15.	Income Taxes:

	The composition of deferred tax assets and liabilities and the related tax effects as of December 31, 2011 and 2010, are as follows (in thousands):

	2011			2010
Deferred tax liabilities:
Deferred policy acquisition costs	$	(8,193	)	$	(7,588	)
Net unrealized holding gain on investments		(5,047	)		(5,767	)
Agency relationship		(104	)		(113	)
Intangible assets		(7,738	)		(8,624	)
Fixed assets		(858	)		(669	)
Other		(400	)		(578	)
Total deferred tax liabilities		(22,340	)		(23,339	)
Deferred tax assets:
Unearned premiums		8,864			8,082
Amortization of non-compete agreements		536			595
Pension liability		1,604			1,090
Net operating loss carry-forward		1,070			889
Unpaid loss and loss adjustment expense		7,699			6,434
Goodwill		93			302
Rent reserve		223			8
Investment impairments		1,254			1,599
Other		563			186
Total deferred tax assets		21,906			19,185

Deferred federal income taxes, net	$	(434	)	$	(4,154	)

A reconciliation of the income tax provisions based on the statutory tax rate to the provision reflected in the consolidated financial statements for the years ended December 31, 2011, 2010 and 2009, is as follows (in thousands):

	2011			2010			2009
Computed expected income tax (benefit) expense at statutory regulatory tax rate	$	(6,888	)	$	2,892		$	11,640
Meals and entertainment		44			17			14
Tax exempt interest		(1,835	)		(1,829	)		(2,157	)
Dividends received deduction		(99	)		(172	)		(253	)
State taxes (net of federal benefit)		84			299			159
Valuation allowance		-			-			(1,213	)
Other		(222	)		(382	)		440
Income tax (benefit) expense	$	(8,916	)	$	825		$	8,630

Current income tax (benefit) expense	$	(6,059	)	$	1,843		$	10,165
Deferred tax benefit		(2,857	)		(1,018	)		(1,535	)
Income tax (benefit) expense	$	(8,916	)	$	825		$	8,630

The deferred tax benefit of $2.9 million includes a benefit of $0.4 million for the reclass from other comprehensive income to operations for the tax benefit of the valuation allowance credit remaining in other comprehensive income after the valuation allowance was fully released in 2009. The tax benefit is reclassed to operations as the securities for which the original valuation allowance in other comprehensive income was established are sold.

The change in deferred federal income taxes, net is comprised of the following: a deferred tax benefit of $2.5 million, a decrease in net unrealized holding gain on investments recorded through accumulated other comprehensive income of $0.7 million, an increase in deferred tax assets acquired as part of the TBIC acquisition of $0.4 million, an increase in deferred tax liabilities related to the correction of an immaterial error on CYR intangibles as discussed in Note 1 of ($0.4) million and an increase in the deferred tax asset related to the minimum pension liability recorded through accumulated other comprehensive income of $0.5 million.

We have available, for federal income tax purposes, unused net operating loss of approximately $3.1 million at December 31, 2011. The losses were acquired as part of the HIC, HCM and TBIC acquisitions and may be used to offset future taxable income. Utilization of the losses is limited under Internal Revenue Code Section 382. The Internal Revenue Code has provided that effective with tax years beginning September 1997, the carry-back and carry-forward periods are 2 years and 20 years, respectively, with respect to newly generated operating losses. The net operating losses will expire, if unused, as follows (in thousands):

Year
2021	$	1,625
2022		878
2028		2
2030		510
2031		42
	$	3,057

We are no longer subject to U.S. federal, state, local or non – U.S. income tax examinations by tax authorities for years prior to 2008.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions at December 31, 2011.