INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

A summary of the income tax (expense) benefit in the statements of income (loss) follows:

	Year Ended December 31,
	2022		2021		2020
	(in millions)
Income tax (expense) benefit:
Current (expense) benefit	$	—	$	—	$	40
Deferred (expense) benefit	21		24		(11)
Total	$	21	$	24	$	29

The Federal income taxes attributable to operations are different from the amounts determined by multiplying the earnings before income taxes by the expected Federal income tax rate of 21%. The sources of the difference and their tax effects are as follows:

	Year Ended December 31,
	2022		2021		2020
	(in millions)
Expected income tax (expense) benefit	$	23	$	23	$	8
Non-taxable investment income	2		1		1
Valuation allowance	(4)		—		—
Tax settlements/uncertain tax position release	—		—		8
Change in tax law	—		—		12
Income tax (expense) benefit	$	21	$	24	$	29

On March 27 2020, in response to the COVID-19 pandemic, the Coronavirus AID, Relief, and Economic Security (CARES) Act was signed into law. Under the CARES Act, Net Operating Losses arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back five years. The impact on the Company’s financial statement was a tax benefit of $12 million.

During the fourth quarter of 2020, the Company agreed to the Internal Revenue Service’s Revenue Agent’s Report for its consolidated 2010 through 2013 Federal corporate income tax returns. The impact on the Company’s financial statements and unrecognized tax benefits was a tax benefit of $8 million.

The components of the net deferred income taxes are as follows:

	December 31,
	2022				2021
	Assets		Liabilities		Assets		Liabilities
	(in millions)
Net operating loss and credits	$	17	$	—	$	24	$	—
Reserves and reinsurance	258		—		215		—
DAC	—		80		—		74
Unrealized investment gains (losses)	82		—		—		27
Investments	—		132		—		131
Other	16		—		24		—
Valuation allowance	(85)		—		—		—
Total	$	288	$	212	$	263	$	232

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. When assessing recoverability, the Company considers its ability and intent to hold the underlying securities to recovery. The recent increase in interest rates caused the portfolio to swing to an unrealized loss position. Due to the potential need for liquidity in a macro stress environment, the Company does not currently have the intent to hold the underlying securities to recovery. Based on all available evidence, as of December 31, 2022, the Company concluded that a valuation allowance should be established on the deferred tax assets related to unrealized tax capital losses, net of realized capital gains, that are not more-likely-than-not to be realized.

The Company has Federal net operating loss carryforwards of $55 million and $100 million, for the years ending December 31, 2022 and 2021, respectively, which do not expire.

A reconciliation of unrecognized tax benefits (excluding interest and penalties) follows:

	2022		2021		2020
	(in millions)
Balance at January 1,	$	1	$	1	$	4
Additions for tax positions of prior years	—		—		—
Reductions for tax positions of prior years	—		—		(3)
Additions for tax positions of current year	—		—		—
Settlements with tax authorities	—		—		—
Balance at December 31,	$	1	$	1	$	1
Unrecognized tax benefits that, if recognized, would impact the effective rate	$	1	$	1	$	1

    

It is reasonably possible that the total amount of unrecognized tax benefits will change within the next 12 months due to the addition of new issues for open tax years. The possible change in the amount of unrecognized tax benefits cannot be estimated at this time.

As of December 31, 2022, tax years 2014 and subsequent remain subject to examination by the IRS.