Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes [Abstract]

Income Taxes

Note 15― Income Taxes

A. Income Tax Expense

The Company permanently reinvests the undistributed earnings of certain foreign operationsoverseas. As a result, income taxes are provided on theearnings of these operations using the respective foreign jurisdictions' tax rates, as compared to the higher U.S. statutory tax rate. In the first quarter of 2012, the Company began computing income taxesattributable to its China and Indonesia operations using this method.The Company continues to evaluate the permanent reinvestment of earnings for additional foreign jurisdictions.

Shareholders' net income for the three months ended March 31, 2013 increased by $12 million due to the permanent reinvestment of foreign operations earnings, and increased $17 million for the three months ended March 31, 2012thatincluded $13 milliondue to the first quarter implementation for the Company's China and Indonesia operations. The permanent reinvestment of foreign operation earnings has resulted in cumulative unrecognized deferred tax liabilities of $131 million throughMarch 31, 2013.

B. Unrecognized Tax Benefits

Unrecognized tax benefits decreased for the three months ended March 31, 2013 by $4 million, includinga $4 million decrease to shareholders' net income.

The Company has determined it is at least reasonably possible that within the next twelve months there could be a significant change in the level of unrecognized tax benefits, dependent upon the developmentofIRS related matters. Any changes are not expected to have a material impact on shareholders' net income.

C. Other Tax Matters

The Company's long standing dispute with the IRS for tax years 2004 through 2006, regarding the appropriate reserve methodology for certain reinsurance contracts has now been effectively resolved. On February 28, 2013 the United States Tax Court entered its decision on this issue for the 2004 tax year, ordering and deciding that the Company has an overpayment of tax. The Tax Court's opinion for the 2004 year issued on September 13, 2012, referenced an IRS representation that it would not challenge the reserving methodology in future tax years, thereby providing certainty that the Company may continue to use its current reserve methodology prospectively. The Tax Court had entered its decision on this issue for the 2005 and 2006 tax years on January 9, 2013, concludingthat the Company has no tax deficiency.

The IRS continues with its examination of the Company's 2009 and 2010 consolidated federal income tax returns. This review is expected to be completed in 2013, andis not expected to have a material impact on shareholder's net income.

The American Taxpayer Act of 2012 was signed into law on January 2, 2013. This legislation retroactively extended for 2012, as well as for 2013, several otherwise expired corporate tax provisions from which the Company benefits. The Company recorded immaterial tax benefits specific to extension of these provisions for 2012 in the first quarter of 2013.