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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes 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,
20212020
Deferred tax assets:  
Unearned premiums$131 $119 
Loss and loss expense reserves92 81 
Net operating loss on international earnings34 26 
Deferred international earnings31 45 
Other50 41 
Deferred tax assets before valuation allowance338 312 
Valuation allowance for international operations53 56 
Deferred tax assets net of valuation allowance285 256 
Deferred tax liabilities:  
Investment gains and other, net 1,684 1,240 
Deferred acquisition costs155 143 
Life policy reserves116 121 
Investments38 13 
Other36 38 
Total gross deferred tax liabilities2,029 1,555 
Net deferred income tax liability$1,744 $1,299 
 
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 assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance at December 31, 2021 and 2020 for our U.S. domestic operations. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

For financial reporting purposes, income (loss) before income taxes includes the following components:
(Dollars in millions)For the years ended December 31,
202120202019
United States$3,644 $1,521 $2,440 
International26 (22)32 
Total income before income taxes
$3,670 $1,499 $2,472 
The provision for income taxes consists of:
(Dollars in millions)For the years ended December 31,
202120202019
Provision (benefit) for income taxes:
Current – United States federal$248 $147 $137 
            International(1)— (5)
Total current247 147 132 
Deferred – United States federal477 136 338 
                     International— — 5 
Total deferred477 136 343 
Total provision for income taxes$724 $283 $475 

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:
(Dollars in millions)Years ended December 31,
202120202019
Tax at statutory rate:$771 21.0 %$315 21.0 %$519 21.0 %
Increase (decrease) resulting from:     
Tax-exempt income from municipal bonds(20)(0.5)(20)(1.3)(19)(0.8)
Dividend received exclusion(20)(0.5)(17)(1.1)(16)(0.6)
Other(7)(0.3)5 0.3 (9)(0.4)
Provision for income taxes$724 19.7 %$283 18.9 %$475 19.2 %
 
The provision for federal income taxes is based upon the filing of a consolidated income tax return for the company and its domestic subsidiaries within the United States. At December 31, 2021 and 2020 we had no operating or capital loss carryforwards in the United States. As more fully discussed below, Cincinnati Global, has operating loss carryforwards in the United Kingdom.

As more fully discussed in Note 1, Summary of Significant Accounting Policies, the COVID-19 pandemic outbreak began in mid-March 2020. In response to the pandemic, various stimulus legislation was enacted in 2021 and 2020. We have evaluated the pandemic-related legislation enacted in 2021 and 2020 and believe any impact to our financial statements, as a result of such legislation, is immaterial.

Unrecognized Tax Benefits
At December 31, 2021, 2020 and 2019, we had a gross unrecognized tax benefit of $34 million. Additionally, there was no change in the amount for 2021, 2020 or 2019.
The unrecognized tax benefit liability is carried in other liabilities in the consolidated balance sheets. If recognized, the unrecognized tax benefit liability would affect the effective tax rate in the period of the release. Although no interest and penalties currently are accrued, if incurred, they would be recognized as a component of income tax expense. It is reasonably possible that within the next 12 months, our unrecognized tax benefit could change when the IRS completes its examination of the tax year ended December 31, 2018.

The statute of limitations for federal tax purposes has closed for tax years ended December 31, 2016 and earlier. However, as a result of certain net operating loss carryback claims we have filed related to the tax year ended December 31, 2017, the IRS has a limited ability to assess tax for the 2015 tax year. In 2019, the IRS began its examination of the tax year ended December 31, 2017 and they have expanded their scope to include tax year ended December 31, 2018. At this time, no adjustments have been proposed. In addition to our IRS filings, we file income tax returns with immaterial amounts in various state jurisdictions and record these amounts in our provision for income taxes for both current and deferred taxes. The statute of limitations for state income tax purposes has closed for tax years ended December 31, 2017 and earlier.
Cincinnati Global operates in the United Kingdom and as such, is subject to tax in that jurisdiction. The statute of limitations for tax return review by Her Majesty’s Revenue and Customs (HMRC) has closed for tax years ended December 31, 2019 and earlier. There are currently no tax returns under review by HMRC.

Income taxes paid in our consolidated statements of cash flows are shown net of refunds received. We received no refunds in either 2021 or 2020 and $94 million in 2019.

Cincinnati Global
Cincinnati Global's operating results for the year ended December 31, 2021, decreased their net deferred assets by $3 million with an offsetting decrease of $3 million to their valuation allowance. At December 31, 2021, Cincinnati Global had a net deferred tax asset of $53 million and an offsetting valuation allowance of $53 million.

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, we believe it was appropriate to set up a valuation allowance for purposes of our opening Cincinnati Global balance sheet and is appropriate to carry a valuation allowance at December 31, 2021, 2020 and 2019.

The following is a tabular reconciliation of the total amounts of our Cincinnati Global valuation allowance.
(Dollars in millions)Years ended December 31,
202120202019
Valuation allowance, January 1$56 $41 $— 
Acquisition accounting amount— — 55 
Current year operations(3)15 (14)
Valuation allowance, December 31$53 $56 $41 

At December 31, 2021, and 2020, Cincinnati Global had operating loss carryforwards in the United States of $8 million and $26 million and in the United Kingdom of $130 million and $108 million, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States.