Income Taxes

12 Months Ended

Dec. 31, 2019



Note 15	Income Taxes

The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws or rates are enacted.

Regulatory tax examinations The Internal Revenue Service (“IRS”) is currently examining the Company’s 2015 and 2016 federal income tax returns and is expected to complete its exam by mid-2020. The 2017 and 2018 audit cycle is expected to begin

mid-2020. The 2013 and 2014 federal income tax return audit is complete through the exam phase and the Company has reached a tentative agreement on one outstanding issue, pending final review by the Joint Committee of Taxation expected in 2020. Any adjustments that may result from IRS examinations of the Company’s tax returns are not expected to have a material effect on the consolidated financial statements.

Unrecognized tax benefits The Company recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.



Reconciliation of the change in the amount of unrecognized tax benefits
	For the years ended December 31,
($ in millions)	2019		2018		2017
Balance – beginning of year	$	70	$	55	$	10
Increase for tax positions taken in a prior year	—		3		34
Increase for tax positions taken in the current year	—		12		11
Balance – end of year	$	70	$	70	$	55

The Company believes it is reasonably possible that a decrease of up to $58 million in unrecognized tax benefits may occur within the next twelve months due to IRS settlements.



Components of the deferred income tax assets and liabilities
	As of December 31,
($ in millions)	2019			2018
Deferred tax assets
Unearned premium reserves	$	642		$	594
Pension	197			192
Accrued compensation	147			145
Discount on loss reserves	78			67
Other postretirement benefits	49			45
Net operating loss carryover	26			50
Other assets	54			57
Total deferred tax assets	1,193			1,150
Deferred tax liabilities
DAC	(847		)	(854		)
Unrealized net capital gains	(507		)	(2		)
Investments	(567		)	(278		)
Life and annuity reserves	(222		)	(194		)
Intangible assets	(98		)	(145		)
Other liabilities	(106		)	(102		)
Total deferred tax liabilities	(2,347		)	(1,575		)
Net deferred tax liability	$	(1,154	)	$	(425	)

Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized. As of December 31, 2019, the Company has U.S. federal and foreign net operating loss carryforwards of $93 million and $29 million, respectively.

The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period and made it indefinite for federal net operating losses generated in tax years after December 31, 2017. For such amounts generated prior to 2018, the 20-year carryforward period continues to apply.



Components of the net operating loss carryforwards as of December 31, 2019
($ in millions)	20-Year Carryforward Expires in 2025-2037		Indefinite Carryforward Period		Total
US Federal	$	72	$	21	$	93
Foreign	—		29		29
Total	$	72	$	50	$	122



Components of income tax expense
	For the years ended December 31,
($ in millions)	2019		2018			2017
Current	$	991	$	704		$	1,018
Deferred	251		(236		)	(23		)
Total income tax expense	$	1,242	$	468		$	995

The Company paid income taxes of $648 million, $731 million and $968 million in 2019, 2018 and 2017, respectively.

The Company had a current income tax payable of $124 million and a current tax receivable of $124 million as of December 31, 2019 and 2018, respectively.



Reconciliation of the statutory federal income tax rate to the effective income tax rate
	For the years ended December 31,
($ in millions)	2019					2018					2017
Income before income taxes	$	6,089				$	2,628				$	4,549

Statutory federal income tax rate on income from operations	1,279			21.0	%	552			21.0	%	1,592			35.0	%
Tax credits	(33		)	(0.5	)	(34		)	(1.3	)	(59		)	(1.3	)
Share-based payments	(24		)	(0.4	)	(16		)	(0.6	)	(63		)	(1.4	)
Tax-exempt income	(27		)	(0.4	)	(24		)	(0.9	)	(32		)	(0.7	)
State income taxes	41			0.7		27			1.0		21			0.5
Tax Legislation benefit	—			—		(29		)	(1.1	)	(509		)	(11.2	)
Non-deductible goodwill impairment	—			—		—			—		44			1.0
Other	6			—		(8		)	(0.3	)	1			—
Effective income tax rate on income from operations	$	1,242		20.4	%	$	468		17.8	%	$	995		21.9	%