INCOME TAXES

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax expense for the three months ended March 31, 2023 and 2022 was computed using an estimated annual effective tax rate (“ETR”), with discrete items recognized in the period in which they occur. The estimated ETR is revised, as necessary, at the end of successive interim reporting periods.

During the fourth quarter of 2022, the Company established a valuation allowance of $85 million against its deferred tax assets related to unrealized capital losses in the available for sale securities portfolio. For the three-months ended March 31, 2023, the Company recorded a decrease to the valuation allowance of $16 million due to a decrease in the portfolio’s unrealized capital loss. This adjustment was allocated to other comprehensive income.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company has reassessed its ability to increase its available future liquidity by increasing borrowing capacity and amending certain counterparty agreements. As a result of these actions, the Company now has the ability and intent to hold the underlying securities in its available for sale portfolio to recovery. Based on all available evidence, as of March 31, 2023, the Company concluded the deferred tax assets related to unrealized tax capital losses are more-likely-than-not to be realized and that a valuation allowance is not necessary. The remaining release of the valuation allowance of $69 million was recorded in net income.

The Company uses the aggregate portfolio approach related to the stranded or disproportionate income tax effects in accumulated other comprehensive income related to available for sale securities. Under this approach, the disproportionate tax effect remains intact as long as the investment portfolio remains.