carryforwards.

Unrecognized Tax Benefits

As a result of positions either taken in our 2013 through 2015 federal tax returns filed with the IRS or expected to be taken in the 2016 filing, we believe it is more likely than not that our tax liability will be sustained upon examination by the IRS. We therefore carry no amount for unrecognized tax benefits for the years ended 2013 through 2016.

The statute of limitations for federal tax purposes has closed for tax years 2012 and earlier. There are no federal returns under examination and we have not been notified of any upcoming IRS examinations.

Income taxes paid in our consolidated statements of cash flows are shown net of refunds received of $2 million in 2016 and an immaterial amount in 2015 and 2014.

In addition to our IRS filings, we file income tax returns with immaterial amounts in various state jurisdictions. The statute of limitations for state income tax purposes has closed for tax years 2012 and earlier. There are no state income returns under examination and we have not been notified of any upcoming state examinations.