Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

12 - Income Taxes

Our provision for income tax consists of the following:

	2011			2010			2009
Current	$	(1,269,775	)	$	757,400		$	3,096,798
Deferred		(5,922,491	)		(2,380,430	)		(1,250,187	)
Federal tax (benefit) provision	$	(7,192,266	)	$	(1,623,030	)	$	1,846,611

Our effective tax rate is different from the amount computed at the statutory federal rate of 35% for 2011, 2010 and 2009. The reasons for such difference and the related tax effects are as follows:

	2011			2010			2009
(Loss) income before income taxes	$	(6,739,313	)	$	9,844,149		$	20,676,689
Computed “expected” taxes		(2,358,760	)		3,445,452			7,236,841
Tax-exempt interest		(6,038,463	)		(6,183,795	)		(6,237,961	)
Dividends received deduction		(32,056	)		(996	)		(17,574	)
Proration		905,326			923,071			934,428
Other, net		331,687			193,238			(69,123	)
Federal income tax (benefit) provision	$	(7,192,266	)	$	(1,623,030	)	$	1,846,611

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are as follows:

	2011			2010
Deferred tax assets:
Unearned premium	$	16,113,291		$	14,826,320
Loss reserves		7,339,644			6,954,685
Net operating loss carryforward		4,473,462			—
Net operating loss carryforward - Le Mars		2,191,532			2,497,122
Alternative minimum tax credit carryforward		4,294,879			4,010,345
Other		634,885			1,508,336
Total gross deferred assets		35,047,693			29,796,808
Less valuation allowance		(440,778	)		(746,368	)
Net deferred tax assets		34,606,915			29,050,440
Deferred tax liabilities:
Deferred policy acquisition costs		12,750,631			13,204,370
Net unrealized gains		11,711,531			3,649,494
Other		225,033			208,407
Total gross deferred tax liabilities		24,687,195			17,062,271
Net deferred tax asset	$	9,919,720		$	11,988,169

We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of the tax asset. At December 31, 2011 and 2010, we established a valuation allowance of $440,778 and $746,368, respectively, related to a portion of the net operating loss carryforward of Le Mars that we acquired on January 1, 2004. We have determined that we are not required to establish a valuation allowance for the other net deferred tax assets of $34.6 million and $29.1 million at December 31, 2011 and 2010, respectively, since it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income, carrybacks to taxable income in prior years and the implementation of tax-planning strategies.

At December 31, 2011, we have a net operating loss carryforward of $12.8 million, which is available to offset our taxable income. This amount will expire in 2031 if not utilized. The net operating loss carryforward of $6.3 million from Le Mars will begin to expire in 2020 if not utilized and is subject to an annual limitation of approximately $376,000. We also have an alternative minimum tax credit carryforward of $4.3 million with an indefinite life.