Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:

(Dollars in millions)	Three months ended March 31,
	2023				2022
Tax at statutory rate:	$	56	21.0	%	$	(74)	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(5)		(1.9)		(5)		1.4
Dividend received exclusion	(5)		(1.9)		(5)		1.4
Other	(3)		(1.2)		(1)		0.4
Provision (benefit) for income taxes	$	43	16.0	%	$	(85)	24.2	%

The provision (benefit) for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries.

We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, 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 for our U.S. domestic operations at March 31, 2023, and December 31, 2022. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global Underwriting Ltd.SM (Cincinnati Global).

Cincinnati Global

As a result of operations for the three months ended March 31, 2023, Cincinnati Global decreased its net deferred tax assets by $5 million with an offsetting decrease of $5 million to the valuation allowance. Cincinnati Global had a net deferred tax asset of $26 million and an offsetting valuation allowance of $26 million at March 31, 2023.

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 continue to believe it is appropriate to carry a valuation allowance at March 31, 2023.

Cincinnati Global had operating loss carryforwards in the United States of $6 million and $5 million and in the United Kingdom of $105 million and $109 million at March 31, 2023, and December 31, 2022, 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.