Our Company is subject to the tax laws and regulations of the U.S. and the foreign countries in which it operates. Our Company files a consolidated U.S. Federal tax return, which includes all domestic subsidiaries including the U.K. Branch. The income from the foreign operations is designated as either U.S. connected income or non-U.S. connected income. Lloyd’s is required to pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. Lloyd’s and the Internal Revenue Service (“IRS”) have entered into an agreement whereby the amount of tax due on U.S. connected income is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the corporate member in proportion to its participation in the relevant syndicates. Our Company’s corporate member is subject to this agreement and receives U.K. tax credits in the U.K. for any U.S. income tax incurred up to the U.K. income tax charged on the U.S. connected income. The non-U.S. connected insurance income would generally constitute taxable income under the Subpart F income section of the U.S. Internal Revenue Code (“Subpart F”) since less than 50% of the Syndicate’s premiums are derived within the U.K. and would therefore be subject to U.S. taxation when the Lloyd’s year of account closes. Taxes are accrued at a 21% rate on our Company’s foreign source insurance income and foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Our Company’s effective tax rate for the Syndicate taxable income could substantially exceed 21% to the extent our Company is unable to offset U.S. taxes paid under Subpart F tax regulations with U.K. tax credits on future underwriting year distributions. Our Company’s undistributed foreign earnings are intended to be permanently reinvested. As a result of the Tax Act’s one-time Transition Tax on the earnings of foreign subsidiaries, our Company determined the unrecognized deferred tax liability attributable to indefinitely reinvested earnings to be immaterial as of December 31, 2018.

On December 22, 2017, the Tax Act was enacted into law and the new legislation contained several key tax provisions that affect us, including the Transition Tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. Due to the timing and significance of the Tax Act, in December 2017 the SEC staff issued SAB 118, Income Tax Accounting Implications of the Tax Act, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2017, we made a reasonable estimate of the Tax Act effects on our deferred tax balances and recognized provisional tax amounts of $2.6 million related to the Transition Tax. The final determination of the Transition Tax and the remeasurement of our net deferred tax assets was completed by the fourth quarter of 2018, in accordance with SAB 118. This resulted in a reduction of $1.3 million of Transition Tax, which was calculated and recognized in the third quarter of 2018 and confirmed under final review in the fourth quarter. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018.

The components of current and deferred income tax expense (benefit) are as follows:

	Years Ended December 31,
amounts in thousands	2018			2017			2016
Current Income Tax Expense (Benefit):
Federal and Foreign	$	27,768		$	42,427		$	39,900
State and Local		934			764			638
Subtotal	$	28,702		$	43,191		$	40,538
Deferred Income Tax Expense (Benefit):
Federal and Foreign	$	(14,366	)	$	(8,879	)	$	(5,755	)
State and local		—			—			—
Subtotal	$	(14,366	)	$	(8,879	)	$	(5,755	)
Total Income Tax Expense (Benefit)	$	14,336		$	34,312		$	34,783

A reconciliation of total income taxes applicable to pre‑tax operating income and the amounts computed by applying the federal statutory income tax rate to the pre‑tax operating income were as follows:

	Years Ended December 31,
amounts in thousands	2018					2017					2016
Computed Expected Tax Expense	$	10,201		21.0	%	$	26,182		35.0	%	$	41,128			35.0	%
Tax-Exempt Interest		(3,356	)	(6.9	%)		(5,394	)	(7.2	%)		(4,559	)		(3.9	%)
Dividends Received Deduction		(2,041	)	(4.2	%)		(4,689	)	(6.3	%)		(3,812	)		(3.2	%)
Proration of DRD and Tax-Exempt Interest		1,330		2.7	%		1,512		2.0	%		1,256			1.1	%
State and Local Income Taxes, Net of Federal Income Tax Deduction		738		1.5	%		497		0.7	%		415			0.4	%
Stock Compensation Fair Market Value		(1,711	)	(3.5	%)		(5,027	)	(6.7	%)	N/A			N/A
Change in Valuation Allowance		(774	)	(1.6	%)		1,182		1.6	%		—			—
Deferred Tax Expense due to Tax Law Changes		(506	)	(1.0	%)		17,107		22.9	%	N/A			N/A
Transition Tax		(1,314	)	(2.7	%)		2,587		3.5	%	N/A			N/A
Uncertain Tax Position - FTC IRS Audit		7,029		14.5	%		—		—			—			—
Non-Deductible Expenses		1,197		2.5	%		405		0.5	%		406			0.2	%
Return to Provision		2,326		4.8	%		(158	)	(0.2	%)		1			0.0	%
Other		1,217		2.4	%		108		0.1	%		(52	)		0.0	%
Actual Tax Expense and Rate	$	14,336		29.5	%	$	34,312		45.9	%	$	34,783			29.6	%

N/A - Not applicable

The tax effects of cumulative temporary differences that give rise to federal, foreign, state and local deferred tax assets and deferred tax liabilities were as follows:

	December 31,
amounts in thousands	2018			2017
Deferred Tax Assets:
Loss Reserve Discount	$	26,468		$	20,425
Unearned Premiums		29,500			24,352
Compensation Related		9,433			8,462
Lloyd's Year of Account Deferral		12,623			9,400
State and Local		3,551			616
Net Currency Translation Adjustments		299			2,084
Net Unrealized Losses on Securities		11,553			—
Other		3,598			152
Total Gross Deferred Tax Assets	$	97,025		$	65,491
Less: Valuation Allowance		(4,367	)		(1,798	)
Total Deferred Tax Assets	$	92,658		$	63,693
Deferred Tax Liabilities:
Loss Reserve Discount - Transition Rule	$	(7,570	)	$	(5,066	)
Net Unrealized Gains on Securities		—			(8,708	)
Deferred Acquisition Costs		(25,109	)		(20,670	)
Claims Equalization Reserve		(7,913	)		—
Net Unrealized Foreign Exchange		(3,769	)		(3,782	)
Intangibles		(3,438	)		—
Other		(2,562	)		(3,196	)
Total Deferred Tax Liabilities	$	(50,361	)	$	(41,422	)
Net Deferred Income Tax Asset	$	42,297		$	22,271

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, tax planning strategies and anticipated future taxable income in making this assessment. As of December 31, 2018, management believes it is more likely than not that our Company will realize the benefits of its deferred tax assets, net of any valuation allowance.

Our Company had state and local deferred tax assets of $3.6 million and $0.6 million as of December 31, 2018 and 2017, respectively. Included in the deferred tax assets are minimal state and local net operating loss carry-forwards. A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization. Our Company also recorded a net valuation allowance decrease of $0.8 million related to our foreign operations, of which a decrease of $1.2 million relates to the U.K. Based upon a review of the Company’s anticipated future taxable income, and also including all other available evidence, both positive and negative, particularly around strategic shifts in business written, the Company’s management concluded that it is more likely than not that the U.K deferred tax asset will be realized.

The Company is currently under examination by the IRS for tax years 2014, 2015, and 2016 with tax years prior to 2014 being closed. In addition, our Company is generally subject to state, local or foreign tax examinations by tax authorities for open tax years in the respective jurisdictions. In the U.K, the Company is no longer subject to income tax examinations for years prior to 2016.

Unrecognized tax benefits are differences between tax positions taken in the tax returns and tax benefits or expenses recognized in the financial statements. In connection with the IRS audit, the Company conducted a comprehensive review of all foreign taxes supporting tax return positions, and has estimated $6.4 million of unrecognized tax benefits and $0.9 million of related interest ($0.6 million net of tax) and no penalties for the year ended December 31, 2018.

It is reasonable to expect the IRS audit to be concluded within the next twelve months, which may result in a change in unrecognized tax benefits. We do not expect future audit adjustments or changes in unrecognized tax benefits to have a significant impact on our financial statements.

Our Company policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. Gross interest was accrued and reported as follows: