Income Taxes

3 Months Ended

Mar. 31, 2020

13. INCOME TAXES

Income Tax Expense



Income Tax Rate Reconciliation
	Three Months Ended March 31,
	2020			2019
Tax provision at U.S. federal statutory rate	$	72		$	163
Tax-exempt interest	(12		)	(15		)
Executive compensation	5			4
Increase in deferred tax valuation allowance	6			—
Stock-based compensation	(1		)	(3		)
Other	1			(4		)
Provision for income taxes	$	71		$	145

Uncertain Tax Positions



Rollforward of Unrecognized Tax Benefits
	Three Months Ended March 31,
	2020		2019
Balance, beginning of period	$	14	$	14
Gross increases - tax positions in prior period	—		—
Gross decreases - tax positions in prior period	—		—
Balance, end of period	$	14	$	14

The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release.

Other Tax Matters

On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax ("AMT") credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property.

The legislation does not have a material impact on the Company due to the lack of taxable income in carryback periods and the

fact that the Company was already expecting to receive a refund or reduction of regular tax payable for all the remaining AMT credits in 2020.

As of March 31, 2020 the Company had remaining AMT credit carryovers of $410 which are reflected as a current income tax receivable within other assets in the accompanying Condensed Consolidated Balance Sheets. In the second quarter of 2020, the Company expects to receive a $205 refund of AMT credits, with the remaining balance of $205 refunded in the second half of the year.

The Company has net operating loss carryforwards in the United States and the United Kingdom for which future tax benefits of $3 and $2, respectively, have been recognized and are included in the Condensed Consolidated Balance Sheet as a component of the net deferred tax asset for the period ended March 31, 2020. The Company also has NOLs of $4 in the U.K. and $6 in other foreign jurisdictions for which a valuation allowance of $10 has been established. This assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions. Apart from the NOLs for which a valuation allowance has been established, the Company projects there will be sufficient future taxable income to fully recover the remainder of the NOL carryovers though the Company's estimate of the likely realization may change over time. The U.S. NOL carryovers, if unused, would expire between 2028 and 2036. The foreign NOLs do not expire.

Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of debt securities with market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset-liability matching. Management views such tax planning strategies as prudent and feasible and would implement them, if necessary, to realize the deferred tax assets.

The federal audits for the Company have been completed through 2013, and the Company is not currently under federal examination for any open years. The statute of limitations is closed through the 2015 tax year with the exception of NOL carryforwards utilized in open tax years. Navigators Group is currently under federal audit for the 2016 year and has completed examinations through 2015. Management believes that adequate provision has been made in the Company's Condensed Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.